* Divergences continue in risk sentiment indicators
* Important price levels to watch
* EUR fails to follow risk trades as quantitative easing looms
* Key data and events to watch next week
The great debate continues: Have we hit bottom in stocks and risk sentiment, or is this just another bear market rally? Currencies continue to give off mixed signals, but largely FX and gold are not buying into the notion that the worst is over. Despite stocks gaining further ground, which recently has been correlated to USD weakness, the USD index posted a solid gain for the week. In technical terms, it posted a bullish engulfing line on weekly candles and rose above the daily Tenkan line, suggesting further gains may lie ahead. But the USD index is heavily weighted toward Europe (77.3%), and USD index strength may just be a reflection of increasing EUR negatives (see below). More broadly, this past week saw general erosion in the G3 currencies (US, Europe/UK, and Japan) against all others. That weakness in turn belies the ongoing nature of the contraction in the leading consumption economies, which quite simply keeps the global trajectory pointed lower. As for gold, price fell sharply over most of March and early April as stocks rose, which is what the risk aversion correlation would suggest. But gold stabilized and recovered in this past week, even as stocks, and ostensibly sentiment, gained further ground. Full text »
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