Well, it took a bit longer than we thought, but the US Dollar Index has broken major support.  Two downside targets are highlighted below that each contain long term pivot and Fibonacci support.  With the ES close to entering the 1127 to 1147 range from January, any further downside in the Dollar would help equities power through resistance. 

Click for larger image.

11:12 am EDT:  After several attempts, the ES finally broke through 1122.75 resistance and is heading to the next resistance level of 1126.00 to 1127.00, which includes day-session-only R2 and the upper end of the volume gap.  Above lie major resistance from weekly R2 at 1128.50, day-session-only R3 at 1129.25 and monthly R1 at 1130.50.  Although the projected range was broken, it took a while and low relative volume does not suggest there will be a trend day.  This implies that there should be a shorting opportunity somewhere between 1126.00 and 1130.50; however, we cannot project exactly where ahead of time and would need to rely on price action.  As always, fading a move outside the projected range is aggressive and requires experience to execute.

The Precise Take – Markets looking to consolidate ahead of Employment Situation

Leaders Analysis:  The EuroYen is on the verge of breaking to the upside after basing for several days.  Gold closed over its 50% retracement of its down leg and is up nominally overnight.  The 30 Year T-Bond yield is still hugging its long term trendline support, but has been spending more time below it than above, thus not confirming the other leaders.  The US Dollar Index is at the bottom of its trading range, which could be equities bearish, because it has rallied the prior times it hit this support level.  However, and very importantly, it is below its 20 day moving average, which has acted as strong support since the January 20, 2010 breakout.  A close below should finally facilitate a larger retracement downwards and help equities break through resistance.  If it closes above, it could move up to the upper end of its range again, which would probably be concurrent with a correction in equities.   For today, the leaders are slightly equities bullish.

Medium Term Analysis:  Today should be relatively quiet, but the action will pick up a bit tomorrow and get going Friday with the Employment Situation.  An expected poor headline statistic due to the harsh winter is now being widely discussed.  Regardless, poor readings that cause equities to gap down tend to get reversed intraday, and vice versa for good readings that cause gap ups.  Next week will be relatively quiet with some long term Treasury auctions, then Retail Sales on Friday.  Lack of news after Friday could cause some back and fill in equities if they have not cleared major resistance.  For now, that number is…

Continue reading here.