From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
At the beginning of the month, we pointed out the disconnect between risk assets and the currency market.
Stocks up and down the cap scale were breaking out to new highs and energy futures were resolving higher from multi-year bases — all while emerging-market and commodity-centric currencies approached year-to-date lows.
Something wasn’t right.
We’d expect these risk-on currencies to catch higher given their strong correlation with other risk assets. But this hasn’t been the case. In fact, seeing as currency markets had been out of sync with other asset classes for months, we really didn’t want to overthink this development.
But what appeared to be another mixed intermarket signal proved a valuable warning.
Fast-forward to today and the weakness that was evident among emerging-market currencies is spreading to stocks and commodities. Small-caps and crude oil are retesting critical breakout levels, and cyclical stocks are failing to sustain their recent moves.
In today’s post, we’re going to check back in on the Emerging Currency ETF $CEW and highlight a trading opportunity in the forex market.
Let’s dive in!