e-mini S&P 500 futures "should" test 2026ish technical support next
Overnight volatility blamed on a surprise Australian interest rate cut, and weak data in China but...
Most business news stations were attributing the overnight selling in U.S. stock index futures to weak economic data in China, and an unexpected rate hike by central bankers in Australia. However, the Asian markets traded mostly higher on the news because they've fallen into the "bad news is good news" trap (weak data increases the odds of more stimulus). Further, lower rates in Australia should be a positive for the global markets overall.
We think a better explanation for the selling was the sharp move in the currency markets. The dollar index plunged well below 93.00, while the euro soared above $1.16. These are both major milestones, which were passed in volatile trade. Thus, we believe despite the fact that a weaker dollar will boost corporate earnings, the uncertainty of volatile currency trading prompted selling in U.S. and European equities.
Ironically, the seasonal low for the dollar and peak for the euro is due this week...so perhaps the currency markets are in the process of reversing course in the short-run. In short, last night's "break-out" might turn into a trap.