S&P500, USD/JPY, EUR/USD: Triple Witching Hangover - BofA Merrill
The evidence is weighing against risk assets this week, says Bank of America Merrill Lynch.
"Specifically, the week after September Triple Witching (which occurred Friday and is the term used to describe the quarterly expiry of US equity index futures, options on equity index futures and equity options) is consistently one of the poorest of the year for the S&P500. In the 32 years since the creation of equity index futures, the S&P500 has fallen 69% of the time. More recently, it has fallen in 10 of the past 12 years. Now, with the S&P500 at risk of completing a bearish reversal formation in daily candlesticks, the evidence is increasing," BofA clarifies.
2."However, S&P500 weakness should be seen as temporary. Indeed, even a break of the 50d at 1976 would not damage the larger bull trend, although it would expose channel support at 1940," BofA argues.
An environment of risk asset / US equity weakness and Treasury price strength, according to BofA, should lead to a bounce in the Japanese Yen, particularly as USD/JPY has stalled against 12-year trendline resistance at 109.27.
"However, USD/JPY weakness must be seen as corrective and not break 107.55/50 before the larger uptrend resumes for 110.67 and beyond," BofA projects.
3."Finally, EUR/USD is fast approaching the confluence of support between 1.2787 and 1.2694, from which temporary signs of basing should emerge," BofA adds.
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