A few soft days and the bears clamor for P3 down or the end of a large Ending Diagonal. Instead I am watching the AUD. An interesting correlation since the Global Financial Crisis has been AUD and the S&P.
The rationale for the correlation is the Global Scramble for Yield that I first mentioned almost a decade ago - in a low return enviroment money mangers scramble anywhere they can for smidgeons of yield. The Greenspan Put exacerbated this, and so too the Bernank's QE.
The more specific correlation is that QE drives up commodities, something also predicted here, and therefore commodity currencies like the AUD. Australia, however, is now in a bind, as its currency is over-valued for its value-added industries, and its mining exports are suffering due to the Chinese slowdown that may yet turn into a hard landing. Indeed, the AUD correlation broke over the past nine months as China began to slow:
Some traders also watch the AUDJPY corelation, which also broke down.
The bind puts pressure on the RBA to lower rates, to weaken the AUD and support the slowing failing housing sector.