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Summary:

S&P uptrend intact. Looking for S&P to either trend sideways, or higher to re-test 1150
USD still in consolidation but still looking bullish.
Euro still under pressure - Greece to retake center stage over the next couple of weeks.
GPB remains very bearish as economic fears plague the UK.

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Despite being a day short, last week delivered both price movement and exciting economic developments. The strong inverse correlation which dominated the USD and the S&P for much of 2009 continued to deteriorate. The S&P posted a second week of gains as the dollar index (DXY) remained virtually unchanged for the past two weeks.

Minutes from the Fed's January meeting released on Tuesday revealed an increased willingness from the Fed to withdraw emergency liquidity facilities it had put in place to combat the credit crisis. Initial market reaction to the report was muted both in equity and currency markets. However, on Thursday, after New York's market close, the Fed announced it was raising its discount rate (the rate it charges banks for emergency loans) by 25bps to 0.75%. Actions speak louder than words and the Fed's announcement sent the dollar spiking against its major counterparts.

A shot across the bow?
The Fed's announcement sparked a heated debate among market pundits. In the first camp were those who considered the move a serious warning for things to come, i.e. further tightening, imminent rate hikes. On the opposing camp were those who considered the move merely "technical" in nature and not a precursor for any rate hikes in the the near future. As always, the truth is probably a shade of gray somewhere in between. For the Fed, this was a perfect opportunity to make a small step toward normalization and, at the same time, test the market's reaction to the notion of monetary tightening.

Immediately following the Fed's announcement on Thursday afternoon, stocks receded in after-hour trading and the dollar spiked. By Friday's open, however, the market, in a vote of confidence, faded the news to close higher. In final judgment the news was taken as a positive: things are getting good enough to withdraw emergency measures and at the same time, loose monetary policy will remain in place to protect the fragile recovery.

USD - a Golden Cross
With little fanfare, dollar bulls marked a major milestone this week as the DXY's 50 day moving averge crossed over its 200 moving average. Dubbed by traders the "golden cross", the moving averages cross over is largely viewed as a confirmation of a strong uptrend. The DXY is still in consolidation territory, we can expect it to fluctuate around its current price and/or test support around 79.60-79.00. In the long run we should expect to see it trade higher.

S&P500 - Another swing at 1150?
As mentioned last week the S&P's uptrend is still intact. In fact, the stock market's reaction to a mixed bag of news and its reaction to the Fed's discount rate decision were quite bullish. Let's assume for a minute that the market's correction bottomed on Feb 05. This would be a decline of about 9% from the 1150 high, and about a 20% retracement of the move up from the March 09 lows. If this is the case we can expect to see the S&P to trend higher to re-test 1150. The weekly chart looks fairly bullish. It shows the recent correction only managed to pull the RSI to the 50 level but not below.

Euro - Downward Pressure Remains
The Greek saga did not dominate the headlines last week but make no mistake - the story is far from over and Greece is still a ticking debt bomb. The panic surrounding Greece might have eased a bit. However Greece is likely to return to the spotlight in the very near future as the country struggles to restructure its debt without explicit EU bailout. Tensions between Greece and EU leaders exposed the worrisome reality of convoluted European politics. Fears of contagion are also almost certain to take center stage if the situation in Greece continues to deteriorate.

British Pound
While Greece and the Euro have taken center stage, the GBP's decline almost went unnoticed. UK's economy is plagued with so many ills we hear about daily: mounting public debt, debased currency thanks to a "generous" QE policy, contracting business lending, and political uncertainty. As a result, the pound was punished so severely, it even retreated against the beleaguered euro!

Introducing: Commitment of Traders Reports (COT)
I am so excited this week to start covering the COT reports. This is something I have been wanting to do for while. But finding the right graphical format of the reports was not easy. There are plenty of free sights that let you graph the COT reports but I could find none that let you graph the reports as a histogram. Finally, I decided to take matters into my own hands. I downloaded the COT reports from the CFTC's site and produced my own graphs.

What we will mainly be following is the net positions of the "non-commercials" who are the big speculators (aka "smart money") vs the net positions of the non-reportable who are the small traders, often referred to as dumb money. For the most part, we will ignore the "commercial" segment of the reports.

S&P 500 COT
The S&P 500 e-mini futures COT report paints a bullish picture, supporting our initial analysis. It shows big investors are increasing long bets on the markets.