U.S. stock exchange traded funds are churning higher, closing last week’s holiday-shortened trading with the S&P 500 above the 200-day moving average that we have repeatedly spoken about in these recaps over the past several months.

Since last October however, the SPX has exhibited very little “staying power” above its 200-day (which is currently 1258.54) so we will closely monitor activity this week for signs of a continuation of the recent rally. On this note, we do point out that small caps, despite recent impressive relative out-performance to large caps, have had trouble vaulting higher and piercing the 200-day moving average with any conviction as iShares Russell 2000 (NYSEArca: IWM) has remained in a tight channel for the past several weeks. [Small-Cap ETFs Underperform]

Despite the shortened week, volumes were relatively healthy in the marketplace compared to the doldrums of the past several weeks that occurred likely due to the holidays, and we did see some heavier volumes in select areas of the ETF marketplace that indicate that institutions are playing a more active role in re-balancing portfolios in this new year.

The VIX continued to head south as well, finishing the week with a 20 handle as investors seem to be shrugging off “macro” type effects in the marketplace that previously caused equities to suffer “shock” sell-offs. One example of this decoupling can be found in the euro, which traded at its lowest levels since the fall of 2010 on Friday, but this largely had little effect on the performance of equities.

Throughout the past summer, equities moved basically in tandem with the euro, to the downside as well as the upside as the currency ebbed and flowed (and the U.S. dollar generally does the opposite of what the euro does) with the latest headlines coming out in regards to the ongoing debt crisis, and the correlation was quite remarkable and well noted for months on end.

Equity bulls must certainly feel encouraged by the fact that equities can retain their recent strength and completely detach themselves from their “bondage” to the swoon of the euro.

We have noted for several months the presence of bearish order flow in CurrencyShares Euro Trust (NYSEArca: FXE) in terms of redemption activity, as well as outright put buying in FXE, coupled with call buyers in PowerShares US Dollar Index Bullish (NYSEArca: UUP) as well as ProShares UltraShort Euro (NYSEArca: EUO), so it is not terribly surprising to us to see this weakness finally playing out, and in a big way. [Dollar, Euro Currency ETFs]

For the week in terms of fund flows, SPDR S&P 500 (NYSEArca: SPY) hauled in well over $2 billion in new assets, and iShares MSCI EAFE (NYSEArca: EFA) pulled in over $300 million itself which is surely encouraging to those watching the large caps in both the U.S. as well as the Asia, Europe, and Pacific markets.

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