A holiday stunted end to the past week saw the untested extension of otherwise dubious trends from US equities to Dollar slide to crude's extension. Is technical progression well founded enough to carry trends through the new week when liquidity returns?
Talking Points:
- The Dollar extended its decline through week's end with uneven conviction, but perhaps Yellen and the PCE will provide a track
- US indices hit record highs through the close of a quiet session while the VIX hit an intraday record low
- Conviction is necessary to keep high profile moves like those from EUR/USD, S&P 500, Crude and Bitcoin running
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Some very familiar trends were extended through the close of the trading week. Despite the confluence of systemic illiquidity and the sessional holiday activity lull, the S&P 500 led 'risk trends' to fresh record highs. The US equity indices were indeed marking record highs but the already lackluster pace downshifted to an extremely tepid clip through Friday's session. Besides the small change and full session ranges for these benchmarks, we would further see global stocks were a mixed bag; emerging markets slipped and global 'junk' assets were struggling. It is better to wait until next week when markets fill back out to gauge conviction. And, as we await the tide rolling back in, it will be worthwhile to remember that speculative appetites long ago detached from traditional fundamental measures and to note that the VIX hit an intraday low through Friday to point a fine point of the extreme conditions that index has tracked this year.
In the FX market, the strength of trends was also a dubious measure. The Dollar did extend its decline through the trade-weighted DXY Index with a very prominent EUR/USD climb to back the move up. A GBP/USD test of its upper range boundary from the past few months and USD/CHF's productive reversal were weak reinforcement for conviction. If we looked to those pairs were a Dollar slide would be more fundamentally and technically appealing, traction was nowhere to be found. I am particularly partial to USD/JPY's range reversal, but the pair instead bounced despite the Dollar and 'risk' trends. Among the carry set, USD/CAD wouldn't facilitate its next level technical break and the early reversal readings from AUD/USD and NZD/USD offered little foothold for progress. Keep an eye out for various themes and their influence on the Dollar next week with risk trends and monetary policy (Yellen testimony and PCE inflation) particularly high on the list. The Euro was another oddity when evaluated for its drive. A wide rally from the currency undermined technical opportunities from EUR/USD to EUR/JPY to EUR/AUD. And yet, the news was unconvincing between the ECB minutes and Germany's political stability.
Other currencies with more potential next week will include the British Pound constantly dealing with Brexit developments. For concentrated event risk potential, the Canadian Dollar will have a remarkable confluence of November employment change and 3Q GDP - though that will be at the end of the week, which can disrupt more than promote a trend. Alternatively, the Yen pairs have great technical appeal but we cannot rely on the docket - even the combo of inflation, employment and business health - to provide a clear break and trend. That is likely to depend on a meaningful risk trend move. In other assets, Oil ended this past week to an extension to fresh two-and-a-half year highs though the OPEC meeting ahead and Keystone pipeline supply constraints are not likely as meaningful as many are billing in this move. And, for the assets billed as alternatives to traditional assets - Bitcoin and Gold whether correctly labeled or not - we had a dramatic divergence in performance. Gold is carving out its smallest range in a decade while Bitcoin and Ethereum scaled record highs into the week's close. We discuss all of this and what is most important ahead in today's Trading Video.
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