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Risk FX Souring Quickly Ahead of Key US Data, Fed Speakers

Risk FX Souring Quickly Ahead of Key US Data, Fed Speakers

2016-05-03 11:43:00
Christopher Vecchio, CFA, Senior Strategist
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Talking Points:

- EUR/USD off to the races - doubtful ECB stays quiet for long.

- EUR & JPY moves with AUD & GBP lower looks like trouble.

- Higher volatility in FX markets should have implications for your trading strategies.

Ahead of the US cash equity open on Tuesday, risk assets around the world are taking a dive lower: equities in Asia and Europe; US equity futures; energy commodities and precious metals; and higher yielding FX currencies.

Of particular note, the components of the USDOLLAR Index are diverging in a manner highlighting the risk-off nature of the market: the Euro and the Japanese Yen have gained; the British Pound has reversed its gains, with GBP/USD working on a hanging man candlestick; and the Australian Dollar has slid sharply after the RBA's rate cut, with AUD/USD working on a bearish outside engulfing bar.

The real question is: does any of the price action at the beginning of this week actually matter? That's a difficult question to pose during a time of heightened market stress - almost indicating that I'm ignoring incoming information while holding out for a rosier outcome. Yet my doubt lies not in my book, but rather in the upcoming slate of events on the economic calendar.

While today is somewhat quiet - there are two Fed speakers today, Mester and Lockhart - the calendar picks up in a major way from Wednesday through Friday that could easily shake out current market positioning. Tomorrow, for example, will reveal secondary labor market indicators like the ADP Employment Change report and the ISM Services Employment sub-index, which have predictive implications for Friday's April US Nonfarm Payrolls report.

It's not difficult to imagine a slew of data and Fed speakers the next few days that culminates with market participants becoming overly concerned about the Federal Reserve hiking rates in June. By dragging forward rate expectations and pushing up pressure on the US Dollar, the Fed could be threatening to hike rates just as market sentiment has started to sour. Déjà vu?

See the above video for technical considerations in EUR/USD, USD/JPY, Gold, Silver, Crude Oil, the US S&P500, and the USDOLLAR Index.

Read more: USDOLLAR at Support as Euro, Yen, and Gold Prices Near Major Levels

If you haven't yet, read the Q2'16 Euro Forecast, "EUR/USD Stuck in No-Man’s Land Headed into Q2’16; Don’t Discount ’Brexit’," as well as the rest of all of DailyFX's Q2'16 quarterly forecasts.

--- Written by Christopher Vecchio, Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher's e-mail distribution list, please fill out this form

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