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Liquidity Will Revive Risk, NFPs will Refresh Fed Speculation

Liquidity Will Revive Risk, NFPs will Refresh Fed Speculation

John Kicklighter, Chief Strategist

Talking Points:

  • Liquidity will return next week, and volatility is likely to follow in its wake
  • Risk trends will be put to the test quickly after relatively extreme moves to fuel a rebound in sentiment
  • Fed speculation will revive a monetary policy focus with inflation and NFPs data on tap

See how retail traders are positioning in the majors using the FXCM SSI readings on DailyFX's sentiment page.

A holiday liquidity lull would be a fitting end to a period of calm and risk appetite in the financial markets. This past week's lack of heavy-hitting fundamental events, holiday drain in market depth and technical extension was an ideal combination. However, with the return of the market's ranks in the week ahead; we will face a renewed wave of fundamental questions and positioning that calls for deeper deliberation of conviction and value. The persistence of 'risk' trends will be a top concern with the rapid deflation of implied volatility and resurgence of speculative assets. Monetary policy considerations will be another returning motivator. On one end of the spectrum, the Fed's motivation for further hikes this year will be stirred by the central bank's favored inflation figure Monday and the infamous NFPs-led labor report on Friday. At the other end, we will see more evidence of the fall out related to extreme accommodation and how it (perhaps inadvertently) funds currency wars / competitive monetary policy. We focus on the shift from staid conditions behind us to active markets ahead in the weekend Trading Video.

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