Talking Points:
- US equities slipped for the first time in four days, fitting for the lack of conviction
- The post-RBNZ New Zealand Dollar rally stalled through the past session, but it didn't truly reverse
- Fed speculation in the UofM sentiment survey and Brexit speculation through a UK sovereign rating top Friday risk
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Low volatility can seed explosive moves when motivated. But they can also see ill-founded moves simply peter out as well when there isn't a spark to catalyze bigger reactions. The latter situation was what we were dealing with the past session. With the market's doubt over the motivation of speculative reach eating into traders' confidence, the S&P 500 finally posted a bearish day. However, the corrective move was rather limited and doesn't set up any imminent reversal expectations. In fact, the 20-day ATR on the index is the lowest we have seen since the market recognized that the complacency lift had lost its traction.
Meanwhile, the New Zealand Dollar's rally following the RBNZ decision to hold rates ran out of steam well before the London/New York liquidity came online. However, that stalled move didn't immediately spark reversal. NZD/USD found itself meandering just above the upper boundary of a rising trend channel with little indication of whether it was going to usher in a strong reversal. A spark is likely necessary to help such a determination along. Either a risk aversion push or rebound in Fed speculation could accomplish that.
Heading into the final session of the week, we have a market that is short on conviction and at extreme levels with the knowledge that key event risk is over the horizon. Next week we have a range of important rate decisions anchored by the globally-followed Fed meeting. It will be difficult to motivate drive with heavy seas further out. However, there will be a few options to spur volatility. In particular, the Brexit speculation will be tested by data and rating agency Fitch's sovereign debt evaluation. The last stop for rate speculation on a data basis, the University of Michigan consumer sentiment survey will be top scheduled event risk. We look at trading conditions into the close of the week in today's Trading Video.
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