Talking Points:
- US equity index, emerging markets, high yield and other risk-oriented assets stalled and slipped Wednesday
- The BoE rate decision will stir Brexit memories and Governor Carney notably suggested easing is on the agenda
- Chinese 2Q GDP is another key event on tap, but its unique consistency may cause more skepticism in risk channels
See the DailyFX Analysts' 3Q forecasts for the Dollar, Euro, Pound, Equities and Gold in the DailyFX Trading Guides page.
The prevailing market winds are dying down with conviction hitting its limits and building anticipation of important events ahead. A stalled risk-appetite rally has proven the most remarkable shift over the past 24 hours. Post-Brexit, there has been a remarkable recovery that has eventually charged US equity indexes like the S&P 500 and Dow Jones Industrial Average to record highs. This past session, they would nudge out new high closes but with little of the drive that charged the record-breaking week. A correction is a considerable risk/probability, but skepticism does not make for an inevitable or profitable opportunity.
If the risk run continues, the momentum is likely to be remain uneven and cast in the shadow of doubt. This is especially true with events like the Bank of England rate decision and Chinese 2Q GDP release scheduled for release through the upcoming session. The list of favorable 'risk on' options is as thin as the well-positioned 'risk off' candidates. I'll be watching the stretched equity indexes for cues to sentiment, but NZD/JPY is at the top of my FX list for those pairs that are positioned to take advantage of any negative shifts in sentiment.
As for the scheduled event risk on tap, the scenarios carry nuance that traders should account for. BoE Governor Carney remarked shortly after the Brexit vote was tallied that easing is likely in 'the Summer'. However, the ECB and BoJ have shown the conventional easing-policy-weaker-currency equation has broken. For the Chinese growth figures, skepticism surrounds the remarkably consistent data; but global investors still know the importance of the data. Fed forecasting will again be fed by FOMC member speeches and upstream inflation while the first major US bank is set to release earnings this season. There is a lot on tap, but market interpretation is crucial for tradability. We discuss this in today's Trading Video.
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