USD Range, SPX Climb, USDJPY Quiet Increasingly Onerous to Preserve
- USDollar and EUR/USD range looks increasingly preposterous amid growing uncertainties and fundamental forces
- European economic surveys offer weak start to an important string of event risk that culminates in ECB decision
- Risk trends weather the weekend fears of instability from a failed Turkish coup, but was record SPX in order?
Market participants are not hiding their skepticism of recent market stability...then again, they aren't positioning for safety. There is a need of exposure amid these increasingly risky conditions spurred by exceptionally low returns. That can, in-turn, create opportunity of asymmetrical fundamental scenarios. On the risk front, news of an attempted military coup in Turkey spurred an initial reaction of panic for weekend exposure and contagion risk. It's failure returned us to status quo, but the market's sensitivity was on display and it certainly calls into question the unbroken S&P 500 climb through Monday. Brexit, China, global growth, desperate monetary policy - the themes are stacking up on each other and the test to complacency will eventually hit its breaking point.
With the tension building in systemic fundamental changes, the appeal of trading the tight EUR/USD range, GBP/USD reversal or steadfast USD/JPY trend looks to be far more risk than opportunity. However, that supports more active and engaged trading rather than just a passive move to the sidelines. Themes like the full evolution of the Brexit impact or Euro's loss of cohesion or loss of traction in monetary policy will play out over time. It is important to keep track of when these markets finally engage these important and overwhelming motivations, but short-term opportunities will still arise in their shadows.
Keeping the big picture fundamental winds in mind, the more immediate and measurable events to guide markets. The Euro will find one of the most active economic dockets. Monday started off with a downgrade of economists' forecasts for the Euro-area's economic health. Ahead we are scheduled for sentiment survey updates for Euro-zone investors and consumers. That will set good grounding for Thursday's ECB rate decision. Brexit influence is still being processed, but the Rightmove housing figure for the UK doesn't bode well. Ahead, we have UK inflation and employment data on tap. Meanwhile, US earnings, Fed speculation and BoJ stimulus expectations pose unremitting FX risks. We discuss these market themes and more in today's Trading Video.
To receive John’s analysis directly via email, please SIGN UP HERE