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Video: Dollar Pulls Out of Dive, Oil Prices Pass 40, SPX Detached

Video: Dollar Pulls Out of Dive, Oil Prices Pass 40, SPX Detached

2016-08-01 22:37:00
John Kicklighter, Chief Strategist
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Talking Points:

  • The Dollar and Yen cross plunge that punctuated FX markets last week stalled to start the new trading week
  • Risk trends are starting to deviate once again with the S&P 500 suspect for its holding pattern at record highs
  • Oil broke its 200-day moving average, the RBA rate decision looks to stir the Aussie and US PCE carries asymmetry

See how retail traders are positioning in the majors using the SSI readings on DailyFX's sentiment page. See the DailyFX Analysts' 3Q forecasts for the Dollar, Euro, Pound, Equities and Gold in the DailyFX Trading Guides page.

The three overriding themes of the past week start off the new trading week (and month) with little conviction. The Dollar's tumble following US 2Q GDP this past Friday has stalled with a modest retracement smoldering in its wake. A downgrade in Fed rate forecasts doesn't unsettle the broader imbalances of monetary policy standing that counts the US among the very few even contemplating normalization. Further Greenback slide or recovery will likely hang on a meaningful driver such as the upcoming PCE deflator. The Fed's preferred inflation measures will have an asymmetrical potential impact with a meaningful increase in price pressures acting to revive 2016 hike expectations. Short of that scenario, it is likely a wait until Friday's NFPs before we have a more capable spark for rate speculation.

Similar to the smothered fire behind the Dollar, USD/JPY and the Yen crosses cooled from their post-BoJ dive. The Japanese central bank's upgrade were met with the same skepticism as most dovish upgrades from the major central banks over the past 15 months. After Friday's sharp decline, the balances have tipped; but that doesn't secure momentum. Follow through requires a more active motivator. Risk aversion offers up the most potential threat to the still-bloated carry. Looking at the S&P 500, it would seem that speculative appetite is steady at record highs. Yet, US equities seem disconnected to other sentiment-driven markets - including their global counterparts.

Next to the US inflation figure due ahead, the top scheduled event risk is the RBA rate decision. The market and economists expect a cut to the benchmark rate (25 bps to 1.50 percent), but recent history for AUD/USD and other Aussie crosses suggests that doesn't guarantee a drop for the target currency. Among the various risk-measured asset benchmarks, special mention should be made for US Oil. Friday's hold at the 200-day moving average seemed to be merely a delay with the commodity making a move to $40. We keep track of the themes and catalysts moving forward in today's Trading Video.

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