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Have S&P 500 and Risk Finally Turned, Will USD/JPY Break 100?

Have S&P 500 and Risk Finally Turned, Will USD/JPY Break 100?

2016-08-03 02:41:00
John Kicklighter, Chief Strategist
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Talking Points:

  • Risk aversion rose this past session with global equities, Yen crosses and other sentiment driven assets slipping
  • USDollar drops after PCE hold, but don't call a bear trend until support and upcoming NFPs are accounted for
  • Despite an RBA rate cut and the Japanese PM announcing details of fiscal stimulus, both Aussie and Yen advanced

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

Global equities, fashionable high risk assets (emerging markets, high-yield fixed income, etc), commodities and Yen crosses all marked significant declines this past session. When these otherwise independent markets align with concerted moves and significant technical breaks, it is typically indicative of a larger shift in risk trends. A move towards risk aversion following the painful disappointments in US GDP and the most recent, large monetary policy injection speaks to a crowd growing disillusioned with an assumption that stability is certain.

Committed risk aversion that spans the world with considerable duration and a deep cleansing of leverage would represent a dramatic change in market conditions. Thereby it is a scenario that traders should remain skeptical of until there is overwhelming influence that it is indeed underway. That said, progress should be marked and even temporary wavers can present opportunities in the market. Meanwhile, souring sentiment can warp market reactions to key events even before it triggers a redistribution of funds. Both the RBA rate cut and the Japanese Cabinet's approval of the proposed fiscal stimulus program were met with unexpected outcomes - currency appreciation and capital market stumbles. What more could this do for the likes of the BoE rate decision and NFPs later this week?

In the FX market, the Australian Dollar and Japanese Yen rallies push both to significant technical boundaries. USD/JPY and AUD/USD have both hit key levels with an evaluation that either breakout or range will need to be settled. The Dollar itself has found itself at an important technical. While the USDollar shows little immediate support, all of the major USD-crosses are close to weighty Greenback support levels. As with the broader risk view, further decline would insinuate a jump in conviction behind the Dollar slide. Does the market have the heft to make this call? We assess the markets and opportunities in today's Trading Video.

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