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Looking for USD, JPY, GBP and AUD Opportunities Amid Extreme Quiet

Looking for USD, JPY, GBP and AUD Opportunities Amid Extreme Quiet

2016-08-13 01:35:00
John Kicklighter, Chief Strategist
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Talking Points:

  • Implied and realized volatility measures have pushed extreme lows from most assets' VIX readings to S&P 500's ATR
  • Last week ended with a uniformly disappointing round of Chinese data and surprising downgrade in European GDP
  • Event risk in the week ahead speaks more to concentrated volatility for Dollar, Yen, Pound and Aussie Dollar

Looking beyond this period of quiet. See the DailyFX Analysts' 3Q forecasts for the Dollar, Euro, Pound, Equities and Gold in the DailyFX Trading Guides page.

This past week closed out one of the quietest trading periods in years. The S&P 500 would carve out its smallest weekly range in 15-months while volatility metrics (from VIX to ATRs) tallied more historical extremes. The downshift after the remarkable run from risk-oriented assets on a swell in monetary policy efforts comes amid a dearth of key event risk. And, the quiet fundamental backdrop doesn't look like it will suddenly reverse in the week ahead. There are certainly noteworthy items behind and ahead of us, but they do not tap the systemic sentiment nor monetary policy obsessions that are seemingly required to motivate markets nowadays.

Notably from the docket, there is little to suggest that an event-triggered risk appetite shift is impending. That bolsters the appeal of range opportunities amid sentiment-driven assets, though it also limits the potential of those setups as well. A sentiment bead is a first line filter for USD/JPY and the Yen crosses. I held my long USD/JPY through the weekend liquidity drain, but any Yen exposure needs to be watched closely to start off the new trading week with 2Q Japanese GDP on deck. A more concentrated event risk will be in store for Aussie Dollar crosses as well next week. RBA minutes and 2Q wage growth are notable, but July employment figures can readily stoke volatility.

Abrupt jolts of volatility through the docket isn't the only opportunities to look forward to this week. There will be a tempting of key themes for the Dollar's rate forecast and Pound's Brexit fallout as well - though we shouldn't necessarily expect heavy trends to arise from the sparks for these subjects. With many of the USD-based majors working with definable ranges; the US CPI figure and round of Fed speakers on tap may offer enough to cover ranges. For the ever-evolving evaluation of the Brexit fallout for UK economy and financial system, a range of data will be topped with inflation and employment statistics. We look at the market conditions, fundamental cues and trading opportunities that may arise this week in this weekend Trading Video.

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