Talking Points:
- GBP/USD posted the biggest move of the majors Tuesday, leveraged by a strong combination of data
- US inflation carried significant sway, while UK offered limited engagement - UK jobs data ahead is very different
- A tentative slip in risk trends is alluring given the extreme quiet, but the bar for confirmation is high
See how retail traders are positioning in the majors using the SSI readings on DailyFX's sentiment page.
The Cable posted the biggest move amongst the majors this past session between an ideal confluence of fundamental motivation. UK inflation statistics crossed the wires better than expected while the US CPI figures disappointed. Qualitatively, price pressures carry limited sway over the Pound given the BoE has shifted its focus on feared fallout from Brexit. For the Dollar, however, a downgrade in inflation meaningfully impacts one of the currency's most prominent and consistent drivers - Fed rate speculation. While this substantial move drew upon tangible fundamental motivation, it is still limited by the general state of the market's: congestion, complacency and low participation.
Heading into Wednesday, the Dollar will struggle to keep momentum with the broader market conditions dampening confidence and the scheduled event risk easing significantly in intensity. Following the binary hawkish-dovish impact of the CPI that this past session, the upcoming Fed speak and FOMC minutes are steeped in deep skepticism. For context, Atlanta Fed President Lockhart and New York President Dudley attempted to stoke rate speculation - or at least curb skepticism - with scenarios for 2016 rate hikes.
In contrast, the UK employment statistics Wednesday are very capable of generating volatility with the proper application of surprise. The July jobs figures offer a timely, post-Brexit update and are among the most concentrated measurements of economic health available. With pairs like GBP/USD, GBP/JPY and GBP/NZD positioned in tight congestion patterns; traders appetites will be whetted by the implications. Outside of this particular fundamental spark, all traders should keep a close eye on the slip in risk-oriented assets (such as the S&P 500) and the jump in volatility indexes like VIX. While this is still only a hiccup in complacency, the unwinding of the risk build-up can occur at any time and even with little provocation. We look at the churning markets and scenarios for event risk in today's Trading Video.
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