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Has the S&P 500 Marked its Break and Has 100 Fallen for USD/JPY?

Has the S&P 500 Marked its Break and Has 100 Fallen for USD/JPY?

John Kicklighter, Chief Strategist

Talking Points:

  • FOMC minutes stirred heavy Dollar volatility but strong UK jobs did little for the Pound
  • The S&P 500 has broken its tight wedge at the top of an incredible trend, but don't be drawn in for 'thirst'
  • USD/JPY is now dancing around 100 and Japanese authorities have yet to do anything about it

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

Volatility picked up this past session, but it was hardly the kind of activity that traders have been waiting for. However, when in the midst of a drought for trading opportunities with extremely low volume with little conviction for trends; even a little jolt of activity can looking tempting. It is important to traders to remain objective about what the markets have to offer between technical cues and fundamental sparks amid conditions that effectively defuse conviction. So, for a move like the wedge break on the intense congestion seen for the S&P 500; skepticism is healthy.

The lack of traction is also passing through to the Dollar and Pound. Both currencies were among the more active majors against a backdrop of event risk. Pound-for-pound, the UK data had considerable fundamental depth. July employment figures would give a general economic assessment post-Brexit. Given the panic that followed the EU referendum vote, it clearly carries significant weight in the FX market. That said, a positive outcome for the statistics didn't pull back the heavy discount and the Sterling floundered. That disrupted the breakout potential of GBP/JPY and GBP/NZD. In contrast the market has grown exhausted by Fed talk that doesn't match action, yet USDollar nevertheless experienced significant volatility on the FOMC minutes and Bullard commentary.

Ahead, the docket has another round of event risk that is important economically, but dubious for impact potential. Fed timing, Brexit fallout and Asia's economic health are general themes to be monitored - not to mention the entrenched complacency surrounding broader market sentiment. One pair that sees a convergence in some of the most market-moving themes will be USD/JPY. The pair is pressuring 100 which many speculators believe is a level the Bank of Japan and Japanese Ministry of Finance intends to defend. Would they admit to such ambitions? What happens if the market realizes they aren't going to stand in the way; or worse, that they can't stem the tide? Much hinges on the USD/JPY's next move. We discuss themes and trading questions in today's Trading Video.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.