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Fed's Brainard Short Circuits Dollar Rally, S&P 500 Avoids Collapse

Fed's Brainard Short Circuits Dollar Rally, S&P 500 Avoids Collapse

2016-09-13 03:10:00
John Kicklighter, Chief Currency Strategist
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Talking Points:

  • The S&P 500 followed up its sharpest decline since Brexit Friday with the biggest rally in a month Monday
  • Fed Board member Lael Brainard offered the last words for rate speculation next Wednesday, and they were dovish
  • A Brexit focus will begin today with UK data and evolve with BoE rate decision and EU-27 summit later this week

Harness the power of big data to evaluate millions of historical price points to calculate the probabilities of short-term market moves using the GSI Indicator.

There were two, key burgeoning trends leading traders to hold their breath this past weekend: the Dollar's three-day charge higher and a dramatic selloff for the exceptionally quiet S&P 500. Momentum for both hit a wall to start off this new trading week. For the benchmark currency, the curb was readily apparent: FOMC Board member Leal Brainard. Arguably the central bank's most dovish member, Ms. Brainard scheduled a speech with Q&A notably just before the 'blackout' week before the FOMC's much-speculated-over September 21st rate decision began. Rather than fortify the growing number of voices attempting to curb the market's skepticism and leave open the possibility of a rate hike this year - perhaps even September - she stuck to her calls for caution. The most notable blurb from her statement was that preemptive tightening was 'less compelling'. Fed Funds forecasts now place a hike next week at a tepid 20 percent. Even if she is a lone voice, the market's expectations are set.

As for the unfolding risk move monitored through the S&P 500's dramatic stumble this past Friday; the escalation of a sentiment slide from abrupt price shock to seasonal transition to structural revival of market depth stalled out at the first step. Just as there were few definable catalysts to last week's topple, there were few distinct fundamental sparks to motivate the rebound in confidence. Nevertheless, the extreme contrast between two-months of near inert markets to a move comparable to the Brexit reaction with little incitement will keep the market on high alert. As we monitor the balance of sentiment and complacency, another familiar theme will start to gain traction with the coming session: Brexit. We start off with important UK data (inflation and jobs) and we eventually come to critical policy meetings (BoE rate decision and an EU summit that excludes the UK). Meanwhile, the commodities market has turned back into range even though key fundamental themes - fiat stability for gold and supply-demand speculation for oil - continues to feed trend speculation. We discuss these market conditions and options in today's Trading video.

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