Talking Points:
- The S&P 500 as a baseline for risk trends took another manic swing higher, but underlying sentiment remains fragile
- US CPI, consumer sentiment and capital flows data is due Friday; but FOMC anticipation carries serious gravity
- Neither BoE nor SNB rate decisions offered tangible influence, will the EU's Brexit discussion charge the Pound?
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While fundamental sparks continue to fly through the end of the week, the market steadily grows less combustible the closer we come to next week's critical event risk. A tendency towards restraint and an abundance of technical boundaries favors range trades - though it is important to account for volatility with reasonable targets and appropriate stops. The most prominent fundamental theme still in play remains risk trends. The barometer in the S&P 500 took a hard tack higher this past session, but it wouldn't overtake recent upside boundaries nor did the sentiment spread more widely out to other corners of the financial system. Notably, volume and volatility measures remain stubbornly elevated which further substantiates a susceptibility to deeper risk aversion when it rises.
For scheduled event risk, the top three fundamental drivers this past session fell short of meaningful drives. The Bank of England rate decision kept open its expectation for a further rate hike this year but its growth outlook also improved, resulting in more of the uncertainty that has prevented the Sterling from finding a clear post-Brexit trend. In contrast, the Swiss National Bank was lamenting the level of its currency and threatened to intervene on behalf of exchange rates. Yet, traders have grown numb to the bluster. A more concentrated event risk in the Australian employment data failed to force a break but in-turn reinforced a AUD/USD setup.
Through the final session of the week, we have event risk that can generate friction on two particular currencies: Dollar and Pound. That said, actual market response will depend on the level of surprise versus the overbearing distraction of what lies ahead. For the Sterling, the EU-27 (excluding the UK) leader summit is set to discuss circumstances post-Brexit. Unless there is a clear approach of hostility or accommodation towards the departing country in negotiations, it will struggle for impact. Among the crosses, GBP/CAD is particularly appealing for its technical standings. For the Greenback, the consumer inflation (CPI), consumer sentiment survey (University of Michigan) and capital flows (TIC) data are a comprehensive listing. Yet, against the backdrop of an important Fed decision Wednesday, it becomes emasculated. We separate event risk and themes from actual market movement through the end of the week in today's Trading Video.
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