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Video: Risk Trends, FX Rates, Volatility Await Central Banks

Video: Risk Trends, FX Rates, Volatility Await Central Banks

2016-09-20 02:11:00
John Kicklighter, Chief Strategist
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Talking Points:

  • Both the Dollar and S&P 500 entrenched to start the week as the Fed and BoJ rate decisions loom
  • The next 24 hours will trade with thin liquidity investors await the key event risk
  • Top mover to start the week was the Australian Dollar, but momentum for AUD/USD and others is unlikely

See what live coverage is scheduled to cover key event risk for the FX and capital markets on the DailyFX Webinar Calendar.

We find ourselves once again in the quiet before a violent storm. The first 48 hours of this trading week finds market participants distracted by the high-level event risk - anchored by the Fed decision- ahead. Anticipation for updates that can single-handedly change the bearings and motivation for the entire financial system frequently renders the market inert. Yet, despite this anxiety-inducing countdown; backdrop conditions are unlikely to revert back to the exceptional quiet of July and August. Even with sentiment awaiting the central bank cocktail, daily swings are still far more robust and volume dense than what we had seen in that extraordinary period of inactivity. What we are waiting for is an outcome that is very active or extremely active.

In the meantime, traders should assess their risk tolerance. If making critical calls on the outcome of an event dictated by a desperate consensus and then interpreting how a schizophrenic market will respond to it is deemed too risky; squeezing out short-term, pre-FOMC trades or standing side with patience is the better approach. For those that have the conviction of a policy outcome and assumption of the market's pulse, caution should still be a primary tenant of approach. There is likely asymmetry in the impact from different Fed and BoJ outcomes - risk aversion from the former and building skepticism over the effectiveness of the latter's efforts - but the natural resting volatility of the market makes for another difficulty in assessing temperament. A trailed stop on AUD/USD is all I have on heading into this week's build up. Short-term opportunities and pairs outside the influence of the data are few. This time is better spent laying out scenarios for the scenarios after the news hits. We take the lay of the market in today's Trading Video.

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