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Range or Break for Dollar, Pound Crosses at Technical Boundaries?

Range or Break for Dollar, Pound Crosses at Technical Boundaries?

2016-09-27 03:32:00
John Kicklighter, Chief Strategist
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Talking Points:

  • Risk trends start the week with a tumble that will struggle to hit pace and force a lasting trend
  • Dollar and Yen crosses trade within ranges with consumer sentiment survey and BoJ commentary due respectively
  • Pound and Canadian Dollar crosses under power with Brexit surveys and oil prices tempting technical levels

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.

The week has kicked off with an ember glowing from the top three global themes this past week: risk trends, Dollar bearings post FOMC and Yen finding its way after the BoJ stimulus twist. While all three were experiencing a modest degree of volatility, most of their representative assets and pairs were holding fast to technical boundaries. We are still dealing with a market that is struggling to find conviction amid complacency. While sentiment and monetary policy imbalances will continue to shape volatility and short-term moves this week, the eventual market-wide trend may be beyond the reach of the well of event risk and sentiment due ahead.

For the Dollar, the ICE and Dow Jones indexes showed little effort to mount a break from their respective ranges. That leads raises critical technical questions about major pairs pushing technical boundaries. On the one hand, the Dollar is facing immediate support with USD/JPY and AUD/USD. Meanwhile, GBP/USD and USD/CAD are at Dollar resistance. The dominant fundamental winds that can change the course and conviction here is the bearing on interest rate expectations. We have already absorbed 2 of the 14 scheduled Fed speeches due this week, and a 51 percent probability of a hike by December leaves a lot of room for traders to alter their views. As for the Japanese Yen, the debate over central bank credibility at the extremes overrides outright confidence in ever-expanding and adapting programs. Yet, confusion on this point likely pushes the responsibility of a trend over the more tempermental risk trends.

Outside the fundamental orbit of risk trends and monetary policy, the Pound and oil are offering diversification - though not an escape from general consolidation. Two surveys to start the week leveraged Brexit fears: a CBI/PwC poll that showed optimism for the UK's financial sector was at its lowest level since the Great Financial Crisis; and a KPMG poll that said 76 percent of CEO respondents are considering moving their headquarters out of Britain due to Brexit. That is enough to cool the recovery effort, but enough to force bearish Sterling breaks for GBP/USD, EUR/GBP and GBP/NZD. Day two of the OPEC informal meeting is due ahead and we are still running on rumor rather than official remarks on oil supplies. With oil closing higher and higher into its range, speculation and jawboning may soon be put to the test. We discuss these themes in context of their trading potential rather than ideal scenarios in today's Trading Video.

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