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Pound's Plunge Simmers, Oil Threatens Break, Dollar Not Ready

Pound's Plunge Simmers, Oil Threatens Break, Dollar Not Ready

2016-10-11 02:35:00
John Kicklighter, Chief Strategist
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Talking Points:

  • The Sterling's unexpected collapse this past Friday didn't carry through the panicked selling to the new week
  • Russia announced it could join the OPEC output cut, pushing US Oil up to a major technical resistance around 51.50
  • Dollar Indexes suggest a Greenback technical shift has been produced, but majors and market conditions beg to differ

See the DailyFX Analysts' 4Q forecasts for the Dollar, Euro, Pound, Equities and Gold in the DailyFX Trading Guides page.

Volatility continues to swell in unexpected areas of the market - but it is still far from the uniform drive that would help deliver consistent trends across various asset classes and along themes like 'risk trends'. The last week's most dramatic performance - the Pound - there was a general consistency with the bearish trend but a serious throttling of the momentum/conviction. While the Sterling continued to slide against most of its counterparts, there was no semblance of the sudden drop that shook FX traders this past Friday. Two new surveys from the BCC and Deloitte added fuel to the fire showing further declines in business sentiment, but that didn't hit the perfect confluence of market conditions to get another implosion. We should consider this mix for further UK event risk scheduled ahead.

Meanwhile, oil has drawn macro traders' attention again with a Monday surge that put the commodity at its highest close in 15 months. On the back of OPEC's commitment to cap output amongst its members - details to come next month - Russia announced to start the week that it too could cap its production to help rebalance the supply-demand imbalance in price. This is a meaningful fundamental announcement, but the question remains: can oil generate a breakout where range and congestion is a more consistent theme across the financial system. That question may play critical role in USD/CAD's ability to cover a broader range or USD/RUB's ability to forge a much larger break/reversal.

From the FX market's most liquid player, the Dollar has put pressure on some important technical boundaries on the indexes; but the majors don't echo that same level of conviction. Where GBP/USD is unbound; EUR/USD, AUD/USD, USD/CHF and USD/JPY look far-less motivated. One particular stand out amongst the less often cited Dollar pairings, USD/MXN generated a remarkable move to start the week. Its appeal as a 'US election' has grown further after the second Presidential debate, but traders should be careful about its accuracy and tradability through this theme. We look at what is moving in the market in today's Trading Video.

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