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Risk Trends Defer Critical Call, Dollar Unmoved by CPI, China GDP

Risk Trends Defer Critical Call, Dollar Unmoved by CPI, China GDP

2016-10-19 00:36:00
John Kicklighter, Chief Strategist
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Talking Points:

  • Risk-oriented assets chose complacency and S&P 500 moves back from head-and-shoulders neckline pressure
  • A Dollar index retreat is not the doing of inflation or rate expectations, so what to watch for the Greenback?
  • Top event risk ahead includes Fed speak, UK jobs statistics, Chinese GDP, BoC and Brazil rate decisions

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

With tension building for Dollar-based majors and risk-oriented benchmarks like global equity indexes, markets chose to pull back into complacency rather than make the difficult decision of committing to a decisive market trend. Taking 'the path of least resistance' has been the general habit of the market for years, but it has been exaggeratedly obvious and drawing greater skepticism over the past three months. The modest bounce in equities, carry currencies, emerging markets and other sentiment dependent assets offers little genuine assurance. And, that is a tax to developing trends and even a hurdle to short-term setups that are running out of viable room.

AUD/USD has offered a strong, neutral-risk opportunity for some months as the pair carved out a wide wedge. However, over time, this pattern has grown smaller and smaller. We are back up to the top of the wedge pattern - which motivated me to take a short previously - but the risk/reward in placing a reasonable stop and target offers limited opportunity. For the Dollar's own performance, the currency is not in control of its own bearings. The slip from USD indexes was motivated by stronger counterparts and not evenly distributed. Inflation statistics this past session would seem to lay the track for further rate speculation, but the outlook for December does not change much on CPI or employment statistics. It will likely be just as difficult to rouse conviction in the upcoming Fed-speak.

A far more active Pound has greater control over its bearings. The rebound from the Sterling this past session has many speculators looking for a rebound that carries as much momentum as its previous decline. Yet, here the fundamentals are particular for what will motivate direction and intensity. UK inflation statistics lack weight as rate expectations matter little through the BoE. Growth readings like the UK labor data may struggle to engage on similar footing. Perhaps Chancellor Hammond's testimony to the Treasury can motivate the kind of Brexit focus that moves the Pound. Other event risk to watch ahead include the Chinese GDP as well as the Bank of Canada and Brazilian central bank rate decisions. We discuss all of this in today's Trading Video.

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