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Risk Slides, Fed Lifts Rate Expectations but Not Dollar, BoE Up

Risk Slides, Fed Lifts Rate Expectations but Not Dollar, BoE Up

John Kicklighter,

Talking Points:

  • A continued risk slide Wednesday led S&P 500, Emerging Market ETF and oil to break key levels
  • A Fed hold offered little change to the Dollar, but it did bolster December expectations
  • BoE rate decision is this week's top event risk and the Sterling susceptible to volatility

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

Risk aversion continues to weigh on the broader financial system with high-profile event risk distracting and leveraging motivation along the way. The slide in sentiment that has achieved significant depth and breadth - if not momentum - pulled a number of benchmarks through key support levels. The S&P 500 broke below 2,100 to extend its 4-month low. The Emerging Market ETF (iShares MSCI) finally slipped range/channel support to join its high-yield fixed income counterpart (iShares iBoxx). Even US oil prices and Yen crosses would break immediate support levels around 46 and 104 (USD/JPY) respectively.

The most recent distraction this past session would come in the form of the Federal Reserve rate decision. This could have very well charged a sentiment response if there was sufficient 'surprise'. Yet, no doubt recognizing the anxiety in the markets; the policy body decided to keep the rate range unchanged between 0.25 and 0.50 percent. That would allow the unsettled market to turn its focus back to the looming US presidential election set for next Tuesday. That said, this event and its influence will be revisited after the polling dust settles. The carefully crafted statement - the Fed has said explicitly that forward guidance is its primary tool while on hold - checked off the inflation column and lowered its concern over global risks. In turn, expectations of a December 14th hike jumped to just shy of 80 percent while the Dollar eased out of its slide.

Ahead, the docket will become more intense - though it will still be difficult to put off the market's sentiment fixation. Standing prominently on the docket is the Bank of England (BoE) rate decision. Unlike the previous three decisions this week (BoJ, RBA and Fed); this group has suggested further easing is likely and will offer updates for traditional measures and Brexit evaluation through its Quarterly Inflation Report. Considering how sensitive the Pound is to Brexit interest and the recent congestion on the otherwise volatile currency, beware. We discuss event risk ahead, trends in underlying themes and unexpected developments in today's Trading Video.

Chart made by John Kicklighter, Data from Bloomberg

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.