Talking Points:
- A slip from risk-oriented benchmarks S&P 500, EEM and Treasuries stole some of speculative wind from market sails
- Oil has rallied back up to an obvious 52 resistance in the aftermath of the OPEC meeting, but a break isn't certain
- Top event risk for Friday is the US NFPs release for November, but be mindful of your Dollar exposure
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The jump in volatility and burgeoning trends post US election have ebbed. The S&P 500's slip from record highs has led a mild retracement from November's 'risk run' while the Dollar listing towards its own threat of reversal. If we were looking for a motivation to fuel a true turn of tide, Friday's docket certainly provides in the report of November US nonfarm payrolls (NFPs). This is a capable market-mover tapping into an environment where traders are catching their breath after a heavily speculative move and a rise to certainty for Fed rate hikes. It is ideal when technicals and fundamentals align for a heavier market move - but anticipating such a confluence can cause serious trading miscues.
There is certainly an imbalance of possible impact to different scenarios for the upcoming jobs figure with the market's pushing a particular view to a certain extreme. 'Beating' expectations only leverages so much confidence in the US economy and amplitude to the Fed rate track. Alternatively, a 'miss' can tear down stretched expectations for rate hikes and isolated US growth rather easily. There are a number of outlets to express this through, but FX traders should be very cautious about being drawn in by one of the seemingly most straight forward technical setups out there: EUR/USD. An inverse head-and-shoulders pattern and obvious link to the NFPs makes for an attractive picture. However, there is a second phase to this volatility that comes during the liquidity drain over the weekend. The Italian Referendum could easily prove as influential - if not more than - the US labor report and wrest control over the benchmark pair when we have no opportunity to act.
Aside from the upcoming jobs report and the threatening view from risk and Dollar, fundamental motivation is being put to the test for keeping momentum against the assumptions of seasonal downshift. Oil prices have enjoyed a dramatic rally this week on the announcement of the OPEC agreement to cut production, but the markets do not look as if they will just unleash the bulls to crash through 15-month resistance. Meanwhile, the key fundamental driver three months ago (Brexit) seems to have lost power with Sterling pairs swapping out clear technical levels for unexpected bouts of momentum. Tempting trade opportunities are arising, but make sure to assess all the risks. We look at risk and reward in today's Trading Video.
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