Talking Points:
• This past Friday's NFPs didn't offer any follow through for the Dollar after the weekend
• Rhetoric from UK Prime Minister May bolstered fears the country is on pace for a 'Hard Brexit' sending GBP sliding
• A sharp drop from US oil found a range of explanations, but the break of support may draw more attention
See the DailyFX Analysts' 1Q forecasts for the Dollar, Euro, Pound, Equities and Gold in the DailyFX Trading Guides page.
The new week has started with key global financial themes generating different levels of influence on the markets. This past Friday's NFPs managed to lift the US Dollar after its release, but there was no follow through to carry through the weekend. The Greenback wouldn't find any traction or additional reach Monday and Fed Fund futures have maintained their substantial discount to the Fed's hawkish views (a February 1 projection of 12 percent and March 15 forecast of 33 percent). Event risk for the world's most liquid currency is restained this week with upstream inflation and the University of Michigan Consumer Sentiment survey Friday top listing. Fed speeches meanwhile keep the central bank's outlook for an accelerated pace of three hikes in 2017 consistent.
In contrast, the British Pound experienced an unexpected swell in volatility. The Pound dropped across the board Monday in response to remarks made by UK Prime Minister Theresa May. The lawmaker was speaking loosely on the government's approach to the Brexit passed six months ago. While May said the country's approach to separation would not be piecemeal, traders interpreted her comments to suggest a preference for a 'hard' Brexit - one where they would forego access to Europe's single market to insure control over politically important measures like immigration. GBP/USD responded by dropping back to a multi-month low and putting pressure to inch closer to the multi-decade low set a few months back with the Pound 'flash crash'. Moves from EUR/GBP, GBP/JPY, GBP/CAD and others offer interesting technical progress as well. The question for Sterling traders should be whether there is run to this move or if it is prone to reversal in both activity and direction.
The scheduled docket ahead offers a relatively restrained threat for fundamental sparks. Aside some noteworthy updates on the Italian financial system - a source of pain for the Eurozone - the motivations are likely to be thematic and/or unanticipated. One of those themes to keep close tabs on is risk trends. From the deeply complacent and long stretched S&P 500 to the more recently imbalanced USD/JPY, there are both big picture trends and shorter-term opportunities to be found from this dynamic. Meanwhile, oil generated another abrupt move of its own. While there were headlines to peg this move to, it is more likely a reflection of more deeply held supply-demand issues along with a speculative slip. With a key technical break now disarmed, is this a trend that will reverse course? And, what to make of USD/CAD at noteworthy support? We discuss these market developments to start our trading week in today's Trading Video.
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