Talking Points:
- Despite the lack of a definitive driver, the Dollar marked a technical rally versus the Euro, majors and EM currencies
- A broad slide for the Euro was attributed with dubious conviction to Brexit, French politics and a
- US oil inventories post the second largest weekly increase in inventories on record, crude responds with a key break
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The economic docket was not particularly remarkable this past session, nor is it exactly stocked with high-profile releases through the upcoming session. Yet, if Tuesday's volatility is any indication; dedicated event risk is not necessary for significant developement in the currency and broader financial market. There were a number of remarkable moves through this past session. The Dollar's rally was one that stood particularly proud across the markets. While there was some minor fundamental event risk on tap (trade and consumer credit), they would not leverage the scale of movement we were met with. Nor would deeper themes like risk trends or Fed speculation take charge. Nevertheless, the DXY Dollar Index cleared the resistance of its 2017 descending trend channel as the EUR/USD slipped support on its own rising channel.
Moving forward, the natural question is what degree of follow through should we expect from the Greenback. The fuel for this drive doesn't rise to the occassion looking out of the immediate calendar. That may alleviate the hindrance of anticipation, but it is perhaps more important to find a charge in this otherwise restrained market. And, what we have scheduled simply comes up short. Amongst the majors, the opportunities would therefore depend on what the counter currency has to offer. EUR/USD would source the Euro's regional crisis concerns; GBP/USD follows the final day of the Parliament-Government Brexit debates; and USD/JPY is fixated on 'risk trends'. The same high fundamental hurdle exists for the Euro's finding serious opportunity. Though the currency slid across the board, the motivation for the move Tuesday was attributed to well-established themes with little in the way of recent development. Expecting a sustained slide from EUR/USD - much less EUR/GBP or EUR/JPY - on the Euro's drive is expecting perhaps too much.
From the risk view, there is little sign of a new shift towards risk appetite or full-scale risk aversion. The S&P 500 didn't hit fresh highs this past session, but the Nasdaq did. Meanwhile, the VIX is holding below the 11 'handle'. Follow through is not easy to generate in these general market conditions of restraint. It requires more fundamental encouragement than most markets seem capable of mustering. Perhaps one exception is oil. The slide through Tuesday can be largely attributed to an incredible rise in US inventories - the second largest in the series' history. That will be a development to monitor moving forward along with the USD/CAD correlation. Shorter-term opportunities exist with these unique conditions, but traders should certainly look for what the market has to offer. We discuss what is developing and what pairs are positioned to take advantage in today's Trading Video.
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