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Dollar, S&P 500 Test Their Bullish Limits - NFPs, ECB, More Ahead

Dollar, S&P 500 Test Their Bullish Limits - NFPs, ECB, More Ahead

2017-03-04 01:10:00
John Kicklighter, Chief Currency Strategist
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Talking Points:

  • Dollar bulls look like they will need to look to sources other than the Fed to provide further lift
  • The half life of US President Trump's influence over investor confidence seems to have materially shortened
  • Top event risk this week includes: NFPs; ECB decision; EU summit; HoL Brexit debate; China's People's Congress; RBA

See what live coverage is scheduled to cover key event risk for the FX and capital markets on the DailyFX Webinar Calendar.

Two of the financial markets' most prominent benchmarks were provided the exceptional fundamental upgrades this past week, and both came up short with market movement. For risk trends, the US President revived promises of business and economic-friendly tax reform and fiscal stimulus at the joint session of Congress. Previous utterance of these programs led to the post-election surge through February and then the further three-percent plus extension through February. In response to the familiar commitment, the S&P 500 and Dow Jones Industrial Average were afforded remarkable gaps and record highs - but only one day's enthusiasm. The cost of further gains on the risk front seem to have risen moving forward. Short of a clear time table, increased program size or other definitive details on US programs; risk trends will likely have to find their inspiration elsewhere.

On similar ground, the Dollar is going to struggle for extension. With the build up of inflation statistics, robust growth data and a concerted effort by the Fed ranks to heavily imply an impending hike; the market now affording a 94 percent probability of a hike at the March 15 rate hike. Yet, despite the intense rise in speculation; the Greenback has generated little traction. What would the final stretch to certainty (6 percentage points) due for the Dollar that approximately 50 percentage points wasn't able to? There is high profile event risk on the docket for the US through traditional channels. February NFPs and import inflation are important measures, but they are cater to a fundamental theme that seems at best tapped, at worst dramatically skewed. Measured Dollar bullish moves (for the likes of AUD/USD) or more generous bearish developments (EUR/USD, USD/JPY) are likely better suited to our circumstances next week.

While risk and US monetary policy will be themes heavily rotated in the financial headlines in one form or another, we will also hit upon other high profile macro themes. The question is how much influence and market impact they can generate. Perhaps the most impressive mix comes for the Euro. The ECB rate decision and start of the EU summit are scheduled for the same day (Thursday). There is little expected from the central bank, but that sets up another skewed opportunity should they turn unexpectedly hawkish - for them that suggests discussions of future taper routes. It is the summit that will cover a wider range of uncertainty from Greece to financial stability to Brexit negotiation stance to trade relations with the US. Speaking of Brexit, the House of Lords will hold its final debate and vote on the Article 50 bill. In Asia, the People's Congress of China will set the country's course and the RBA rate decision should not be written off as a course holder. We discuss all of this and its trading potential in this weekend Trading Video.

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