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SPX Continues Slide, Aussie Dollar Faces RBA, NZ Dollar and Yen Staging

SPX Continues Slide, Aussie Dollar Faces RBA, NZ Dollar and Yen Staging

2017-03-07 04:42:00
John Kicklighter, Chief Currency Strategist
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Talking Points:

The key themes of this past week - US-led risk trends, Fed timing, competitive trade policy - didn't hold through Monday

Trump administration influence still represents a hefty market lever, but traders are looking for tangible milestones

Remarkable technical pictures are developing for Kiwi Dollar, Yen and Aussie Dollar (interesting with RBA) crosses

What are the DailyFX analysts' top trading ideas for 2017 and key lessons to take away from 2016? Sign up for both on the DailyFX Trading Guides page.

Both the S&P 500 and Dollar have been tamed. The strongest fundamental winds of the past week haven't carried through to Monday, leaving US equity indexes to deflate some of this past Wednesday's enthusiasm. The increasingly competitive trade policy between the world's largest economies still represents the most productive fundamental driver. However, as much as it holds control over the fundamental tides, there seems a level of acclimation and certain skepticism afforded to this still-unwieldy theme. For the US specifically, the promise of economic and business-friendly tax reform and fiscal stimulus has been reiterated on a regular basis, but the details continually elude a market that is already stretched on faith in speculation. Moving forward, there aren't many scheduled events that stand as singular catalysts for US trade and fiscal policy. Constant monitoring of the financial headlines and the President's social media accounts is an inconvenient necessity.

Meanwhile, risk trends that have been pushed to extremes need the motivation provided by large-scale changes provided by figureheads like Donald Trump. The outperformance of US equities and the particular momentum following the November election and early February vow for tax policy staged clear motivation for the S&P 500 - and more restrained advance for risk-oriented assets further from the speculative warmth provided by the US President. Carry trades represent one of the more askew sentiment-driven assets, and the Yen crosses are offering noteworthy technical picture. USD/JPY has taken the path of least resistance with a move back from resistance back into range. In contrast, GBP/JPY is staged in a terminal triangle, AUD/JPY has checked in a rising wedge and NZD/JPY has even tempted what seems a remarkable break of support.

Technicals are starting to shine through in the fundamentally confused market. In addition to the Yen crosses offering a variety of scenarios among the crosses, there are a range of New Zealand Dollar pairs which present an remarkable charts. NZD/USD is the most liquid of the pairs and it is quickly closing in on the bottom of a broad range. In contrast, AUD/NZD has produced a critical break of resistance above 1.0750 and EUR/NZD seems to have established an entirely new era with the break of an 18-month trend at 1.49. For event risk, the upcoming session has its highlights. The RBA rate decision, UK House of Lords final Brexit bill debate, OECD economic forecasts and US trade balance all tally high on the economic - and potentially volatility - scales but not on the trend development side. We discuss the competing fundamental and technical focus as well as where to train our focus in today's Trading Video.

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