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Volatility Picks Up for Risk, EUR/USD, Bitcoin Heading Into Weekend

Volatility Picks Up for Risk, EUR/USD, Bitcoin Heading Into Weekend

2017-03-11 00:26:00
John Kicklighter, Chief Currency Strategist

Talking Points:

  • Bitcoin suffered an extreme bout of volatility late Friday on news an ETF based on the cryptocurrency was denied
  • EUR/USD found motivation to end the week despite an ECB hold and NFPs discount, as attention turned forward
  • Risk aversion seems mild from benchmarks like SPX, but the collective slide for the markets should be watched closely

See how retail traders are positioning in the EUR/USD, global equity index CFDs, oil and more using the DailyFX SSI readings on the sentiment page.

Though the high profile event risk dotting this past week's calendar failed to motivate strong market waves this past week, we nevertheless closed the period out with remarkable and broad movement. And, there is good reason to suspect that this swell of activity will carry into the coming trading week. The most extreme move among the common speculative lanes this past week was generated in the span of less than 15 minutes on a Friday afternoon. Popular digital currency Bitcoin suffered an extraordinary fluctuation (over 370 points or 38 percent) on news an ETF based on the still-new asset was denied by the SEC. This undermines this popular speculative vehicle but it also carries weight in options for financial asset (fiat specific) alternatives and can spill over to general risk trends in more traditional assets.

In more stable channels, the EUR/USD managed to plot a measured course through the release of both the ECB rate decision and February NFPs; but nevertheless jumped into the close. The central bank offered little change from its prevailing statement and the strong outcome from the employment report added little lift to the already heady outlook for rate forecasts. Yet, this complacency was shaken somewhat when it was suggested that the European Central Bank had discussed the possibility of hiking rates before the end of the year - even before stimulus purchases had ended. That changes more than just the dynamic of the Euro's trajectory, it speaks to a groundshift in global monetary policy at the most extremes (largely dovish) towards normalization. That exposes significant exposure based upon the assumptions of quiet, low yielding and protected markets through central bank influence.

Next week, EUR/USD's slow recognition of a long-term change in global policy standings will find strong competition for attention against high profile event risk. The FOMC rate decision Wednesday may be baked in, but it is still more than capable of generating serious heat in trading and longer-term investor positioning. For the Euro, focus on the ECB's intention is going to be distracted by Euro-area stability tested by Brexit discussions, the Netherlands election and aftermath of the EU summit. Other event risk ranges from a collection of rate decisions (BoJ, BoE, SNB) to New Zealand GDP to Australian jobs. Yet, amid the action, we should keep track of the big picture trends. Global monetary policy and trade relations is certainly important; but it is sentiment throughout the financial system that poses the greatest potential and threat. While many of the favorite benchmarks have only slipped, the breadth of the slide and the depth for assets of more dubious quality shows a common sight before more systemic developments in the past. We discuss the events and opportunities for the coming week in this weekend Trading Video.

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Volatility Picks Up for Risk, EUR/USD, Bitcoin Heading Into WeekendVolatility Picks Up for Risk, EUR/USD, Bitcoin Heading Into Weekend

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