Talking Points:
• Neither the Dollar's nor stocks' rally following the FOMC hike continued after Wednesday's surge
•Through a heavy round of event risk Thursday, the Pound was the top mover on a dissenting voice in the BoE policy hold
• Top event risk through Friday includes the G20 meeting, US consumer sentiment survey and the 'quadruple witching hour'
See how retail traders are positioning in the majors using the DailyFX SSI readings on the sentiment page.
The abnormal response to the Fed's rate hike Wednesday - particularly the Dollar drop and stocks rally - didn't enjoy much follow through. This past session, the unorthodox momentum was quelled as the deeper implications of a tighter monetary policy track - from a domestic and relative perspective - sunk in. With a more seismic shift in global policy and an active speculative backdrop, the US rate forecast will struggle for traction in either direction. However, risk trends cannot remain so docile forever. With each jolt of volatility, there is motivation to re-enter a deeper channel of sentiment. For USD/JPY and Yen crosses (not to mention most pairs and assets across the market), this is the catalyst on which to remain diligent.
While pairs like the USD/JPY and NZD/USD spilled momentum, the Pound crosses seemed to pick up the market's attention through the past session. Little was expected from the Bank of England (BoE) rate decision - and indeed, the policy group held course with its extremely low rate and limited stimulus program. However, the dissenting vote of Kristin Forbes calling for a hike painted a more dynamic central bank than what was expected. A rally from the Pound extended GBP/USD's range rebound, but it also reversed a breakdown from GBP/AUD and forced a tentative breakout for GBP/NZD. These markets are hardly conducive to breakouts with follow through or trends. That said, ranges are patterns more readily traversed. Other key event risk this past session came up short for impact. The three other rate decisions (Bank of Japan, Swiss National Bank, Norges Bank) wouldn't inspire similar run. Australian jobless claims and the US budget proposal were good for headlines but not price action.
In the final session of the week, the deeper currents should be watched in case they sweep the markets in an undertow. For explicit event risk through, the G20 meeting of finance ministers and central bank governors will cover key market and trade pressures impacting the global system. Given the frequency with which countries have accused their trade partners of manipulation of some sort to confer trade benefit, this is a critical event to secure the complacency that has prevailed. For event risk, the US consumer sentiment report will be used to assess everything from confidence in President Trump's policy vows to inflation forecasts. This can shift the focus for the Dollar and could reach far enough to charge sentiment trends - if there is substantial change to be found. Then there is the practical contract rollovers associated with the 'quadruple witching hour' where a range of derivatives expire for the month and quarter, thereby necessitating rollover and constituting volatility in the process. There is a lot of potential risk/opportunity and considerable hesitation in the market. We discuss this cross over point for trade selection in today's Trading Video.
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