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Critical USD and S&P Breaks Stall On Launch, Brexit Starts Today

Critical USD and S&P Breaks Stall On Launch, Brexit Starts Today

John Kicklighter, Chief Strategist

Talking Points:

  • The S&P 500's gap lower to start the week after the failure of the health care policy failed to feed a trend
  • A reversal from the DXY Dollar Index and EUR/USD has been put in jeopardy on as sentiment and rate appetite waver
  • The UK is set to officially file its intent to withdrawal from the EU (Brexit) today, is the Pound at risk?

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

A day after the equity and FX markets' most prominent benchmarks produced significant, bearish technical breaks; the motivation for collapse immediately evaporated. While the failure of the US healthcare reform effort will recall ghosts for markets that have driven speculation forward on the anticipation of accelerated growth, accelerated rate hikes or sheer speculative exuberance; the deeply complacent are not ready to panic just yet. Clear updates on the time table, scale and buy-in for tax reform and the supposed-$1 trillion infrastructure spending program can add serious momentum to our otherwise flippant markets. Until then, strong prevailing moves are difficult to motivate without a high profile event or systemic shift in speculative appetite. That does create a problem, however, for those looking for strategic EUR/USD or risk-oriented trade opportunities. We seem so close to the kind of move that can make the entire year. 'Wanting' and 'experiencing' are very different realities for the trader on their path to success.

With the big-picture imbalances in mind and the scheduled event risk ahead, we can make better assessments of the primed technical assessments. The S&P 500 has broken the support that carried markets higher since the outcome of the US election. That is a distinct progression of the weeks of consolidation that we have witnessed through March and once again puts traders on the defensive. Range and measured moves are still the pace to set, but keeping watch for the sudden rise of conviction is a worthy endeavor. For the Dollar's failed head-and-shoulders 'neckline' break, the uncertainty offers even greater anxiety. For the DXY Index itself, the neckline break found an 11-month rising trendline behind it to help rein in enthusiasm. That said, EUR/USD seems to still hold the former neckline of its inverse head-and-shoulders pattern as a current support. The question remains: how readily do these markets commit to trend?

Looking for event risk to help forge decisive views out of the speculative roadblock, there is limited engagement for the overarching speculative reticence. There are few events that could even hope to draw the attention of risk takers across multiple asset classes much less change the entire environment. Global trade and political policy - particularly that of the US - remains one of the most potent and untapped catalysts out there, but there are few if any milestones to track. One country's trade position will take a meaningful step towards transition today. The UK is due to deliver its official letter of intent to invoke Article 50 and start the Brexit proceedings. While this will generate plenty of news print, will it actually surprise investors? That is what we she could consider when assessing the landscape for trades. We discuss all of this and more in today's Trading Video.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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