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Dollar and SPX Refrain from Further Gaps, RBA Draw Attention

Dollar and SPX Refrain from Further Gaps, RBA Draw Attention

2017-04-04 03:46:00
John Kicklighter, Chief Currency Strategist
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Talking Points:

• While the S&P 500 did shows another intraday recovery to start this week, neither index nor Dollar repeat last Monday

• Manufacturing and business sentiment were key themes through the opening session, trade was due to be a focus Tuesday

• An RBA decision is concentrated event risk Tuesday with measured potential, so watch for opportunities that fit our pace

See how retail traders are positioning in the majors using the DailyFX SSI readings on the sentiment page.

While there was a significant intraday reversal for US equities to start this trading week, the comparisons to last week's remarkable start end there. The past week's developments were remarkable. To start, we had a gap lower on the open after the weekend for both the S&P 500 and the DXY Dollar Index. The technical intensity matched the fundamental motivation of a systemic threat to the drive behind the Trump trade. Nevertheless, speculative reach gathered itself and charged a steady recovery through the remainder of the period. Those uncertainties over the confidence in speculative reach based on complacency and a dependency in high boundary barrier fundamental milestones (tax reform and fiscal stimulus in the US) remain. However, their timetable is more elusive without a known schedule of events to work with.

There remain other critical themes that can motivate volatility and potentially trends. True motivation ultimately traces back to systemic risk trends - whether through monetary policy, confidence in US policy, fear of the fallout from protectionism or more mundane sources. Nothing on the docket this week looks like it can single-handedly redirect the tide on market-wide sentiment. However, there are a few events that look like they can cater to active change in a crucial tributary theme. Protectionism in particular has a laundry list of global meetings towards the end of the week (NATO, US-China leadership, G20 economy ministers, EU ministers) that can further freeze or thaw strained relationships critical to the flow of global capital. On monetary policy, Friday's NFPs stand out for media strength; but there is limited precedence of late to suggest it can turn Fed speculation into a capable charge. For the RBA decision today, there is concentration but limited expected engagement in predicted outcome.

Looking away from the more consistent drivers of fundamental appetite, the global market has already dealt with manufacturing and business sentiment updates this past week. Both offer meaningful statement on the health of the global economy, but fell short on tangible market movement. The same will likely prove true of the trade data that will start to come in Tuesday. For the US trade figure, we have easy routes to the frayed relationships between countries and the economic implications of policy threats, but complacency threatens to dampen its influence once again. Looking for market opportunities, the top filter should remain market conditions. Range is more productive than the false promise of full breakouts or trend. That can present opportunity for pairs like EUR/JPY or even AUD/JPY so long as the RBA volatility is directed properly. We discuss the lure of technicals and fundamentals in respect of general market conditions in today's Trading Video.

Dollar and SPX Refrain from Further Gaps, RBA Draw Attention

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