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VIX Drops Back Below 10, Oil Ignores OPEC, Dollar Ready for NFPs

VIX Drops Back Below 10, Oil Ignores OPEC, Dollar Ready for NFPs

Talking Points:

  • A late session US push in risk appetite lifted the S&P 500 to a fresh record and drove VIX back below 10
  • News that OPEC had considered another 1.0-1.5% production cut was ignored by oil while AUD dropped on uneven news
  • NFPs is top event risk for the week's final session - especially after a strong ADP beat - but can it fight the lethargy?

With the S&P 500 at a record and summer doldrums beating, can Friday's NFPs stir the market to life? Sign up for the live coverage webinar on the DailyFX Webinar Calendar to see how the event impacts the Dollar and rate forecasts for the June 14th FOMC decision.

A late-in-the-day jolt of speculative appetite Thursday saved the markets from a lost day. Yet, the US-focused swell did little to budge the fading conviction in the financial system. With the help of a strong ISM manufacturing report and solid beat from the ADP private payrolls figure, economic confidence stirred enough market enthusiasm to push the S&P 500 to a fresh record high. And yet, the financial media again mirrored a lack of enthusiasm from its audience. What's more, the VIX volatility index dropped back below its basement 10 level. That is now the 6th time in a month that we've plunged this extreme low - marking the longest stretch of quiet/complacency on record by surpassing the 1993 and 2006 lulls. This quiet matches seasonal expectations, but its extreme nature should not be approached idly. Shorter duration trading and greater selectivity is the more appropriate market approach in these conditions.

Meanwhile, the headlines and event risk struggled to generate meaningful traction were it was found. In their ongoing effort to regain influence, OPEC let it leak that they had discussed possibly further cutting production by 1.0 to 1.5 percent at the meeting in which they agreed to extend their existing supply restrictions. This was clearly aimed at regaining their 'jawboning' influence, but the effort clearly didn't payoff. Crude oil prices wouldn't add to Wednesday's momentum and didn't even clear that previous session's low. In emerging markets, the Brazilian 100 basis point rate cut from the previous day (announced after active trading hours) didn't shake the Real and the better-than-expected 1Q GDP reading offered during the active session met the same indifference. China was a little more active with shares (the FXI ETF) advancing to fresh highs but Yuan slowing its climb (USD/CNH slide). News here is rumor rather than official statement. Remarkably, one of the biggest movers this past session was the Australian Dollar. The market-wide move did have fundamental fodder to work with - housing price data, capital investment and even China's manufacturing PMI - but the market's motivation seemed more structurally based. It still faces the question of conviction and follow through.

Looking to the final day of trading this week, there are large themes that continue to stalk the markets and a few high profile events that can trigger targeted volatility. That said, it will be difficult to charge a strong much less systemic move against the deep complacency. At the top of the docket is the May US NFPs (nonfarm payrolls). The employment report has a storied history of generating big swings for the Dollar and US capital markets like equities. After the ADP outcome, the focus will certainly intensify. However, the asymmetrical scenarios for this event and general state of activity will not readily translate into a serious move. Markets place the probability of a Fed hike at the June 14th meeting around 90 percent, which leaves little untapped premium. What's more, the Dollar has slid despite the upgrade in forecasts. Another particular event to monitor is the UK sovereign credit rating by Moody's. With the Brexit path still so fluid and given the UK general election next week, there may be a significant development for Pound traders and international investors to consider. We assess key fundamental and technical setups against the backdrop of a noncommittal market 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.