Talking Points:
- This past Friday's plunge for tech stocks didn't trigger a Black Monday-style sentiment collapse
- Immediate event risk for majors includes US inflation, Eurozone investor sentiment and Japanese business confidence data
- Individual FX moves up to systemic risk trends will be throttled by anticipation for the FOMC and other key events
Are you trading Dollar pairs? If so, the Fed rate decision on Wednesday can leverage serious volatility and even trend for the Greenback. Sign up to watch the FOMC decision live with me on the DailyFX Webinar page.
The nasty spill suffered by a corner of the US equity market to end this past week didn't signal a full sentiment collapse for the broad market this week...at least not yet. The tech sector - led by the 'FAANG' group - suffered another stumble to start this week, but momentum did not build and the reach didn't spread through the rest of the financial system. Speculation can the source and motivation of its own systemic trends, but such virtuous or vicious cycles rarely develop when such critical, high-visibility event risk is directly ahead. The FOMC rate decision on Wednesday may not ultimately trigger a wholesale change in the scales of confidence across the globe, but it maintains that distinct possibility. That looming threat is not taken lightly by an increasingly cautious financial system. The tension that has caused so much frustration for traders looking for volatility or awaiting a clear signal on speculative load tolerance will only escalate as the group of central bank decisions this week approaches.
For scheduled event risk to open this week, there were few headlines that split the markets attention - even modestly - with the general concern for speculative balance. Arguably the most effective headline was one that drew little interest in the lead up to its posting. Bank of Canada member Wilkins has not made many headlines in the past years with the policy group, but the suggestion that the next move by the BoC was going to be a hike proved rousing enough. While the Canadian group is still far behind a counterpart like the Fed which is contemplating a fourth hike this week, it is the change in perception in the degree of dovish or hawkish (and certainly from dovish to hawkish) that can leverage some of the greatest amplitude from the FX market. Volatility was sharp for the Canadian Dollar and some pairs like USD/CAD and GBP/CAD offered up significant breaks. Follow through on these forecast adjustments however will be a struggle. Bigger yet Monday was the news of the Bitcoin tumble. The cryptocurrency was down as much as 17 percent through the sessions trough. As on the way up, the correction didn't come with many convincing explanations. Speculation has been a key ingredient to the market's performance thus far, so seeing the hallmarks of its wavering comes as little surprise.
Ahead, speculators are in a holding pattern until the critical event risk either definitively sets speculative ambition on a clear course or is otherwise out of the way. Event risk on Tuesday's docket, however, should still be monitored and evaluated for impact on their respective currency or market. While the market carefully monitors news for the formation of the UK government following last week's election upset, UK inflation (CPI) will offer a more definitive economic figure to attach the Bank of England's direction on - though it is unlikely to offer any significant course change for this Thursday's meeting. The same dubious sentiment will follow the United States' upstream producer price index (PPI) data with the FOMC due the following day. The Eurozone and Germany investor sentiment data will be colored by concerns with Greece's constant fending off default given there is an EU-IMF meeting Thursday and Friday, but this may find a more receptive Euro. How will the opposing forces of active event risk and anticipation shape the markets Tuesday? We discuss this in today's Trading Video.
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