Talking Points:
- The lassitude of risk trends conviction these past weeks muted the Nasdaq's surge last week on Amazon's and others' earnings beat
- Headlines touching on fresh US political risk and slowed tax reform drew attention to the Dollar and may have tripped up its break
- Top event risk going forward includes the BoJ rate decision, Eurozone 3Q GDP and then into FOMC Wednesday
What are the DailyFX analysts' fundamental and technical forecasts for the Dollar, Euro, equity indexes and more through the fourth and final quarter of the year? Download the recently-released 4Q forecasts on DailyFX.
The earnings-based market charge forged by the likes of Amazon, Google and Microsoft late last week doesn't seem to have survived the weekend. Speculative appetite seems to have an engrained sense of skepticism that raises the bar on what can once again trigger unfettered momentum for global equities, junk bonds and other favored higher return instruments of this particular market epoch. As the corporate tailwind died down, a different - but familiar - type of headlines took up the responsibility for driving speculative tides. A few political news items carried different degrees of influence but were generally negative. News of indictments in the US special council's probe into Russian interference in US elections revived a concern that has triggered bigger declines in past months' developments. Less of a government stability story and more a direct economic concern were newswire updates that suggested the ambitious tax reform program touted by Senate and House Republicans could be phased in over five years threatened some of the windfall hopes attached to the effort. Despite these updates, the markets have not permanently turned the prevailing bull trend; but there is considerable risk that each story and the speculative balance itself can be further provoked into the future.
Tapping into another vein, another top headline story was news that President Trump would announce his pick for the next Fed Chair on Thursday. This will bridge Wednesday's FOMC decision and Friday's NFPs; but it is likely that this decision may be the most market-moving development for the productive monetary policy theme for the week. The media and political watchers see three primary candidates in contention for the spot (current Chair Janet Yellen, board member Jerome Powell and former Fed President Kevin Warsh) but none of them would bring a more dovish approach than the current setting at the central bank. That is generally Dollar positive, but it didn't prove encouraging for the Greenback to start the week. The Dollar slipped after last week's inverse head-and-shoulders 'neckline' break (on the ICE Index) to close back in on the former resistance point. It is worth noting that few of the majors secured the kind of progress signaled by that trade-weighted index besides EUR/USD. Techncally speaking, the path of least resistance may have shifted with last week's progress and the fundamental shift for the Euro, but fundamentals can act with considerable force. The next 24 (and arguably 48) hours will be a fundamental wait-and-see for the Dollar, but crosswinds may prove significant.
Last week, it was the Euro that made the more remarkable technical move - which in turn pulled the Dollar with it through EUR/USD. The ECB's announcement of reduced asset purchases starting January didn't hit the high expectations rate watching bulls had anticipated for the high-flying currency. That will continue to hang over the Euro's head this week and through the upcoming session's key data. The 3Q GDP reading for the Eurozone is the most comprehensive and traditional fundamental update for the Euro. That said, the consumer inflation (CPI) and unemployment figures will be far more poignant when it comes to monetary policy. This data could reignite rate forecasts, but it is easier to disappoint and undermine such a stretched currency. In addition to EUR/USD, a speculative eye can be kept on EUR/GBP, EUR/AUD, EUR/NZD and EUR/JPY. As for that last one, we will also receive a BoJ rate decision today. The expectation is for no change to the expansive stimulus program the Japanese bank has employed and escalated for years. Even if there isn't a course correction, the implications are significant in a world where other policy authorities are adjusting. We discuss where market movement may arise from the high profile event risk on the docket in today's Trading Video.
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