As the holiday drain pulled traders out of the market, there were unexpected fireworks in some corners of the financial system. Perhaps the most remarkable movement came on the part of the Dollar which posted the biggest drop in months with technical pressure rising...and just before the US markets go offline.
Talking Points:
- Liquidity has drained for the US Thanksgiving holiday; and while Europe and Asia are still online, don't anticipate clear trends
- The Dollar dove throughout Wednesday's session but a softer FOMC minutes pushed the move to antagonizing DXY and USD/JPY breaks
- A Sterling slip on the budget, US oil rally above $58 and run of Euro-area event risk should be viewed with a high level skepticism
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There was an unexpected level of volatility heading into the closing hours of liquidity before the Thanksgiving holiday drain. Significant moves from the Dollar, Pound and US oil stood out in particular for their respective activity curbs. Yet, where there were a few highlights on the day, the benchmarks for the financial system would not disappoint in disappointing those looking for active trade opportunities. US equities were anchored through the final full trading day of the week with modest gains for the S&P 500 and Nasdaq while the Dow Jones Industrial Average offered a modest slip. Despite the lack of activity, it is hard to forget that they all stand on the verge of record highs. Overbearing skepticism and complacency may be dominant themes of the market, but they have yet to trip up the stumble higher. Meanwhile, the VIX volatility index ended below 10 for the 44th time this year - further solidifying the unprecedented nature of our markets.
Considering the conditions through the second half of the week, it came as quite the surprise that the Dollar took an active dive through this past session. All told, the DXY Index's drop through the session tallied the biggest drop for the Greenback since August 9th. The benchmark was already in retreat through the first half of the trading day, but the FOMC minutes certainly amplified the pain. Though the transcript of the November policy meeting kept the requisite language to usher in a third rate hike for 2017 come December 13th, there was a notable downshift in the view of inflation forecasts - the crucial piece of the Fed's monetary policy puzzle. According to the record, 'most' saw a greater risk that price pressures would fall short of their inflation target for longer. Those remarks didn't lower the perceived probability of a hike next month, but it has cooled the anticipated pace for 2018. Among the majors, EUR/USD couldn't translate the DXY progress into a break of its own inverse head-and-shoulders pattern; GBP/USD extended its advance to a 7th day that tops a well-established range; and USD/JPY posted a strong extension on a larger range reversal. As provocative as these developments may be, anticipation should be kept in check due to the seasonal liquidity drain ahead of us.
Another active currency this past session was the British Pound, driven to volatility due to the report of the Autumn budget. With the exception of the Cable, the Sterling lost ground across the market. In the statement, Chancellor Hammond downgraded the country's growth forecasts, increased the funds set aside for a hard Brexit and put to rest expectations of broad spending programs. Brexit fears remain a hamper to both UK growth and its assets. Among the Pound crosses, I am particularly partial to GBP/AUD. In the commodity world, an extremely quiet view for gold (smallest five-week range in a decade) was offset by a rally from crude. The charge beyond $58 has pushed the commodity to a fresh two-and-a-half year high. This is a very enticing move for those that have awaited a return to trend from this sidelined commodity; but are these the conditions in which such a transition is likely? Over the next 48 hours, there are listings on the economic calendar and certain fundamental themes are still simmering; but run your expectations through liquidity conditions. We discuss the market backdrop in today's Trading Video.
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