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NFP prints at 339k vs estimates of 190k, ave earnings in line at 0.3% MoM

Dollar Posts its Longest Run in a Year but Trade Opportunity?

Dollar Posts its Longest Run in a Year but Trade Opportunity?

John Kicklighter,

The Dollar has extended its best run in over a year, but that is not amounting to much distance for the currency ahead of the Fed decision. Meanwhile, the Kiwi, Litecoin and Pound have generated strong volatility with varying degrees of potential follow through.

Talking Points:

  • The DXY Dollar Index advanced for a sixth consecutive trading session - marking the best run since the US Presidential election
  • Wednesday's Fed decision is drawing considerable FX and speculative anticipation even though its outcome is expected to be tame
  • A Sterling drop and New Zealand Dollar rally were sharp, but lacking for momentum; Litecoin's Bitcoin chase may hold more pull

Will you watch and trade this week's Fed, ECB and BoE rate decisions? Do you have market, trading or strategy questions you want answered? See what live webinars we have scheduled on the DailyFX Webinar Calendar.

If we were assessing market performance on the basis of simple statistics without full context, we could position the Dollar in the midst of an impressive bull run. Indeed, the Greenback has earned a six-day climb through trade today which is the longest run for the benchmark currency since last November in the aftermath of the US Presidential election. Such consistency is noteworthy but it is far from tradeworthy. In this consistent climb, we have managed very little progress price-wise. We have not retaken the failed breakout levels won and lost back in October. And, considering the fundamental backdrop to the currency; that comes as little surprise. What is the motivation for bidding the Dollar to a productive bull trend? So far this week, we have some very low level data that plays as mere complement to last week's uninspiring headline statistics (JOLT's figures relative to the November NFPs). Thematically, the political uncertainties are still swirling around the market with tax reforms still under review and large increase to the deficit weakly explained away by a 470 word note from the Treasury.

What truly undercuts the Dollar's capacity to rally - or at least my confidence that we will be able to sustain any meaningful basis for momentum - is the focus on Wednesday's Fed rate decision. This event is anticipated to end with a 25 basis point hike; and market participants know full well that such an outcome alone would do nothing for the currency. This is a fully priced in outcome and the intrigue for subsequent pacing is heavily shaped by a very open central bank in its forward guidance. The genesis of large moves is when the masses have to build up or unwind exposure to an asset in mass. There is little in what is expected that would predicate such an outcome. That same theme - and perhaps even the same anticipation for high profile event - extends to risk assets. The S&P 500 managed a record high on a close basis on a short series of consecutive gains; but there is little enthusiasm to suggest this is the impetus for a drive with meaningful follow through. If the market does continue to climb, it will be the convenience of complacency and not a motivated bid. Meanwhile, the VIX volatility index posted its fourth lowest close on record and traders are left to throw in with the complacency trade or chase the extremely active assets with little reliable fundamental grounding.

Not all markets are stoic and unyielding to short-term speculation. The Pound offered up a moderate stumble Monday on a mixed assessment of the UK government's progress with forging ahead on Brexit. Friday's progress with the Irish border still stands, but the fragility of the government's position moving back to the negotiation table with the EU is more evident than ever. Brexit has proven a fog over the Sterling since the 'leave' vote was tallied, it is unlikely to fully lift until the official day of the divorce - and likely even further after. Follow through on a GBP/USD break is unlikely, but range conditions for EUR/GBP and GBP/JPY may prove more fruitful. The same impetus for short-term versus long-term motivation exists with the New Zealand Dollar. News that the next RBNZ Governor would be NZ Superannuation Fund chief Adrian Orr bolstered Kiwi traders' hopes of a central bank more favorable of rate hikes. It may take some time to see that outlook bear fruit, but NZD/USD and other crosses have been pushed to the technical brink now. We discuss all of this, what is ahead and a regular update on cryptocurrencies (Litecoin vs Bitcoin) 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.