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Forex Trading: Dollar Rebound Lacks Drive, So Does SPX Conviction

Forex Trading: Dollar Rebound Lacks Drive, So Does SPX Conviction

John Kicklighter, Chief Strategist

Talking Points:

  • With little more than weak data and a hawkish lean from non-voting Fed members, USDollar extended its rebound
  • The higher the S&P 500 climbs (carrying speculative sentiment with it) the greater the imbalance for potential
  • Top event risk Tuesday is the UK inflation statistics with its own asymmetrical market potential

See how retail traders are positioning in the majors using the FXCM SSI readings on DailyFX's sentiment page.

Strong moves that perhaps struggle for solid fundamental footing will eventually cool and correct. For the USDollar, that seems to have happened - at least temporarily - in quick order. After the tumble last week in the wake of the FOMC's rate forecast downgrade, we find the currency has opened to a lurch higher to extend Friday's tentative rebound. Rebound may not have the fundamental backing of a serious trend, but neither did the volatile breakdown last week. Meanwhile, the stretch on US equities (as a proxy for riskier assets) continues to press higher. The pattern may look disturbingly similar to the August to November recovery that ultimate ran out of steam; but the tangible comparison is in the disappointing backdrop for fundamentals and market conditions. The question is whether speculative appetite can break from the mold and run or falter and collapse in this holiday liquidity-hedged week. Ahead, event risk is not particularly conducive to resolving big picture fundamental themes. However, the UK inflation statistics can generate considerable heat for the appealing developments for Pound crosses including GBPUSD, EURGBP, GBPCAD and GBPAUD. We discuss these themes and market scenarios in today's Trading Video.

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