Talking Points:
• The Dollar won a sharp move higher this past week as risk assets trembled modestly
• An upgrade in forecasts for a Fed hike this year will draw attention to US event risk including the August NFPs
• Important event risk abounds this week, but a seasonal liquidity drain will present a difficult hill to overcome
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Chief Strategist John Kicklighter discusses the top Forex fundamental themes for the coming week of trading. A glimmer of volatility this past week has put a market starved for trading opportunity on high alert. However, the trade potential may not be as rich as hopes measure up. The hurdle is overcoming a curb on trading activity born of low participation. This is both a seasonal and structural restraint, and both are in full force this week. This is the week before the US Labor Day holiday (next Monday) which historically sidelines risk-oriented trends globally. Add to that the long-term reduction in trading activity resulting from the central bank-imposed volatility reduction; and it looks like a difficult environment to pursue major breakout or trend-based trades.
Historically, seasonal trends show August as the slowest month for trading volume on the S&P 500 (a benchmark that I feel well represents 'the market') through the entire year while performance is generally restrained. Volatility measured in the VIX has shown over time that activity can pick up through the same month, but that certainly isn't the case for 2016. While there are a few days left to redeem this historical average, it is unlikely to happen when heading into the Monday liquidity drain that is the US holiday. With that in mind, there is a range of high profile event risk ahead that will have a questionable influence given these broader circumstances. Friday NFPs is at the top of the list, but the Dollar will also draw on Fed speeches, the Feds-favored PCE inflation indicator and the consumer sentiment survey among other releases for rate speculation. The Pound and Yen will be two other active currencies with event risk teasing Brexit and faltering monetary policy confidence views respectively. We discussed all of this and more in the recording of the weekly webinar.
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