A Loaded Docket and Seasonal Return of Liquidity
- Historically, activity and market depth rebound after the US Labor Day holiday; but systemic barriers remain
- Risk trends remain the most potent yet untapped of the major fundamental themes
- Event risk will spur volatility around Brexit, the effectiveness of global mon pol and localized value
See how retail traders are positioning in the majors using the SSI readings on DailyFX's sentiment page.
Chief Strategist John Kicklighter discusses the top Forex fundamental themes for the coming week of trading. We are marking a seasonal transition where liquidity typically starts to rise after the 'Summer doldrums'. Historically, volume and volatility rise through September while this same period marks the only month over 35 years that averages out a net loss for the benchmark S&P 500. For fundamental or technical traders, these underlying conditions are of primary importance. If we expect to see fast markets or the rise of trends (whether bullish or bearish), they will almost certainly arise from these general market conditions. However, the transition is not guaranteed. Seasonality is an average, but there are structural limitations that persist to present. A deepening focus on monetary policy and its quieting effect on the market may not engender peace, but it at least has resulted in a calm.
Fundamentals offer an opportunity for traders to band behind a particular theme and produce the change in activity level - and perhaps even direction. However, the motivation typically matches the expected move. To jump start such a broad and systemic shift in the system, the spark will likely need to tap into the heart of the global financial system's concerns - perhaps general risk trends or the confidence in monetary policy. The listings on the docket can offer attempts at these big picture views, but are more likely to peak at generating localized volatility. Key catalysts include the G-20 meeting, ECB rate decision, a range of Brexit-related updates and a few Fed speculation points. Aside from that, there are noteworthy concentrations of event risk for the likes of the Australian Dollar. We discussed all of this and more in the recording of the weekly webinar.
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