Talking Points:
- Over the past eight years, the dominant fundamental theme was the escalating and diverging global monetary policy
- The financial landscape moving forward will likely be dictated by policies from Trump and others until risk trends rise
- Protectionist policies grow increasingly unpredictable and combatative, translating into volatility and hampered trends
See what live coverage is scheduled to cover key event risk for the FX and capital markets on the DailyFX Webinar Calendar.
Technicals, fundamentals and market conditions are evolving with crucial influence over activity level and trend developement which in turn necessitates adjustment in trade approach. There are times when fundamentals are defined by the motivation of scheduled event risk with clear bouts of high volatility and a greater deference for technicals. In such a scenario, short-term range and breakout strategies serve best. In contrast, conditions where deep fundamental conviction bolds through support and/or resistance can better support lasting trend trading.
Over the past decade, we have seen a full evolution of market type. In the years leading up to the 2007 peak, a high-yield environment encouraged a reach for returns that treated each data release as motivation for an accelerated climb and a greater interest in technicals. With the Great Financial Crisis from 2008 to the beginning of 2009, drive was once more universal but there was little credibility offered via technical support that couldn't hold back fear. A need to divest all risk meant high correlation with strong trend through for speculative and haven assets alike. With the subsequent recovery, monetary policy represented the primal mover with tempered volatility and seemingly steadfast climb. Those winds died down however when global policy converged at the extremely accommodative end of the spectrum. Swing trading - with a priority given to support and resistance over themes and trends - became the standard approach.
Where do we find ourselves now in the market's evolution? The fundamental motivation has moved away from monetary policy and risk trends have yet to re-establish themselves. Now, the rise of protectionism has found a firebrand in Brexit and US President Donald Trump. Scheduled data now gives way to policy threats made often times on social media. This tests the depth and persistance of complacency that has become so rife in the financial system. Until volatility sticks though, a depth chart of technical barriers is proving remarkably influential. Have we settled into a new market approach or are we in the middle of the next transition? We discuss this in today's Strategy Video.
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