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How Event Risk Like NFPs Can Turn to Systemic Dollar, SPX Trends

How Event Risk Like NFPs Can Turn to Systemic Dollar, SPX Trends

2017-04-05 03:14:00
John Kicklighter, Chief Currency Strategist
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Talking Points:

  • Scheduled and unscheduled event risk is a catalyst that can shift expectations on more critical themes to spur trend
  • We can visualize the impact of discrete event risk translating into trend as a process of dominoes tipping forward
  • An escalation of influence is illustrated through NFPs to monetary policy to risk trends and trade policy to risk

Sign up for the live NFPs release coverage and see what other live coverage is scheduled to cover key event risk for the FX and capital markets on the DailyFX Webinar Calendar.

Event risk rarely has the innate pull necessary to trigger a deep and self-sustaining trends in a particular asset - much less broader markets. However the scheduled and unscheduled data, speeches, meetings and other newsworthy fundamental events can fell the first domino in a speculative chain reaction that eventually moves tectonic market plates. For many, all datum is seen as a likely spark for a market explosion which inevitably leads to constant disappointment. On the opposite extreme, a constant sense of skepticism - sometimes even disregard - leaves traders ill prepared for volatility that eventually moves the markets to a full-blown trend.

The transmission between highly-publicized headline fodder and moves that can provide market participants with systemic opportunity is the escalation to themes that can draw the attention of a wider population and fuel the motivation to alter positioning. This is not often a single middle step. There can be multiple stages that we graduate through before the deep currents are reached. Monetary policy, protectionism, growth projections, volatility and other systemic concepts can act as a capable amplifier to reach far larger crowds to motivate wholesale capital redistribution. The final action in the chain is the wholesale shift in funds. The motivation for this migration can be triggered via different outlets or even a concert of drivers. Yet, the market's current ultimately takes over and provides the opportunity.

To put this abstract theory into practice, we attach the escalating dominoes to a couple channels that are familiar and likely to be revisited this week. The first line begins with the Friday nonfarm payrolls (NFPs). This regular employment report certainly draws considerable attention well before its release, but its ability to drive the Dollar depends on its ability to alter the course of rate speculation further down the line. Given the degree of speculation surrounding the FOMC's agenda, it would not take too extraordinary an outcome to tap an extended Greenback response. Should the United States' unique bearings mingle with expectations for the ECB, BoJ and others; the escalation to full spectrum risk trends with the S&P 500 in its crosshairs is certainly possible. Another spark to trace through is the possibility of US policy updates undermining the build up in speculation since the US election. That can easily translate into a 'risk' response. We try to put the concept of fundamental escalation that can take event risk to full trend in today's Strategy Video.

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How Event Risk Like NFPs Can Turn to Systemic Dollar, SPX Trends

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