The market’s primary movers has been upended. The prevailing bull trend for US equities on the way to steady record highs and the recent breakout from the US Dollar above 94 have both struggled to generate enthusiasm. Meanwhile, volatility through Bitcoin, the Kiwi and oil present at least short-term distraction from the bricked main drivers.

Talking Points:

  • Risk trends continued their meander with the S&P 500 notching a record, VIX again below 10; but junk bonds are creating conflict
  • The Dollar's range has withered to levels not comparable unless we go back to May or August 2014 - trouble for EUR/USD and USD/JPY
  • Where crude's surge has eased back, Bitcoin has seen a fresh wave of volatility with the canceling of Segwit2X

What are the DailyFX analysts' fundamental and technical forecasts for the Dollar, Euro, equity indexes and more through the fourth and final quarter of the year? Download the recently-released 4Q forecasts on DailyFX.

Record highs from the S&P 500 and other equity indexes has become ubiquitous, but enthusiasm continues to elude speculators while the VIX volatility index churns below 10. Typically, an extraordinarily low reading on an implied volatility gauge is good news for those interested in taking on greater risk in hope for more favorable returns. Yet, as has become apparent with time, there is little interest in building up such exposure as opportunity via discounted asset prices, meaningful yield or disruptive value have all but vanished. Low volatility is not always a good thing. Nevertheless, risk assets generally lined up behind the US benchmarks from the DAX to the Nikkei 225 to emerging markets. There is one significant contrast in this grouping though in junk bonds. The HYG ETF has pitched into a fast retreat that will quickly bring it to the 'neckline' of a head-and-shoulders pattern. While this is technically significant, the implications for risk trends is likely benign. This market alone will struggle to touch off a sentiment shift; but it could signal cracks in the system that it may be more sensitive to. It is worth keeping tabs on.

Meanwhile, in the FX market, the Dollar reflects the same lack of enthusiasm. Despite the remarkable technical break seen a few weeks ago - motivated by the ECB rate decision - there has been no meaningful follow through. In fact, the 8 day range on the DXY Dollar Index is the smallest since May 3 which was itself a brief collapse in activity that only found its equal all the way back in August of 2014. This does little to improve the trade appeal of a pair like EUR/USD - that is on the action side of a technical break - much less USD/JPY which looks staged for a technical move of its own (either clearing a wide 2017 range or moving with purpose back into that congestion pattern). This veil of restraint is a market wide phenomena. We should apply the same expectations that it will be difficult to charge movement for any currency - or even asset - as it has been for the Dollar and S&P 500 particularly without a fundamental motivation. The Euro crosses are an important place to remember these conditions as pairs ranging from EUR/JPY to EUR/AUD look primed on a purely technical basis.

Yet, just because there is a general restraint throughout the market, doesn't mean that we are totally devoid of activity. In FX markets, we had a strong - albeit short-term - charge for the Kiwi Dollar when the RBNZ announced its monetary policy views. While there was no change in the benchmark rate, the group move forward its timeline for the first rate hike that will return some appeal to the wayward carry currency. Speculators have shown themselves more than ready to price that forecast much earlier. In commodities, US crude oil's rally strong breakout above $55 between Friday and Monday has left some of its volatility but shed conviction of trend. Is it really that surprising? And in cryptocurrency news, headlines announcing the CBOE was looking for approval for a Bitcoin ETF and an afternoon update that the Segwit2X was scuttled led to remarkable volatility (an $800 range in an hour) but not the trend we would expect. We discuss reasonable market expectations in today's Trading Video.

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