Talking Points:

• A strong two-day rally for the S&P 500 and collapse in the VIX show the markets' expectations

• The market has positioned for a weekend resolution to the US debt standoff

• Speculation has tipped the scales once again, where a delay may not rally the bulls for long

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The S&P 500 soared, the VIX collapsed and the US dollar edge higher heading into the weekend. While there was no resolution to the debt ceiling standoff in Washington before the close, reports running more optimistic quotes set speculators' expectations for a weekend fix. Averting disaster is the likely outcome to this financial market time bomb, but the details, timing and investors' own positioning can result in unexpected market reactions. For the short-term reaction, an end to the standoff will likely carry a risk and dollar positive impact; while ongoing tensions on Monday's open spur the opposite. However, the crowd may be wary of a simple delay and may more readily recognize the maturity of capital market trends. We discuss how the market is set to react to this important event next week in the weekend Forex Strategy Video.

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