The S&P 500, the VIX, the Dollar, the USDJPY, the EURUSD, and the GBPUSD Points to Consider: The S& Fear of the coronavirus delta variant, a slowdown in economic activity, and a tightening rate projection were all given as causes for the risk aversion. The dollar ultimately crashed, resulting in a USDJPY breakdown, a EURUSD range, and GBPUSD trepidation near range support. A Surge in Volatility That Wasn’t Expected I was all set to watch market activity calm down as the trading week came to a close, but a broad and sharp increase in risk appetite this past session seemed to turn the tables. The day was very prescriptive in terms of my favorite ‘one-look’ mood gauges. To start Thursday’s session, the S&P 500 led the US indices lower with a huge bearish gap lower. The bearish gap in the SPDR ETF was the sharpest open lower in nine months. However, the drop followed a previous day’s record high, and the markets gained ground throughout the lively trading session, but not enough to make up for the early losses. As we enter the final trading day of the week, the key question is whether the rapid collapse has deep enough motives to overcome the weekly, monthly, and systemic market activity restraints. Despite my preference for volatility, there are reasons to mistrust the market’s commitment to a profitable bear trend. First and foremost, it is unclear which subject drove the market’s decline. With a focused agenda through Friday – especially for the UK and Canada – and a busy week ahead, my pessimism for late-week momentum is high. On the Tradingview Platform, a chart of the SPDR S&P 500 ETF with volume, 100-Day Moving Avg, and Gaps (daily) was created. While I’m not sure how much momentum the markets will create in the last hours of the trading week, there’s little doubt that the drop in ‘risk assets’ this past session was widespread. The DAX 30 appears to have completed a head-and-shoulders reversal through equities, while Japan’s Nikkei 225 is on the verge of breaking a big descending triangle. Similar patterns of retrenchment were seen in junk bonds, emerging markets, and carry trade (Yen crosses), demonstrating the breadth of risk aversion. The significant correlation between assets that are typically unrelated implies that sentiment was at the root of the market’s unusually active day. However, a break out does not always imply continuation, and a spike in volatility does not always imply a meaningful trend. I’m always on the lookout for a systemic tendency in the financial system, but my experience has taught me that it’s important to maintain a healthy level of skepticism in the face of ‘ideal’ market conditions. John Kicklighter created this chart demonstrating risk trend strength. The fundamental patron to a systemic move and ideal market circumstances are two important variables in the market for transforming short-term volatility into a full-fledged trend. There were a few allegations leveled at the bearish feeling for the former consideration. Concerns about the coronavirus’s delta version gaining popularity are a global issue. However, there has been plenty of rhetoric from world leaders about avoiding a complete economic shutdown, so more cases may not result in immediate economic traction. Another factor to examine is the strikingly broad change in monetary policy normalization from extreme dovishness among major central banks. The emerging markets are an excellent barometer for this worry. Meanwhile, after the post-pandemic recovery spurt, growth is beginning to show overt symptoms of slowing. This is perfectly natural, but it’s not what over-extended bulls like to see. Evidence of a slower increase, like as the ISM service sector data released earlier this week, will carry extra weight in this overly bullish market. I believe that some of our recent severe volatility is due to public sentiment. Market players are in overbought positions according to traditional value measurements, which may frighten the suddenly reflective. Market conditions, on the other hand, continue to be a moderating force in the markets. The VIX rose to 21 on Thursday before settling at 19, indicating that there is still a long way to go until there is a sustained flight in activity levels. EEM ETF chart with 100 DMA, Gaps, and VIX Volatility Index (Daily)Chart created on Tradingview Platform Interest rate expectations are falling, and the dollar is following suit… Finally The understanding that excessive risk exposure by market participants has larger consequences without the imagined limitless backing of deep-pocketed central banks is one of the side effects of the concern about monetary policy normalization. These factors appear to have caught up with the US Dollar this past session, as the persistent drop in the US 10-year Treasury yield (below 1.30) put more pressure on interest rate expectations (now below 16 basis points priced into the end of 2022) and dampened some of the enthusiasm for the Greenback due to its relative yield. It is natural for the Dollar to soften if risk appetite and growth predictions are faltering – and there is every reason for them to do so – but I do not believe that global monetary policy normalization is forever stuck. There is more support to move forward now that so many major and emerging central banks are considering or taking moves to modify their accommodative policies. On the Tradingview Platform, a chart of the DXY Dollar Index with an implied Fed rate hike through 2022 and a 20-Day Correlation (Daily)Chart was created. The Dollar’s Progress from a Technical Perspective It’s difficult to predict what the intentions are for Friday and beyond with risk trends in question and basic motivation fighting against challenging market conditions. The Dollar and its crosses, on the other hand, have a variety of alternatives for varied outcomes. The most spectacular of the majors this past session was USDJPY, which took advantage of a mix of general risk aversion (bearish Yen crosses) and the US currency’s fall to accelerate a clear breach of this pair’s bullish channel, which dates back to the beginning of 2021. There is still momentum to be found here if one of the primary winds maintains while the other weakens. USDCAD Daily Chart with 20 and 100 Day Moving Averages (Daily)Chart created on Tradingview Platform Unlike the USDJPY’s ‘breakout,’ EURUSD’s volatility supported a wider range. The reversal of all trendline support at 1.1800 continues a nearly 12-month-old pattern. This is a path-of-least-resistance resolution in technical terms, and thus a more enticing shift for future follow-through. On the other side, there isn’t much of a driving force to get us through a busy Friday. There is nothing on the horizon that I would consider important for either the US or European currencies, and their respective liquidities reduce a lot of the systemic issues such as risk trends. If we are coasting, though, there may be a range swing that can be played out until the next significant fundamental motivator emerges. EURUSD Chart with 20 and 100-Day Moving Averages and 50-Day Disparity Index (Daily)Chart created on Tradingview Platform GBPUSD declined to address its diminishing congestion, in contrast to the (admittedly differing) resolutions of USDJPY and EURUSD. With the right catalyst, the Cable has worked itself into a final range that appears to break naturally next week. However, before the weekend completely drains liquidity, the cross may be able to clear the 1.3800 / 1.3725 jam. Monthly GDP, trade activity, and industrial production numbers will be revealed on Friday, according to the UK government. Though liquidity will swiftly drain, technical bounds are tight, so I’ll be keeping a closer eye on this and other Sterling crosses. GBPUSD chart with 20, 100, and 200-day moving averages (daily) created on Tradingview platform./n
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