Dollar Pressure Building, Pound and SPX Rallies Extended

15 July 2016, 09:46
Mirza Baig
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Talking Points:

  • Earnings and BoE promise to support the UK's markets contributed to another bull leg to record highs for SPX
  • USDollar has held to tight congestion for 14 straight trading days, will CPI or Fed chatter force a break?
  • Pound was this past sessions best performing major post BoE while the Kiwi Dollar suffered the biggest decline


Risk appetite extended its run with the S&P 500 forging another record high and lifting many of the sentiment-oriented assets with it. How long can this drive last...and how long will the Dollar as a conflicted haven and yield-leader hold to its tight range? While US equities are still headlining the risk move, there remains considerable disparity with other assets that fit the same category. Global equities are well off records, en vogue higher-yielding assets are stragglers and Yen crosses have only recently thrown in with the move. This could be viewed as discount and opportunity or evidence that the sentiment view is less robust than the top performers suggest.

The drive for return continues and the debate over its staying power continues to grow in the press and trading circles. We should trade the view that prevails, but we should also be prepared for changes in tide. A number of Yen crosses coming upon resistance make for timely opportunities with increased sensitivity after Prime Minister Abe stirring stimulus talk. Breaks are possible if the appetite remains unquenched, but fading options are just as prominent with NZD/JPY holding greater potential on his front. Meanwhile, the sentiment drive has yet to drive the USDollar from its range despite its clear post-Brexit reaction as a safe haven. There is plenty of range/breakout options among the USD-based majors, but what will be the motivator? The CPI inflation figures, July consumer sentiment survey and US bank earnings may help sway us off neutral.

For top movers, the Pound and New Zealand Dollar were the best and worst performers respectively the past session. The BoE's decision to hold while further bolstering expectations of August easing resulted in dramatic Pound gains on heavy volume. The Kiwi Dollar seemed to run against the risk current with otherwise moderate data. The Sterling post-Brexit is likely to retain its volatility but trend is not readily available. The Kiwi has even less backing to sustain traction. With key Chinese data (GDP), US earnings, an update on Italy's economy and financial health ahead; it will be important to keep an eye on headlines. We discuss these key themes and top performers in today's Trading Video. 

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