USD JPY Move Combines Dollar Side

Well traders it’s Friday November the 1st this is John kick leather chief strategist for  calm here to view a wrap-up for the past 24 hours of trade and more importantly an outlook for what we can expect in these final 24 hours of the trading week we’ve grounded out a month we’ve come through the end of an enormous amount of high-level event risk and unexpected developments as well and through all that tumult it’s going to be important that we we review our bearings and look for where the opportunities have been motivated prompted and where they may have dried up because of that that wave of event risk and we’ll take a look at some of the more interesting areas and the market in today’s video but before we do that just take 10 seconds to look over the wrist disclaimer and once we’re done with that we can dive right into the conversation you you okay so we ended out the month of October all right and it does so with a quite a remarkable amount of enthusiasm although not all as remarkable as what you would see in the likes of the US indices so taking it up to a monthly chart you can see here an enormous recovery and ultimately a record high close basis on this higher timeframe chart here for the S&P 500 the Dow a little less aggressive and it’s and it’s projection of its strength but it’s still a record high close Nasdaq as well making a pretty impressive move actually a candle that fully encompasses the previous month and again at the same time now of course we can look at some of these other benchmarks that I like to refer to as a risk basis and the reason I do this is because the correlation as well as the intensity of a move that seems to orient towards risk on or risk off is much more convincing that it can continue not that it’s just a one-off or just a happenstance let’s say something happens in a particular country or a particular asset if that is the case it is less likely to have follow-through but when you have something that is consistent that is where trends develop and trends are where opportunity bigger opportunities arise so emerging markets rest of world equities high-yield fixed income or junk bonds carry trade alright we had some risk appetite across the board through the specific month but how convincing does it look when you look at on this scale it doesn’t look that convincing at all in my opinion some might see it a different way but it certainly doesn’t have that same kind of mentality or building enthusiasm bubbling beneath the surface that you would presume on something like the S&P 500 or the Dow it’s important to make that distinction because if I were just looking at let’s say the SMP 500 and that were my only measure of risk and let’s say Friday or into next week we have a break to the upside if I were calling it on a technical basis and a full assumption of sentiment purely from this measure I would say it has great capacity to follow through because it sticks with the prevailing trend it is a noteworthy technical break and it would seem that there is that level of enthusiasm but when I look at these other risk-based assets it really cools my appetite for that kind of move not that it means that we can’t have risk appetite it’s just a much more restrained version or requires significantly more motivation or fundamental backing okay now taking it back down to something of a lower time for him on this day leap we had a lot of fundamental assumption that was building into this this epic pressure cooker for the S&P 500 really attempting to make a case for the a blow-off top or blow out top for a strong follow-through enough of a break that momentum could follow but we wouldn’t get that too Thursday for a number of reasons but first and foremost I don’t think that the the fundamental backing that got us to this point in the first place was necessarily that reassuring we had questionable economic backing the US GDP figure that we had on Wednesday was only moderately encouraging it was simply just wasn’t as bad as expected or slow as expected for the the quarter you had the pharmacy rate decision in which the markets initially took consternation with the fact that it was a 25 basis point rate rate cut and the assumption was that there was going to be more into the future but the Fed wouldn’t fuel those expectations that was something of a disappointment but the markets are eventually garnered some enthusiasm thereafter and of course they tapped into the popular can interest in concerns around trade wars and presumably that the US and China negotiations are still continuing to a full resolution all of that is is the thinnest possible veneer of genuine optimism and enthusiasm much less does it get to the point of saying yes it absolutely justifies a record high price for the markets so we’re dealing more with with enthusiasm pure confidence or speculative appetite in other words and if there wasn’t something else that would really charge us forward it was probably going to destined to struggle and that’s something I still hold into this new trading month and that we see and into 2020 frankly but there was one area what I wanted to see did it really garner good traction and that was the tech sector because we had strong after-hours earnings on Wednesday evening for Apple and Facebook – the key key Fang members which would in turn insinuate that you’re going to get a technical lead so if we were operating purely on speculative appetite rather than some overriding and encouragement of growth or monetary policy lever or trade war optimism then you would expect the Fang grouping to lead a more productive move higher well here’s my Fang index it’s not equally weighted they’re essentially a general waiting to get their prices about equivalent and as you can see it has definitely struggled as a benchmark or leader whereas historically the fing index was absolutely leading certainly the Nasdaq Composite was leading the of the S&P 500 by a wide margin and the broader measures the Wiltshire 5000 or the Russell 2000 it was absolutely outpacing to an extent excessive degree it was the concentration of this particular index the tech index outperforming all the other sectors and then in turn those the US equity markets as a benchmark outperforming most other counterparts global indices as well as other asset classes all together so it was a great opportunity for this to be to take control to take the reins so to speak on sentiment but as you can see we got a little bit of a break to the upside not much in the way of follow-through Facebook Apple the motivation didn’t show in these shares post earnings so the actors trade on Thursday and that would underwhelm for the Nasdaq this is the Nasdaq 100 now the Nasdaq as a ratio to the S&P 500 the broader index you can see that that ratio would not rise so the typical driver or leader and speculative appetite was not in full form this doesn’t have to be the only front running catalyst there could certainly shift interest and influence but that doesn’t seem to be happening the S&P 500 as a ratio relative to its global counterparts S&P 500 to the veu you can see that that didn’t garner any meaningful traction either so it was a disappointment in sentiment and fundamentals were never the reliable backing for this kind of movement this motivation now we have passed the data the core opportunities the the tangible opportunities to actually spark a little bit more enthusiasm which means that we have to open ourselves back up to the uncertainties of the market and it’s gonna be up to speculative appetite itself to maintain its own buoyancy that’s a little bit more difficult to do when you’re looking at something like the SMP 500 pushing records or when you’re looking at something like the emerging market ETF where it’s attempting a break it’s struggling to find follow-through that is perhaps even more problematic to maintain a degree of bullishness because it insinuates we have the technical break we should have a textbook follow-through according to our norms of of charting analysis and yet it’s not coming so those that were enthusiastic to participate in the initial break are probably gonna fall apart in terms of conviction behind it all right now I’m taking a look at the norms the historical averages of market performance when it comes to the sp500 then my favorite benchmark of Christians as I often say as well as the volumes of the level of activity October is usually a bullish month we ended up witnessing that it’s also on average the most voluminous so you have the most volume that was not the case there was in fact a significant deflation involve awl um– which is insinuating insinuating further that there is not a lot of conviction to be found here but in the next two months November December our strong positive leaning months historically for this index as volume starts to drop off squeezing out liquidity is going to be a problem if we cannot maintain pure speculative lift or otherwise get fundamental backing behind it looking at the risk or the volatility historically the volatility Peaks in October and it starts to deflate through November as the holidays start to kick in taking a look at the volatility index we are already exceptionally low is there just going to be a further deflation into the end of the year and just meander until liquidity restores in January I doubt it but it does mean that you’re you’re probably going to struggle for pure speculative momentum and we have to abide by more of these fundamental themes when they do arise which can be problematic because it’s not all scheduled event risk these are the kind of conditions that we’re dealing how do you deal with that well you should expect shorter bursts greater bursts of volatility and markets and see for a struggle a falter it’s more likely also that the prevailing trend the sp500 bullish were risk on is it going to be more difficult to promote momentum than the alternative if volatility and liquidity are key backdrop conditions then sharp movements to the downside risk aversion that don’t necessarily commit to a full-tilt bear trend are more likely to garner traction not more probable but they will be more fruitful in terms of movement all right so this is what we’re expecting what we’re looking towards going into November trade but in the meantime those fundamental themes must keep active active observation on them so the trade war progress seemed to be a highlight in the headlines between the United States and China especially reinforcing some of the disappointment with the pharmacy rate decision on Wednesday afternoon evening well that started to degrade certainly this past session why there were reports that China was doubting the the United States willingness to commit to the long term deal on their trade and the phase one Trump suggested or marked himself that he’s working on a new site for signing off on a phase one they were 60% of the way through the deal but it was also suggested that China was supposedly demanding and into tariffs if they were going to move forward with the Phase two deal which is most likely a non-starter someone has to capitulate here and both of these countries have little interest and little historical reference to suggest that they they will be the ones all right trade wars the loose enthusiam that this would encourage this is the USD cnh is certainly backing off especially considering that the United States and China have reportedly been on the verge of improvement and we’ve seen it fall apart multiple times before that is problematic so this is not really a confidence-inspiring theme to back something like the S&P 500 pushing record highs it’s not even really that reliable for spurring a little bit more optimism and movement from the likes of the emerging markets or even from the US DC NHL so be mindful of what to expect from that in the meantime we were watching GDP as a carryover of Wednesday session into Thursday Wednesday had the US GDP figure the French GDP figure and those were not particularly inspiring they were slightly better than expected but carrying through into this past session we would focus on the Hong Kong GDP figures which we already officially well unofficially knew what they were going to play out to be that’s because the Hong Kong secretary had suggested that there had already typed into recession that was just confirmed in this figure the eurozone GDP figures were I guess better than expected expectations were for 0.1% growth in the quarter is 0.2 but that is a very mediocre figure especially for a region that is very concerned about the external circumstances dealing with issues like brexit and trade wars with the United States potentially and seeing some of its largest members flirt with possible recession like Germany so this did not carry the wealth of enthusiasm that we would expect from something like the dax or something like the Euro even so it certainly wouldn’t escalate to the outer sphere of sentiment the leader of sentiment in the S&P 500 now other interesting GDP oriented updates came from the likes of the Chinese PM eyes those Chinese PM eyes this is actually the government figures were broadly disappointing the composite was 52 following 53.1 reading the manufacturing which is still their bread and butter dropped from 49 point eight two forty nine point three that is if you want to look at it that way that is a recession measure for the manufacturing sector which is very disconcerting but not new we’ve seen this actually as the case before we also saw an interesting Canadian figure so the Canadian GDP figures were more or less in line with expectations not really building up on the opportunity to see the dollar cad or the cat yen extend significantly momentum purely on the canadian dollar basis this canadian dollar move started because of the Bank of Canada lowered its growth forecast and started to talk with a little bit more of a dovish dovish view but we did not see necessarily that take place but as you can see here actually from the cad yen there was some significant movement in the yen crosses purely now if you’re looking at the risk sentiment there was pullback across these variety of assets that we’ve been looking at but I thought the most interesting was actually the yen crosses dollar yen the dollar was still underperforming it was still meandering you can see here the DXY is pushing the floor here and with the likes of the dollar yen you actually had a pullback from range high this is a particularly interesting technical pattern in my opinion I was also watching it as a possible break higher if risk appetite can hold out or actually get a significant escalation or if the dollar could really charge forward which is difficult to do always going to be difficult to do but this combination presents another very interesting opportunity but since we’re here on the dollar we did have some disappointment firm the Chicago mni business barometer the lowest I think since 2015 there was expectations or discussion about ramping up a 20s and a 20 tax cut proposal didn’t get a lot of traction and we are heading into Friday now if our payrolls although I don’t put my expectations very high the best potential this may have is to be particularly weak showing of overall employment trends which could in turn leverage the probability that the Fed ramps up its probabilities of a December cut which they still say to the stated that they’re very dubious of but it could continue to depress the dollar alternatively a robust figure is probably gonna be overlooked because it’s not as important as the other fundamental themes that we’ve been dealing with the rest of this week all right so there’s a skew and potential here now this being said I do like that dollar yen move all right so I’m moving to range but I’m holding it up against a couple other dollar based crosses most people like the Euro USD all right because it is moving to the extremes of its range a reversal here would be encouraging but that would require a dollar recovery so this might be a better opportunity if indeed the dollar regains some traction I actually asked people not long before I started here 55 votes so far but which currency cross which of these dollar pairs that I mentioned here were their favorite and it was the eur/usd that topped them all right 42% dollar yen was second 29% Aussie USD 22% some and some percent was the dollar peso actually that tends to follow the I think the general awareness of those pairs and that’s what I want I want to draw attention to euro USD might look good but it’s not even near the extremes of those technical boundaries so consider something like the dollar yen or the Aussie USD if you really want a dollar rebound and there’s questions about the progress of trade wars ozzie USD is perhaps better suited for this the Australian dollar holding a greater exposure to the Chinese economic health my preference if it’s a dollar rebound though is really dollar Mexican peso and this is a much more robust technical picture the Mexican peso rises and falls relative to the US given their North American economic connection their trade war implications directly from the US MCA and the economy in Mexico has certainly shown some struggle so there’s some some solid fundamental backing behind what is a very remarkable technical pattern so and this is definitely the path of least resistance kind of perspective so this is kind of my leading preference I definitely like the dollar yen for a shorter basis ozzie USD for technology mental and euro ste is actually further into the rear of what I consider the best options but remember keep open a dollar bullish and bearish view there’s good reason for both of them but as it stands with wrist trends as we go into Friday non-farm payrolls can perhaps tease a little bit of wrist trends but I don’t think that it’s going to be a particularly profound motivator especially for a break to the upside something else may happen and provide some greater lift but it will be something of a struggle all right if there’s a pullback and risk trends purely from a deflating of that previously earned buoyancy that would probably be more productive if that’s the case and you’re looking at a dollar pair again the dollar yen or the odds of USD are better suited for something along those lines because they can position the dollars of safe haven but there are plenty of other crosses that have better context for risk aversion and not have the complication of the US fundamental perspective which is getting more and more complicated maybe even a euro ozzie which is unusual but very technically appealing all right the last thing I want to look at is gold now I’ve said this many times before it’s is a fantastic barometer of not just safe or risk aversion risk appetite but it takes on an additional feature of being a reflection of financial stability so as it rises this risk aversion with the added influence of financial concern related to things like the ineffectiveness of monetary policy which is a big issue for me a big theme in my mind here it is gold price and equally in all the dollar may in a euro pound yen majors and as you can see it drog to higher this past session all right so a little bit of risk aversion certainly would support this kind of move but I think this is more unique to what gold represents so keep tabs on this all right well we wrap it up here.

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