Intraday Market Thoughts

Volatile President = Volatile Markets

by Adam Button
Jan 5, 2017 23:09

The theme of 2017 so far is volatility and we look at why it will remain elevated for the next four years. On Thursday, the Japanese yen was the top performer while CAD joined USD in the basement. Australian trade balance rounds out the first week of Asia-Pacific trading of the year. 2 new trades were posted on the same pair for Premium members.

A pattern early in the year so far is US dollar selling into the London fix. It's hit in all three trading days to start the year and suggests flows are undermining USD rather than a fundamental rethink. That suggests the selling will eventually stop and the dollar will recover, especially if economic data continues to improve. Recent operations from the PBOC are also weighing on USD as covered in today's Premium Insights.

But oftentimes the supposed fundamental themes in markets are bent to suit the flows and the market psychology shifts. What makes this an especially vulnerable time is that political expectations, not necessarily fundamental data, have been what's driving markets. In a 140-character tweet, Donald Trump can reverse course or upend market thinking in moments. That's the kind of uncertainty that will keep volatility elevated. Add in high expectations from the Fed once again this year and a precarious OPEC cartel and there is no chance it's a quiet year.

In terms of trading, that kind of uncertainty makes any crowded positions vulnerable. When the market psychology is delicate, anything can spark a rush for the exits. We've always kept a close eye on CFTC positioning and we will continue to do so but will expand our gaze in the year ahead to anything that's overly popular or crowded. At the moment, it looks like the swift run-up in the past two months in USD/JPY is exactly that.

Ultimately, growth and fundamentals will drive the big market moves. ADP data was weak Thursday but jobless claims were strong and with the ISM non-manufacturing data. Non-farm payrolls is due Friday and forecast to rise 175K but the market will be focused on average hourly earnings, which are forecast to rise a healthy 2.8% y/y.

Before that, Aussie traders will key in on November trade data at 0030 GMT. The consensus is for a 550m deficit.

Act Exp Prev GMT
Trade Balance
-0.55B -1.54B Jan 06 0:30
ADP Employment Change
153K 171K 215K Jan 05 13:15
Challenger Job Cuts (y/y)
42.4% -13.0% Jan 05 12:30

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