Looking ahead to EURUSD activity, VIX Recharge and key market data


S&P 500, VIX, EURUSD, Interest Rate Forecast, Recession Risk and Liquidity Talks:

  • Market Outlook: USDJPY Bullish Above 141; EURUSD bullish above 1.0000; Gold drops below 1,750
  • Liquidity is the most immediate consideration for market potential, but a reversal next week will lead to a resumption of participation and an extremely low opening to volatility.
  • There’s a dense array of major event risks next week, from the Eurozone CPI and the US PCE deflator to the NFP to US consumer confidence and recession fears.

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As many expected, seasonal conditions would eventually kick in with the well-known liquidity drain from the markets, the US Thanksgiving holiday season. Despite the presence of a number of closely monitored fundamental events (including the OECD economic forecast, the November PMI and the minutes of the FOMC meeting), suppressed liquidity levels will not inadvertently benefit from severe volatility in core capital markets. During the remainder of the holiday trading week, the restriction on participation will increase significantly; But this should not be taken as reliable evidence that the markets will be completely bound by range. Shallow conditions can produce severe, short-lived waves. That said, unless there are big and unexpected headlines from the world’s major financial centers; We will probably adjust our system development expectations in the new trading week. The S&P 500 — a key measure of sentiment — is beginning a return to liquidity after its lowest 9-day trading range since January. To make monitoring easier for less tech-savvy people, the barriers for this limited technical period roughly correspond to the 200 and 100-day simple moving averages.

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S&P 500 chart with 100 and 200 day SMAs and 1 day historical range (daily)

Chart created on the Tradingview platform

As we look into the new trading week with significant improvement in the momentum of post-holiday liquidity expectations and the risk of planned events, I think it’s important to reflect on the complacency in the market. There are many ways to measure the market’s sitting duck syndrome, but the most ubiquitous VIX index offers an accessible measure with an extraordinary level of isolation. The so-called “fear index” fell in six consecutive trading sessions through Wednesday’s close when it closed on a worn wedge around 20. It’s not historically very low in the VIX, but it registered as a relative low, which has led to a reversal in the previously expected (implied) volatility, as well as some notable twists for the underlying capital markets (as a basis here). S&P 500). Overall, these seem exceptionally low levels given bearish risk concerns, and even the “holiday trading conditions” don’t warrant risk aversion at the moment.

Chart of VIX Volatility Index showing 20 and 200-day SMA and sequential candlestick moves (daily)

Chart created on the Tradingview platform

While liquidity will play an important role in the market’s ability to generate significant traction over the next week, the risk of top events will play a greater role in our eventual activity levels. There are unresolved systemic economic risks in the open market that can easily be triggered by high-level planned event risks. In general, I follow fundamental updates – both planned and unplanned – that inform monetary policy developments and recession risks. That said, unexpected financial disruptions should be viewed as a potential risk that spirals out of control. Developments such as the Russian invasion of Ukraine, the British ‘mini budget’ debacle and the FTX crypto implosion are therefore separate events in 2022; And they probably won’t be the last of the contingencies we’ll have to deal with as we move forward. Unpredictability aside, the risks of recession and monetary policy pressures are very real and well-known threats. In retrospect, last week provided a warning from the OECD that the outlook for economic activity in 2023 looked increasingly cooler and dependent on expansion from the likes of China and India. Evidence of a swing from stifled economic expansion to outright contraction seems like a data lagging formality, but the market still lives on a sense of hope.

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Major macro event risks on the global economic calendar for the next 48 hours

Calendar made by John Kicklighter

For markets at the crossroads of major fundamental trends, few measures seem more open than EUR/USD. This does not mean that this exchange rate is the result of a clear directional and productive trend. When the planned event risk is high, reality meets with the exact opposite result. When there is planned event risk on either side of the pair that tends to ‘beat’ or ‘miss’, the effect can be more or less offset by the actual price action. On the euro side of the exchange rate, the consumer inflation indicator (CPI) and the eurozone’s unemployment rate will weigh heavily on an economy that the OECD warned was at extraordinary risk in 2023 and urged the ECB to “shut down.” Gap’ with the Federal Reserve. Meanwhile, a combination of event risks for the Conference Board’s consumer confidence survey, PCE deflation (the Fed’s preferred measure of inflation) and nonfarm payrolls in a broader reading of the top fundamental concerns of the world’s largest market will boost the dollar.

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weekly 7% -1% 2%

EURUSD chart with 100 and 200 day SMAs as well as COT netspec positioning (daily)

Chart created on the Tradingview platform

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