Risk events ahead showing its impact a little early.
Keeping the theme of "triple crown" from an earlier post, tomorrow is a triple crown of potentially unnerving market events.
- The ECB and Mario Draghi start things off with the latest on policy, growth, inflation. Rates are expected to remain unchanged, growth is expected to move up a little, inflation downs a little. What does that do for policy going forward? Is a tapering plan announced? Is it put off? Unnerving event for traders.
- Later in the morning (at 10 AM ET/1400 GMT) ex FBI Director Comey testifies in front of the Senate Intelligence Committee. Was his firing a way for Trump to sidetrack the FBI's Russian investigation in the 2016 election? Inquiring minds want to know and the impact can be damaging to stocks if it is more than a smoking gun (or appears that way). Unnerving event for traders.
- Finally, the UK general election will take place all day long with the first results expected to be officially announced at 2300 GMT. Unnerving event for traders.
When the market is nervous, it can cause choppy price action before, during and after. Why?
Risk is increased. That risk is inclusive of event risk, liquidity risk and market risk. All three will be at red hot levels. Do you touch a red hot stove? Most people would not. Most tend not to play fully in red hot markets too. As a result you get the price action we saw today as traders pare positions and exit the market. If there is less trading (i.e.liquidity) that can exasperate the price action.
Most pairs vs the USD today has seen volatile price action. The EURUSD, GBPUSD, USDCHF and USDJPY has seen the market price do some laps up and down (or down and up). The NZDUSD, AUDUSD has been choppy, but in somewhat a more contained trading range. The USDCAD has been the exception as it trends on the back of the sharp fall in the price of crude oil after the surprise rise in the inventory levels. The price of crude oil is down -$2.20 or -4.48% to $46.00. The CAD is the weakest currency. The AUD is the strongest but most of the move occurred earlier in the session
The US stock market is also getting in the up and down act.
The S&P is trading nearer the high for the day (up 3 for the day) at 2432. The high reached 2434. The low 2424. The Nasdaq which was up about 24 points at the high, gave up all the gains and traded into negative territory. It is now up about 16 points in the latest move back higher.
European stocks were in the red for the day with the UK FTSE down -0.62%, the German Dax down -0.14% and the French CAC down -0.07%.
US yields have moved higher today. The 2 year is up 1.6 bp to 1.3102%. The 10 year yield is hanging around its 200 day MA (it currently trades at 2.18%, up 3.6 bps on the day). Gold is correcting lower today. It is down about $9 at $1285 after nearly getting to $1300 earlier in the day. Gold has been rallying over the near term on the back of the global uncertainty (and perhaps the events tomorrow). Today is a day for traders in that instrument to pare positions as well.
Overall, expect more of the same over the next 48 hours as the market prepares itself, then sorts through the 3 key events tomorrow. No one really knows how the cards may fall so plan your trade accordingly. I will continue to outline the levels but if there is advice I can give you, be more patient, understand the risk in the market, wait for extremes and don't be afraid to take profit if it moves your way, and limit your loss if the levels you trade against are not working out. It is always tempting to get more involved in the game, but when the price action is red hot, it is best to keep your hands off the stove.