Doubt Hounds S&P 500 at Record Highs, Dollar Readies for US CPI

Talking Points:

• Risk appetite climbed Monday with S&P 500 hitting a fresh record, but doubt continues to slow sentiment's progress
• Yen crosses have been slow to follow in the wake of equities and other 'risk' trades, complicated by Japan 2Q
• Dollar and Pound face July inflation statistics which may stoke volatility via monetary policy speculation

The quiet that plagued the markets last week carried into Monday. While the S&P 500 led the charge to new highs among risk-oriented markets, there was little momentum or volume to bolster the level of conviction in the advance. This reticence should influence our approach and expectations to trades. While the persistence of the yield chase is remarkable, it rouses a fraction of the enthusiasm it mustered in the past two months. Long risk views should be kept under close vigilance with both objectives and stops kept at reasonable distance.

Top scheduled event risk through the opening session was the Japanese 2Q GDP reading. The world's second largest economy (debatable considering China) stalled through the previous quarter, leveraging the sense of need the Japanese government and central bank referred to when they announced their respective installment of the most recent stimulus. Yet, that does little to clear the way for the next Yen move. The most recent boost to support came after the close of the third quarter, and more would not insinuate 'more effective'. USD/JPY and Yen crosses are bound to risk trends, but they are struggling to keep pace with equities, high-yield fixed income and other benchmarks in the same classification.

Ahead, the docket looks to stir the pot with event risk that has shown a range of influence over the Dollar, Pound, Euro and Aussie Dollar over the recent pace. In particular, the US and UK inflation statistics will rouse rate speculation for their respective currencies. The Dollar would see the heavier reaction to a hawkish outcome while the Sterling would be more reactive to a dovish signal. While the data can stir volatility, it will still be tough to overcome the pull of skepticism and complacency. We discuss these market conditions and the opportunities they shape in today's Trading Video.