#Dollar Collapse Paused and #SP500 Unsure as Extreme Volatility Confronts #CPI Wait (8 NOVEMBER 2022)

S&P 500, VIX, Dollar, EURUSD and USDCNH Talking Points:

• The Market Perspective: USDJPY Bearish Below 146; EURUSD Bullish Above 1.0000; Gold Bearish Below 1,680
• A disparity between realized and expected volatility persists with seasonal expectations confronting very real systemic problems on the horizon – creating a very uneven backdrop
• Scheduled event risk over the next 48 hours seriously lacks for one-punch market impact until we reach Thursday’s CPI, but that should lull us into complacency

A Very Quiet Start to the Week for S&P 500 and Risk…In Line with Historical Norms?

There has been an overt divergence in the level of actualized volatility in the financial system versus the anticipated activity drawn from popular indicators like the VIX. I don’t believe that fight has been decided, but we find ourselves in a position whereby the market would be naturally throttled in the lead up to the next major event risk. The October US consumer price index (CPI) has seen celebrity amplified after last week’s FOMC rate decision pushed out the end date of its tightening regime and subsequently raise the perceived terminal rate next week. Naturally, if we are waiting to see how this event lands, it stands to reason that there will be limited interest to ramp up exposure to uncertain speculative tides in the interim. It is under that sense of ‘anticipation’ that I can understand the restriction in activity to start this trading week. The S&P 500 managed to widen out one of its most restrictive trading range of 2022 in the final hours of trade Monday, but the low volume and the hold below 3810/15 – the 38.2 percent Fib of the August 16th to October 13th bear leg and the same percentage of the post-pandemic low to December 2021 record high – suggests tepid conviction is amplifying technical influence.

Chart of S&P 500 with 100 and 200-Day SMAs, Volume and 1-Day Historical Range (Daily)

The same downshift in market activity may have helped the Dollar brake up a full meltdown to start this new week. If you missed it, this past Friday, the Dollar suffered a broad and intense decline. The DXY Dollar Index registered its worst one-day loss to close in seven years to close out last week. That was an extreme move given that the economic listings for that season seemed to project support for the US currency with stronger November payrolls and considering the longer-term trend has seen the currency extend its longest medium-term run (measured by days above the 100-day SMA) on a five-decade record. This week opened to a broad gap up in the Dollar’s favor, but most crosses would eat up that effort to revive the currency. For EURUSD, the bearish gap opening gap was the biggest in 8 months; but it would ultimately make its way back above parity on the close. That said, this seems far from a resolved technical – much less fundamental – move.

For scheduled event risk ahead, the immediate future has more than a few events that I consider interesting and important from a macro perspective. Yet, whether that interest will turn into tangible market movement is another matter entirely. One of the more effective mediums through which event risk tends to translate into volatility in my experience is how closely it hews to the critical themes the market is following. US sentiment surveys (NFIB business and IBD economic) is noteworthy with the context of recession fears, but far from definitive. Japan’s FX reserves is interesting from an intervention assessment perspective while New Zealand and Australia are weighing in on businesses’ perspectives. Perhaps the most prominent event today is the US midterm elections, but that doesn’t historically exact a strong short-term impact on the market as any subsequent political changes take time to be fleshed an enacted – if they are enacted at all. That said, anticipation can be a remarkably consistent force.

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