Market suffering a lack of direction

It is a well-known response to markets that are lacking direction to look towards technical analysis for inspiration.

Since we are entering the summer period where liquidity can become an issue any significant move could be magnified.

The first six months of 2017 were characterized by drivers from three major areas; politics, economics and monetary policy. The Dutch and French elections were simply the hors d’oeuvre to the main dish which was the surprising U.K. election result. Even that “black swan” event didn’t manage to jolt the pound too much and its progress since has been “messy” and mostly directionless. Even a significant close above 1.3000 against the dollar, the first time this has happened in 2017 failed to spark traders into life.

It is novel to see a market so concerned over events that it is not willing to drive a market forward towards a line of least resistance. A lack of confidence pervades trader’s decision making. For example, it is hard to get excited over the prospects for the Eurozone economy when the President of the Central Bank appear to be overly cautious.

G20 meets a global economy improves

Global growth is expected to reach 3.6% in 2017, the fastest rate of growth in six years.

G20 meets this weekend in Hamburg, Germany with several matters up for discussion. Qatar and North Korea will be major topics with their major critics, South Korea and Saudi Arabia in attendance. President Trump has already performed the prelude. Speaking in Poland Trump challenged the West to demonstrate it has the “will to survive”.

Holding up Poland as an example of a country ready to defend Western freedoms, he warned against the threats of “terrorism and extremism”.

Criticising Russia, Mr Trump urged Moscow to “join the community of responsible nations”. He also called on Russia to “leave Ukraine alone”. The meeting between Putin and Trump later should be interesting!

It seems unlikely that there will be a unified response to North Korea’s latest missile test giving the variety of diplomatic stances, but there should be a condemnation of Kim Jong Un’s actions.

The usual demonstrations that accompany G20 meetings have surfaced in Hamburg. Globalization and climate change remain the two most important topics. Given America’s withdrawal from the Paris accord on climate change, conversations inside the chamber could reflect those outside!

FOMC looking for improved NFP report

One of the biggest surprises in the U.S. employment report is that the FOMC still finds it a useful tool. Traders like it for the brief spurt of volatility it provides but the unreliability of the headline number is still not sufficient to downgrade its importance.

Wages and work-week data provide indicators of inflation and an advance view of inflation but the figure for jobs created is subject to such large revisions that analysts have taken to giving the six-month moving average as their estimate for the data.

Yesterday’s ADP report on private sector jobs showed a less than stellar 158k jobs were created. Last month’s data was revised lower from 253k to 230k, which still bears no relation to NFP data which was weaker than expected in May.

The dollar index which track the performance of the greenback against the currencies of six of its major trading partners remains in the doldrums. It seems unable to break out of a 95.50/96.50 range.

The makeup of the basket is becoming a little out of date now. It is made up of The Euro, Japanese Yen, Sterling, Canadian Dollar, Swedish Kroner and Swiss Franc, with the Euro making up more than 50% of the value.

There are calls to drop the Swedish and Swiss currencies and replace them with currencies from countries with a more meaningful trading relationship with the U.S. such as South Korea and Mexico. However, irrespective of the trading relationships, the current basket provides a useful benchmark.

Error, group does not exist! Check your syntax! (ID: 3)