hello traders it is friday November the fourth this is John Kicklighter chief strategist for dailyfx dot-com here to give your FX market wrap-up for this past 24 hours trade and more importantly and look for we can expect in the final 24 hours of this trading week now taking a clear and consistent assessment of exactly what has happened this past 24 hours is very important we had 2 particularly large moves one more thing ematic the other very concentrated in the british pound specifically I'd like to actually start out with the higher-profile the one that is likely to continue into the coming day and into next week and that is the orientation of risk sentiment that we've seen and we continue to see here with the SMP 500 actually this is the etf the spider now this is my preferred benchmark for risk because as I've said many times before it is stubborn it will hold up better on a risk orientation then virtually anything else out there in fact when we look at the standings of risk not the short-term not not month or 12 month but I'm talking long-term since the bottom of the great financial crisis we see that the SMP 500 is bar none the most aggressive cleaning for a hawkish or very bullish outlook so that being said knowing that if the S&P 500 dropping that it must have a considerable reading on sentiment itself amongst those various assets i do think that is quite remarkable that we continue to slide to multi-month lows now this decline has certainly put us at a or the lowest level that we've seen since early July so that is very impressive but let's put some statistics behind this you don't really send well the volume behind this is certainly perked up a little bit but if this were a critical break especially on something that could be construed as & Shoulders pattern i would not really say that this is the volume that i would expect behind such move and it's certainly not the pace expect you can't really see it on the spyder etf due to the close but if you look at the market for the S&P 500 the actual index itself it is worth noting that this is and I've seen this statistic put out there on number of number of places put it is a eight consecutive day decline that right there is a 200-day moving average right so eight straight days of decline Forrester historical context we haven't had an eighth straight day decline since back in 2008 and yes that actually happened to be a short-term bottom although it didn't actually bottom out post-financial crisis let's take a look at some of the past two 7-day declines that too is the bottom of that dramatic pull back in August 2011 and we eventually found our bottom here and the subsequent pull back in November of 2011 so the interest if we were talking about this on a statistical basis would be this is the bottom the big picture technical perspective would say this is just the beginning of the turn in sentiment on an asset class or in benchmark for an asset class that has just been consistently complacent in advances to the upside another aspect to consider here is the lack of pace when we might have a remarkable a decline when you look at the rate of change in this move here's the eighth day rate of change that really doesn't add up to significant move at all it's only the biggest decline in a decline that we've seen in just couple of months not anywhere comparable even to the post brexit the december to january pull back and certainly not the August plunge that we had last year so what does this say to us in terms of sentiment i don't think that there's any doubt that there is a risk the wind behind this we can see it's not just in something as stubborn as the SMP 500 we see it pretty much across the globe right the dax the footsie 100 the nikkei 225 all of those have shown that kind of risk aversion furthermore other assets that hopefully becoming more and more familiar to now are also showing that sentiment slide emerging markets high-yield fixed income even commodities as commodity index but i think no need just use oil so we have a consistent move and we have a move with such a breadth something that draws otherwise disparate markets together with some degree of momentum in this is a moderate degree of momentum it is indicative of risk aversion and I do think that this is indeed risk aversion fact I'd put it up somewhere in this territory so it isn't a greater intensity but it is not unleashed its not the something that the market is going to be able to carry through with little provocation it needs a catalyst it needs something to actually provide a removal of the restraint and I don't think that we're going to remove that restraint until we are clear on the major event risk available next week which is specifically Tuesday reading or the outcome not to be interpreted until Tuesday evening into Wednesday morning for Asia session that's the u.s. presidential election that is quite clearly a high-level risk for the markets perspective and we can see this high-level risk in the charts that we've been following actually found the data for the polling this is real clear politics and there are dramatically different polls out there their sample surveys their time frames their natural audience that those are all going to be considerations of why they differ this was unfortunately the only one I can get if i could find all the data I would be making all the charts right at least to make all the charts and average them all out but this is the standing of Hillary Clinton according to real clear politics and the standing of Donald Trump in terms of the percentage of votes that would come through the gray in the background is the differential Clinton minus Trump but i don't i'm not into politics it's not that's not why I would care about this and what I really care about is what how it impacts the market so what I did was I took that differential and I over later to market benchmarks the S&P 500 500 for example we've seen that the narrowing of this this debate through this standoff this campaign has certainly helps to motivate some declines in wrist rends recently back in September and certainly currently that makes sense it's not that one candidate is worse than the other necessarily but what it might recommend is uncertainty we can't really prepare and we don't know who is going to be the person come out on top so it makes sense especially as we come into the wire down to the wire we are now less than five days away from that election it becomes a greater sense of urgency of uncertainty here is the dollars performance against those this balance there might be something here too although it's not long term I think recent relationships will show that same correlation through intensity in and proximity here we have volatility right the closer the race the more uncertain of the circumstances from the market perspective volatility is now the highest we've seen since the brexit and everyone's favorite measure of us political standing that as of late has been the dollar peso exchange rate that has been inverted here because that's where you get the one-to-one correlation but you can certainly see that this still stands is a pretty good relationship and it's perhaps a little bit more intense although as I said many times before this is not a perfect indicator don't use this as a measure for the election instead see how it responds and you can also get a very good assessment of how the election standings and risk trends are having differing influence on this particular benchmark alright but this is definitely a situation in which the uncertainty is greater now than even in previous elections here's the Volatility Index 20 days into into the election compared to the previous elections over the lifetime of the Vics volatility index that goes back to nineteen ninety so as you can see this is starting 20 days from the election relative to that starting point we are higher at this current juncture less than three trading days away from the actual vote than we've ever been in in an election year so high level of uncertainty and anxiety that being said the SMP 500 relatively speaking this is the bright red line is lower but it's not fully into its momentum there is not conviction that this is a dire situation necessarily it just puts people on guard the uncertainty is high but the risk aversion doesn't necessarily come without the actual fire that people are frightful of so we don't really have a full-scale risk aversion move if you're looking at this and you are pursuing it as a risk oriented position I would be very cautious expecting this to follow through without the clarity of how that event on tuesday is going to play out is a considerable uncertainty and you are going to have to take something of a gamble of the outcome not the outcome of the actual election but the outcome of how markets to respond to the election results and that is itself difficult to do if you were looking for something that would absolutely cater better to the risk aversion I wouldn't go for something like the S&P 500 or even other more intense risk oriented benchmarks like the emerging market and I yield ETFs certainly wouldn't be looking at the end crosses which have been very stubborn in moving on risk oriented trends to begin with so why would I treat them as something very sensitive all of sudden I would look instead to volatility right this is an assumption of activity now the traditional approaches to go long volatility when the uncertainty rises the the market makers are the ones that sell the volatility presuming that it is perhaps too rich relative to what its actual market impact could be various it's a very dangerous game nowadays however considering how low volatility is ultimately and how uncertain yes this event actually looks and they the circumstances of these markets but the Vics and certainly a lot of interest in that very short term the X X the short-term volatility index which I've said many times before is flawed in its design hence why continues to drop despite the fact that the actual short-term volatility find a natural bottom and has found a natural bottom for some months much like to fix itself but that hasn't dissuaded and hasn't dissuaded traders we actually see from a volume perspective that volume is much higher despite the fact that we've gone to new record lows also this happens to be a another instance where we have an eighth consecutive trading day upside move which and the short lifetime on the short-term volatility index that is a record alright so this is where you would actually see uncertainty take advantage of the circumstances but if you're looking for an outright risk view that's going to be a very presumptuous it's going to be tough to find follow through and it's probably going to lead to the kind of uncertain trades that most of us we want to avoid all right so risk absolutely is engaged and it's going to entice a lot of people especially when you have setups that look like what we have from the SMP 500 could be a head and shoulders pattern but you have to consider the backdrop you have to consider the market that you're operating in and there is a lot of presumption that's going to be made and a lot of uncertainty that still sits ahead now since will continue on I think we'll continue on the risk theme and then move on to some of the other big boobs and market but we do have another spark that we could potentially get between now and the US election and that comes with the upcoming sessions non-farm payrolls right usf peas certainly does cater two important moves in the past we've seen employment figures jumpstart risk on risk off we've often also seen at fuel interest rate expectations those are two critical themes within the market the problem is that non-farm payrolls as important as it is an economic benchmark as important as it is for gauging interest rate expectations which november and transportations are set still very I just short shy eighty percent according to fed funds futures but it is very tough to concentrate on something like this and its most capable form which is changing industry expectations when we are preoccupied by an event that perhaps won't have the level of volatility that market surprise again but in the meantime it is too great a distraction I definitely think that this is capable of generating volatility I don't think that it's going to be able to fuel the trends that many people are looking for especially when the weekend and then tuesday are going to preoccupy most people's thoughts I cover this event in more detail and the strategy videos you can see it there but for most intensive purposes this non-farm payrolls event is not going to be a bellwether or catalyst for big risk oriented moves it can provide some movement for the dollar however as this is not as intensely connected to the risk theme and we will see that the more distant interest rate speculation to the end of year can potentially cater to this markets move though choose repair wisely if we were looking at interesting expectations on the dollar side i do think that something like the Aussie dollar cook it could supply some movement there it hasn't been lining itself very well to risk on risk off so it's much more capable on that front we could also consider the Kiwi USD which we'll talk about more tomorrow because we have an RBA RBNZ rate decision next week in which the RBNZ is actually expect to cut by 25 basis points 2 1.75 percent a new record low while that is still a much higher yield in the US we're talking about what actually moves the markets by monetary policies to change rather than the the standing level that really motivates the markets so this could actually indicator to it a clear signal on industry expectations' one of the best or two of the best however are the euro/usd alright which has certainly shown an increase in volatility a little bit more consistency and trend which is very attractive this is also more distant cousin of a risk oriented trend so this can actually cater to ensure expectations that arise from non-farm payrolls but i think one of those capable is the pound dollar right and one because it's received some motivations past session to it's not particularly exposed to risk friends although the brakes it fears have certainly imputed and it's a degree of uncertainty which people were will respond to but we've also seen a change in tax specifically from the pound let's go down the four-hour jerk that's a tough to get a grasp on giving them the momentum let's go further down in our leisure this incredible run was in part motivated this past session by the bank of england right the Bank of England essentially kept most of its elements in place so that really low yield their quantitative easing program their uncertainty about the future and their caution about brexit post brexit UK but they also squash interest rate expectations for further cuts while certainly not a suggestion that rate hikes are on the way it does move us back from this exceptional using policy view so a constantly expanding dovish view which would be a constantly pressurized double shore bearish outcome for the sterling easing that back was up the curve and in turn list the pound so this already gets us on the view of an interest rate to the comparison and thereby could be a better candidate for responding to that theme now let's peek a little bit more about the pound itself this past session was notable for that Bo a great decision which I did a strategy video on but I missed out a on a critical component I thought it was going to be a non-event how wrong I was the movement that we had in the pound this past session was not derived predominantly from that Bank of England modest neutral shift but rather it came from a high court ruling in the UK that said that Parliament should have a say in the execution of brexit right now that's not to say that the that the Parliament the government is going to essentially sabotage the brexit vote and Theresa May and her cabinets efforts to push forward with a breakup with the European Union but what it does suggest is that the Parliament que it could instead say we're not going to give up access to the single market for a full control over immigration if it comes down to that negotiations so it would potentially give power to Parliament to say no on a heart breaks it could also mean a significant if not indefinite delay on the actual processing of this although Prime Minister may have suggested that that will not be the case she still expected to operate under the late March timeframe for invoking article 50 but you can see that the market takes this to be a positive thing for the sterling I think it has more to do with the vote on how the brexit will be approached and perhaps the avoidance of a hard brexit lost to the EU single market is certainly a negative for the UK so this started the british pound and like I said the pound dollar is gonna be interesting because the non-farm payrolls can actually play off of this already significant move but we had some noteworthy moves elsewhere euro pound as I said when the path of the pound got a good push would be a good opportunity you can see we got back down testing that one month low although it didn't really hold there just yet hourly chart the pound Ian despite the fact that the pound was quite strong would not be able to break above this pretty consistent resistance former support all this falling right around 120 and 75 it's quite remarkable especially given the really tight congestion pattern that this has developed so why isn't able to break 120 120 5129 because you're not getting a full-scale bullish view on the pound that can override what is also keeping the steady stagnant that is risk trends it's not overriding restaurants they're competing themes this is an effort to go for risk appetite risk on and that is very difficult to accomplish I like to avoid fundamental themes that clash when their line that is a great opportunity these do not align at the moment if you really want to see a pound bass cross that is really technically enticing we have the pound of Ozzy going down on the 4-hour chart you can see that this has a pattern that looks like an inverse head-and-shoulders the 161 neckline was broken with this news and it seems that even on this timeframe that there's a lot of upside potential on a longer timeframe there is considerably more potential in fact this is such a dramatic move over the past year that it looks like the early signs of a major trend but I urge caution this is very presumption and presumptuous that you this is going to be reversal this is essentially picking a bottom and picking a bottom is low probability game it is very difficult to do and it is essentially pocked with risk now for the pound it's not necessarily facing any known threats necessarily over the next 24 hours least not to the scale necessary to change the winds of the sentiment from the sterling all right we do have some lower tier event risk that is known but nothing of significance next week it's another list of noteworthy data but certainly not high profile than risk and if we want to see this taken to the Supreme Court the the high court's rulings that's not out until early December supposedly having set of firm date but that's a long time to let this play out so there's potential here i just want to think in terms of what kind of risk my adopting for what kind of return I always think about the probabilities now outside of this event risk the pound and risk trends and the non-farm payrolls there is certainly some other events that i think is worthy of our time i would say look at the European Union sovereign debt rating which will come likely later in the day that's going to be by Moody's as I've said too many times before the euro is at risk of the brexit and it's not given the proper scale proper influence it is very important and yet the markets haven't given its dues euro still relatively strong so watch this also for the euro we have the commerce bank earnings which most of the focus has been on deutsche bank commerce bank is in a unfavorable position of its own so if we want to get a good sense of how the the europe's largest economy is doing this is a good place to look also the Canadian employment data do not write off the canadian dollar dollar cat has been stuck in a very tight range as of the past two weeks that's remarkable given that the dollar itself has been very active the dollar index and oil itself has also been very active the thing is what motivates the dollar cad was prominently is the dollar and oil and both things are dropping at the pretty equal pace so what we end up having here is offsetting themes now wrist trends as it motivates oil as we know can remain the dollars sensitivity restraints probably cool but non-farm payrolls reaction is going to probably be a consideration so we have to take that into account the dollar cad but the deciding factor here may actually be the Canadian employment figures if it is significant there's a major surprise especially if the non-farm payrolls from the US are essentially in line that's going to be a pop potential huge catalyst for break here I don't know about follow-through right there's definitely some risk sensitivity there's some dollar exposure obviously air and we will see that correlation of oil reconnect but in the short term appeal there might be some good volatility and perhaps some trade opportunity depending what type of trader you are now heading into the non-farm payrolls and into the u.s. election i would say keep an eye on cold nights been rising and I think that that has certainly a attachment to the uncertainties with the election as well as the unfavorable wins for the dollar and not much in the way of rebound for the euro pound and yet even though the latter of those two actually saw significant rebound and that means one thing that people can't go to one of the primary reserve so in turn they're going to go to an alternate alternative to traditional currencies my only trade that I had on is the Ozzie and it has it actually pulled up from it slows I already hit my first target almost stopped to break even plus 50 we haven't got back up to that trailed stop but as you can see it might not reach the bottom of this range this is probably more in the hands of risk trends now so longer I hold that the greater the risks may actually just put the second half profit and not at the ideal position obviously we'll see what tomorrow brings aside from that there are some interesting currency pairs out there but it's very difficult to get away from these very pressing themes pairs like the Seacat even will have the Canadian employment figures it is difficult very difficult to get away from these big tumultuous developments perhaps an Aussie Kiwi for example might be one alternative but it doesn't necessarily offer the best trading circumstances in itself alright so assess what we have we are seeing what is possible but do be mindful about what you should expect with these big provocative developments given the uncertainties that lie add alright i will wrap it up here we'll do our next and final rundown for the week as well as now for next week tomorrow until then I wish you were doing out there