The US Dollar continued to face broad-based selling pressure at the start of the trading week as Asian markets played catch-up to Friday’s rally on Wall Street that brought the benchmark S&P 500 index to the highest level since January 22. The area corresponds with where prices traded on the eve of the knee-jerk selloff that materialized following the emergence of a diverse bouquet of emerging-market jitters.
Meanwhile, the closely watched VIX volatility index – investors’ so-called “fear gauge” – has now all but returned to where it started when the panic began as well. Furthermore, the latest positioning figures from the CFTC show speculators are once again net-long S&P 500 futures having been the most net-short in eight months as of February 4.
An empty European economic calendar and a US market holiday are likely to keep things relatively quiet in the near term, but big-picture concerns may fuel renewed risk aversion in the week ahead. On balance, the most significant pitfall remains the disparity between disappointing US economic data and the firm commitment to continue “tapering” QE asset purchases by the Federal Reserve.
Minutes from January’s FOMC meeting and the US CPI data take top billing. The US central bank seems intent to look through near-term performance and press with its $10 billion/month QE reduction cycle. For its part, the headline year-on-year inflation rate is seen rising to a six-month high. Softening growth dynamics coupled with ebbing Fed support may stoke wider fears global growth concerns. Needless to say, that bodes ill for sentiment.
