'Traders hands off on a possible Grexit, stop gap a real possibility in case of full resolution' - Kicklighter, DailyFX

   John
Kicklighter

PROFILE:
• Current Job:  Senior Currency Strategist for FXCM in New York.
• Career: Graduated from the Zicklin School of Business with a Bachelors degree in Finance and Investment. Specialized in combining fundamental and technical analysis with money management.

View profile at FXStreet

John Kicklighter is the senior currency strategist for FXCM in New York where he specializes in combining fundamental and technical analysis with money management. John authors a number of regular articles for DailyFX.com, ranging in topics from basic fundamental forecasts for the G10 economies and commodities to more complex subjects like the level of risk sentiment across the financial markets and the carry trade specifically.

John has actively traded since he was a teenager. His experience ranges from spot currency, financial futures, commodities, stocks, and options on all of these instruments for his personal accounts. John graduated from the Zicklin School of Business at Baruch College in New York with a Bachelors degree in Finance and Investment.

What's the reason behind the EURUSD sloppy trade?

A simple answer for the EURUSD’s turn to chop after months of clear and consistent drive is ‘uncertainty’. Greece manages to crowd out most other headlines, and the situation oscillates between progress and belligerent clashes within a single trading day. Such whiplash curbs traders’ appetite to take a decisive speculative view on the outcome. We can see this in the drop in speculative positioning in measures like the COT and SSI as well as open interest behind EURUSD futures. Until a clear outcome is delivered, the pair will struggle to build momentum.

Why is the EUR ignoring a possible Greek default and Grexit?

Euro traders certainly aren’t ignoring the possibility of a Greek default. However, they are less inclined to place preemptive speculative bets on such an outcome. In this case, a full resolution could generate a considerable Euro rally. Perhaps more tangible to what people have come to expect, another stop gap is a real possibility that could undermine the speculative outlay that an exit would entail. People are more hands off.

How long do you think the BoE will wait to hike rates after the Fed decides to begin with its hiking? Could we see a bearish run on the GBPUSD on the second half of the year?

In the past few months, the market’s expectations for a BoE rate hike have risen significantly. Previously, the timing for the first hike was on the cusp of the 1Q into 2Q 2016. Now, Short Sterling futures are showing a high probability – though not certainty – of a hike before the year ends. That is technically more hawkish than the view that Fed Fund futures lay out. I believe the Fed is more likely to start its policy tightening in September and the BoE a few months later if the markets are not shaken to severely by the move.

The US Dollar Index DXY is trading above 95.00 after the latest rally; How do you think this levels will impact in the US Economy?

A number of Fed officials have commented on the level of the US Dollar as an influence on their more traditional policy objectives (economic health and inflation). A high currency’s impact on trade was a motivator for Japan to embark on QE. The high Euro last spring was voiced as an unwanted contributor to deflation issues by the ECB in its build up to an aggressive easing campaign (rate cuts, LTROs and the QE-style effort). For the US, this will not likely lead to such a direct response. It would signify a dangerous cycle that is essentially a currency war, and the largest player does not have the same allowances for manipulation. As one of the largest consumer economies in the world, I don’t think the higher dollar will produce a severe impact unless it moves much higher and much more quickly.

What's going on with the AUD/USD?

AUDUSD – like most Dollar-based majors – is being anchored by a market that is awaiting direction. After years of decline, we have priced a considerable discount to the Aussie Dollar for rate cuts while the Dollar gained traction on its ‘first mover’ status for hikes before the rest of the majors really jumped on the trend. This makes the pair particularly inert and dependent on a strong fundamental shove. If the RBA moves away from its wait-and-see position or the market-FOMC disparity on the probable monetary policy path close, we will finally find a lasting break.

The gold is falling to 3-month lows; do you see any possible rebound?

Though gold is nearing three-month lows, it isn’t move with any kind of definitive speculative intent. The metal is still tracing out a range as activity levels (ATR) settle to the lowest levels in nine months and forecasted volatility (via the CBOE’s Gold ETF Volatility Index) drops back to similar historical lows. A rebound is a high probability, but not one that would necessarily point to more material gains. Rather this is still a range bound market. That said, if Greece provides a need for a unique haven or interest rates shift the pricing element for the commodity (lift or lower the Dollar), we may finally find ourselves free of these speculative boundaries.