Volatility not ruled out as markets enter holiday mode

December 22, 2016 09:36 AM

With less traders on their desks and most investors planning where to spend their New Year’s Eve, markets have clearly entered the holiday mood. We can barely see any significant moves in equities, fixed income, or even currency markets today as trading volumes shrank, suggesting that more consolidation is expected throughout the remaining days of 2016.

However, it might be a little risky to trade this range bound market and looking back at 2013 the Euro traded in 200 pips range on Dec. 27 while the dollar index dropped from 80.52 to a low of 79.68 before recovering most of its losses, which means that less volumes doesn’t quite necessary mean no volatility.

Today’s U.S. economic calendar might provide some sort of volatility if data deviates a lot from forecasts. Personal income and spending, jobless claims, GDP revision and durable goods are all due to release at 13:30 GMT. Meanwhile, it’s quite light on the European data front. 

The long awaited 20,000 benchmark on the Dow isn’t breached yet and this is likely to keep some traders excited. Although it’s only a psychological level, psychology does play an important role in investing and a break above 20,000 mark could attract some fresh liquidity as it might suggest bulls remain in control. 

Crude oil prices are also fluctuating after a surprise increase in U.S. crude inventories according to Energy Information Administration offset the previous report from American petroleum institute which showed a drawdown of 4.15 million barrels. Although these reports used to play a major role in setting prices, the next six-month focus will shift to production numbers from OPEC and non-OPEC producers and whether they will deliver on their promises to cut production by more than 1.7 million barrel. The $50-$60 range is likely to remain intact for the foreseeable future until more stories develop on U.S. shale, global demand, and compliance with oil producer’s agreement.

About the Author

Hussein Sayed is chief market strategist at FXTM.