Fear Trade Fades, CPIs on Deck

Big intraday turnarounds in USD/JPY and the S&P 500 were the story on Monday. Fear about the fallout from the Paris attacks faded and the US dollar was the top performer while the euro lagged. The RBA minutes are due later. Ashraf's Premium Video sheds light on the latest spin on the "052008 Parallel" undergoing major equity indices ahead of Tuesday's UK and UK CPI figures, as well as other key figures later in the week. GBPAUD Premium trade is in focus.

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Early fear turned into a furious rally in the stock market that underpinned a bid in the US dollar. The S&P 500 fell as low as 2019 early. Selling pressure was largely on geopolitical fears but the Empire Fed at -10.7 compared to -6.2 added to the sour mood. Shortly after the open, sentiment changed as stocks held the late Oct low and began to turn around. The buying continued into the close with the S&P 500 surging 30 points to 2053 at the close, splashing a bullish reversal on the chart.

USD/JPY trading offered an early preview into the turnaround. The selling stopped early in Europe at 122.40 and its marched a full cent higher since.

Technically, the euro is in focus after it fell nearly a full cent and hit 1.0675. That level matches last week's low and leaves stops below vulnerable and opens the way towards the March/April lows near 1.05.

We wrote yesterday that the fear trade was likely to fade but the speed and magnitude of the turnaround was impressive and highlights the latent strength in risk assets and the US dollar. Even gold wasn't able to hold onto gains.

Two spots to watch closely in the day ahead are oil and CAD. Crude fell early in US trading but bids at $40.00 held and crude rebounded $2. USD/CAD hit a six-week high when oil but fell 35-pips on the reversal. The loonie has been surprisingly insensitive to the latest slump in oil. If crude can continue to bounce, it will be interesting to see if the reaction is symmetrical or if some latent USD/CAD weakness will be exposed by an oil bounce.

In the shorter term, the Aussie is in focus with the Nov RBA meeting minutes due at 0030 GMT. The RBA kept the door open to a cut at the meeting but struck an optimistic tone. Since the decision, the employment report will have added to positive outlook so if the Minutes have a negative tinge, it will be brushed aside. The risk is that the Minutes were already upbeat; that could signal the RBA on the sidelines for an extended period and boost AUD.