The ASX 200 has produced the unexpected this week. In the absence of any earth shattering macro news influencing the heavy weight financial or materials sectors, it has managed to produce high volatility. The index has moved by more than 1 per cent on each of the past 3 days.

Traders go into this morning’s session with the risk that yesterday’s selling could spill over, creating downside risk. Tuesday and Wednesday’s seemingly urgent buying came to an abrupt end yesterday. Sellers were in control on a day of heavy liquidation that coincided with the expiry of index futures.

Early indications are that volatility could subside today. A firmer opening might produce a neutral session, trading inside yesterday’s range. Despite easing somewhat last night, key US indices and tech stocks remain above chart support.

However, yesterday’s selling, together with weaker oil prices and nervousness about mining stocks might yet create downside risk.  Although, the iron ore price firmed again yesterday, investors in mining stocks were unimpressed with the sector under pressure. The energy and materials sectors were both weaker on US markets, providing a soft lead for those sectors on the local market this morning.

Yesterday’s news of a third consecutive month of strong job growth in Australia, confirms what business surveys have been saying about the employment market. The realisation that the RBA will not be cutting rates while this continues, has produced a rally in the $A which outperformed against a stronger $US last night, rising against cross currencies like the Euro, the Yen and even the Kiwi Dollar.