Limited recap here as markets are moving hot and fast, but we have stress tested a few things over the last few sessions that produced interesting results. As of this writing, risk appetite is going vertical again – with the S&P up over 5% from the overnight lows in the futures market.
In FX, there was never much follow through besides implied volatilities picking up, JPY crosses rolling over, and the US dollar generally in better shape than it was to start the week.
First observation: there seems to be only modest USD upside on risk deleveraging, and there seems to be little consistency in the correlation as the dollar was quite bid versus both the JPY and EUR as risk appetite recovered at one point in the early US session.
Second observation: the JPY is quite consistent in rising when markets are pressing the panic button and then falling as relief comes in and bonds sell off. This seems the high-beta currency, in other words, to risk-on and risk-off. CHF was also bid during the worst of the deleveraging experience in the last couple of sessions.
No charts today, as these will be rendered quickly out of date, but we write the Notes of Interest for the FX Board PDF attached to this post:
- this one looks the most straightforward at the moment, perhaps driven by position squaring. A failure of the 1.2325/00 zone puts focus on the structurally important (for major bull run) 1.2100 area.
- likely a proxy for risk appetite, as is any JPY cross at the moment. 108.00-107.50 is the structural area of note if we are to judge that significant contagion has crept into FX and all global assets. Otherwise, a bit of limbo between that zone and the 111.00-plus upside swing, which would likely require higher US rates and calmer markets... a bit of a difficult combo at the moment.
- vicious selloff ends upside hopes for now, but likely to take another deleveraging event if we are to drive price action back toward the 200-day moving average (below 131.00).
- minor resistance above 0.8925, but the bigger area is up into 0.9000-plus as we await the Bank of England and the state of risk appetite Thursday.
- first Fibo of note for rally from near 1.3000 is the low on the day thus far near 1.3840; if that doesn't hold, the last real support for the bulls is down into the 1.3650 area.
- beware the vicious trading range, but sterling is struggling and not bouncing well despite the comeback in risk appetite. The former bull market is very compromised after the last couple of days.
- rebounding from near 1.1500 on the bounce in equities. 1.1500 could be a psychological level for the market and the SNB here. A close back well above 1.1600 could see a pickup in bullish interest.
USDCHF – interesting to see the USD outperforming on balance over this recent episode – likely points to positioning. No bullish hook unless we reject the entire sequence below 0.9600.
AUDUSD – AUD looks very correlated with risk appetite in the crosses. Bulls may have a go if today’s lows hold for a retest toward 0.80, but conditions remain hazardous.
NZDUSD – very resilient as the kiwi is up sharply versus the AUD on the break of 1.0850 and we got a strong dairy auction. The pair may avoid a bigger consolidation toward 0.7150 – our base case – if risk appetite continues to right itself.
USDCAD – recent rally has neutralised most of the previous bear move; upside prospects pick up further if the 1.2600-50 zone can be retaken.
EURSEK – a sell for a test back well into the lower range toward 9.75 if the idea is that things calm for a few days as the breach of 9.870-plus resistance didn’t lead to more upside.
EURNOK - fairly pure in gyrating up and down with risk appetite – likely to remain the case and only a sell for a short-term test of the low of the range if things continue to calm.
XAUUSD – gold merely went sideways during the horror show and is coming in for a selloff as risk recovers. This looks likely to stress test the rally with a dip to either 1316 or all the way to the old pivotal $1,300/oz zone.
XAGUSD – silver badly underperforming gold and we’re back below the key 1700 pivot area and 200-day moving average. Counting the months by tens since the silver market trending.