Category: Daily Look

A rise in FX volatility



We’ve seen an undeniable shift in sentiment over the course of the month. Markets are now a lot more focused on the risk and implications of deflation, rather than looking for more QE from the ECB to support the Eurozone and provide a further boost to sentiment and stocks. Behind this, the dynamics operating on the dollar have also shifted, not least because short-term interest rates in the US have also plummeted and bought into question the efficacy of the Fed ending its tapering program this month and also put fresh uncertainty on the ability of the Fed to increase rates next year. What we have seen is also greater volatility in FX in general, but far less one-way traffic as dominated the majors in the third quarter.

For this week, we’ve already seen a big push higher on Japanese stocks (up nearly 4%), related to further stories on the investment intentions of the main Japanese government pension fund. There has been plenty of speculation for most of this year on the impact of portfolio shifts, but for the most part this has more been speculation rather than action as the fund looks to take a less conservative approach. USDJPY has weakened overnight, but only modestly so. Elsewhere, GDP data from China will be key for risk sentiment and also the Aussie tomorrow. There is also inflation data in Australia in the middle of the week, together with the latest MPC minutes in the UK and Eurozone bank stress test results at the end of the week. Overall, greater volatility is likely to remain in place, with the downward correction of the dollar having run its course for now, but the well-worn story dollar strength on economic divergence is now looking more fragile, especially given the moves seen in market interest rates, the US 2 year bond yield having touched early March levels last week.

Further reading:

Start Of The USD Rebound? How To Position? – BNPP

EUR/JPY: Targets Further Bullishness

Fed Flies Dove Flag; USD Consolidates

Fed Flies Dove Flag; USD Consolidates

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GBP/USD declines after Bullard’s speech – Watch CAD

GBP/USD declines after Bullard’s speech – Watch CAD

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Volatility Returns to Markets

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UK inflation rate postpones rate hike

UK inflation rate postpones rate hike

The past week has seen a dramatic re-assessment of exactly when markets expect both the US and also UK central banks to raise interest rates. We’ve seen the biggest 1 week fall in US 2 year bond yields (which largely reflects near-term interest rate expectations) for 13 months. When you compare this to the Eurozone

Markets edgy over taper dismount

Markets edgy over taper dismount

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U.S. Dollar Regains Composure

U.S. Dollar Regains Composure

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US dollar continues to fall

US dollar continues to fall

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Dollar volatility

Dollar volatility

The dollar’s climb over the past few weeks has hit the buffers for now and indices remain in a state of nervousness as volatility inches higher. Treasury yields have dived and the dollar bull run is being challenged. As the profit taking establishes itself, the question is how long will it go before the dollar