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Implied levels of volatility has fallen fairly sharply (the VIX is -2.8 vols to 17.9%) – there's been no obvious triggers, but it does suggest the recent Fed-induced vol pickup may have been more about positioning than anything else. More evidence is needed in the period ahead, but as was seen in the positioning from clients yesterday you could see that USD pairs had become grossly overbought and traders were anticipating a snapback.
As it is, we’ve seen solid selling in nominal Treasuries (the 10yr is +5bp, 30yr +10bp), and Treasury curves have steepened – great for the inflation trade and banks. Inflation expectations have risen, with 10yr breakeven rates +4bp, so this too has underpinned the reflation trade, where value and cyclicals have absolutely gone for it. The Russell 2000 closed +2.2%, and within the S&P 500 sectors, energy has closed up 4.3% while financials are +2.4%. Taking a more holistic setting, 96% of stocks were higher on the day, amid volumes that were a touch on the light side. Crude gained another 3% and looks red hot, although hasn’t offered a mean reversion sell yet.
Amid a deafening wall of Fed speakers overnight, the USD was -0.4% with the snapback most pronounced in the NOK, GBP and ZAR. AUDUSD has pushed back to the 200-day MA and the former breakout zone of 0.7550 - so the question for today is whether this was the short covering that needed to play out (from grossly oversold levels), or is this the start of a more pronounced bullish run? Price, as always, will reveal all.
(Source: Tradingview)
Crypto has been carved up, but we’ve come to test recent range lows. If we’ve seen the technical sell-off in the USD, we’re yet to see a bid in Crypto. Conditions are grossly oversold though, certainly in the likes of XRPUSD (Ripple), which has a 5-day RSI of 6 and where price is well outside the Keltner bands. The set-up on XRPUSD is huge and one questions if we’re due to see more pain as price is creeping through the 23 May swing low – one to watch, but the tides of FONGO (Fear of Not Getting Out) are creeping in.
(Source: Tradingview)
Bitcoin is also at a make or break point, with price into the range low it's held since mid-May. Ethereum looks plain ugly and if Crypto is an emotive asset, then one would have to be the staunchest of HODLers to be holding this and not look for some sort of hedge – maybe the 200-day MA can save the bulls?
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