Wednesday, November 25, 2009
It feels like an either/or kind of market doesn't it? With a number of key asset prices (SPX, EUR/USD) approaching their extremes of the year in liquidity-impaired holiday markets, it feels like we're either on the edge of a breakout/melt-up or witnessing perhaps the last chance to sell vol at decent levels before the end of the year.
The dollar has taken a bit of a bashing today against both the euro and the yen, no doubt helped by the Fed's relatively sanguine view in last night's minutes on recent dollar weakness. EUR/USD has traded on a 1.48 or 1.49 handle every day since October 9, so at this juncture it is probably still premature to get too excited about today's move. As you can see, one month realized euro vol is (unsurprisingly) now at its lowest since Lehman went bust.
Still, there's plenty of precedent for big currency moves in thin markets; Macro Man has the feeling that if the previous high of 1.5064 were to give today, then tomorrow may well break the streak of consecutive "1.48 or 1.49" days.
Macro Man's scepticism over yesterday's Shanghai "collapse" proved to be well-founded, as the Comp rallied 2% today. While that scepticism didn't make him any dough, it at least prevented him from doing something stupid, which is at least a start when you're on a cold streak.
Lest we all think that everything is hunky-dory, however, there are a couple of reasons to doubt that the future will be wobbble-free. The FDIC confirmed that its insurance pot is now negative, which is strangely apt insofar as the taxpayers' net return on providing insurance to the banking sector has also been negative!
Meanwhile, in Asia, the State Bank of Vietnam officially devalued its currency over night. Asia watchers may recall that it also did so in May 2008, just a few months before the rest of the world went "kaboom." So far, the rest of Asia andd EM has happily shrugged off the Vietnam news, and Macro Man can be glad that he hasn't been positioned in a Vietnam/metals relative value trade.
As you can see, long dong/silver has not been a winner this year....