Seems a twitter is probably the right way to handle day to day activity. Markets are heating up so for those that like to be active and want to follow trades on a daily basis please follow the link.
https://twitter.com/Capitalsynthes1?s=09
Ill develop a few themes there in real time. One for the moment is the carry fx unwind. The two great carry trade currencies have been the euro and the jpy. The euro has eclipsed the jpy over the last five years as the world’s risk on funding currency, mainly flowing into USD risk. The key to supporting this one way trade has been 1) the over night yield spread between the US$ and the Euro. 2) The strength of the US risk on rally.
If these two issues reverse the carry trade unwind would produce an unimaginable tilde wave of euro debt repudiation. With growth weak and deficits high in the US system the corona out break could well prove the straw that breaks the euro carry US$ risk on trade.
More liquidity and more negative rates are unlikely to help the risk on trade given the likely sharp downward earnings implications of the emerging pandemic. More liquidity from central banks and policy makers may more likely create stagflation and a bubble in safe heaven assets like gold.
Volatility on the eurusd paid is at historic lows of 5% p.a. at present.
The over night spread between the usd and euro is 200 basis points.
The next fed scheduled meeting is 3 weeks time. If markets move it is possible a fed meeting is held earlier.
Kindest regards
Rich
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