*Riskaversion in decline as positions are getting squeezed
Market sentiment is currently upbeat/ in squeezemode and looking forward to next weeks US fiscal stimulus package. Expectations are high that it will finally "sort everything out". This has squeezed risk aversiontrades hard.In FX, it is mainly the Emerging market currencies in the CEE area that has had the most violent swings as illustrated by Eur/Pln which has moved from a 4.4570 low on Tuesday to a 4.7060 high on Wednesday only to fall down to a low of 4.5230 so far today!
Not bad in a FX context.
With the 1w implied vols at 28%, this implies a standard deviation of 8 figures per trading day, including the W/E timedecay,,,,,
Thus, a very rewarding proposition for long gamma plays so far. Although riskaversion is currently declining next week could induce quick shifts as the much expected US fiscal package is launched. Trade that gamma!
*Equities; Financials taking the lead - squeezing out shortpositions
In the equitymarkets, we are seeing similar signs of lower riskaversion as the financials have led the equity markets move higher so far. Today is quite an important day from a technical equity perspective; providing information as to whether this correction will have further to go or not.
Basically; marketpositions are getting squeezed and will have to run its course before its time to apply major macro and technical trends again. So far, buy the rumour - sell the fact, has been the rule of thumb. Will be interesting to see whether it is still applicable on next weeks events.
Regarding todays NFP, I would expect the positive equity market sentiment to rule even if it is a bad number. It seems there are still positions to be squeezed.
In FX, I have already sold CEE currencies on the big correction this morning.
Have a nice w/e,
As always - good luck
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