A preview of the week ahead with implied volatility
In the Week Ahead
video I touch on AUDJPY 1-week implied vols, which have been contained into 10%
and where a break higher would offer a bearish message for equities and alike.
That said, we continue to watch USDCNH, especially with the Chinese financial
system ready to crank up again, with the prospect of the PBoC flooding the
markets with liquidity. As we see, USDCNH is finding sellers into the top of
the bear channel and should we see the CNH find further buyers (USDCNH lower)
then I could see a situation where AUDUSD moves a tad higher, with risk
stabilising in EM FX.
A big if, of course,
and when we consider the global economy there are other moving parts to
consider such as US ISM manufacturing and nonfarm payrolls which will be event
As we see from the
Implied vols matrix, vols are a touch higher from last week, something we had
anticipated given the dynamics shaping up in the US bond market and while I
stay cautious, I will be watching price action and reacting to any possible
turn in sentiment. I am watching US politics far more closely this week, with
the Iowa Caucus due to start on Monday 8 PM EST (12 PM AEDT Tuesday). And as
highlighted in more depth in the gold outlook video, any situation where Bernie
Sanders takes a step closer to the Democrat nominee raises the prospect of
traders hedging risk with the likes of gold, JPY and USTs.
Please do click on the
video, which I hope helps prepare traders best navigate the murky waters ahead. Note that it was recorded before Friday’s big selloff in North America and the jump in volatility.