Caution Persists

Caution persists following a pretty ugly session so far today. On that point, it felt like a pretty painful 24 hours for hedge funds with further signs of de-risking/de-grossing as worries increase over what is priced into several areas of the market, as well overall positioning levels.

But when you know it's coming, it's not really that big of a surprise (VIX below 20), and markets seem to be attempting to put in a bottom. However, New York might have other ideas, so discretion remains " the name of the game" ahead of today's US earning numbers.

The EUR/USD rally is losing some steam with global stock markets having a terrible day. European indices down between 2%-3%. Given the move, EUR/USD has held in reasonably well and there still seems to be demand ahead of 1.20. Once the residual has been filled, and unless risk sentiment recovers sharply, there could be a short-term clear-out on the downside.

While USD is stronger this morning, capitalizing on " risk-off which is enveloping global markets. But for the US dollar to make any significant headwinds, it is mainly reliant on a hawkish shift in tone at the Fed to validate a bullish US dollar view.

Oil prices struggled today amid rising Covid-19 infection numbers in some regions (India stands out as particularly hard hit) and US API data, indicating a build in crude and distillates (though a draw in gasoline).

Efforts in the US to advance legislation that could expose OPEC to antitrust lawsuits also caused concern (Reuters report here). Legislation of this sort has been discussed before but has never had widespread support. Most US lawmakers recognise the role that OPEC plays in limiting oil price volatility. There's a limited appetite to put pressure on the cartel, particularly during such a sensitive period for the global economy.