Fed Confirms Rate Meeting Schedule Despite Severe Winter Storm in Washington D.C. 
Oil Prices Dip Slightly Amid Focus on Russian Sanctions and U.S. Inflation Data 
Trump’s "Shock and Awe" Agenda: Executive Orders from Day One 
BOJ Rate Decision in Focus as Yen Weakness and Inflation Shape Market Outlook 
BOJ Policymakers Warn Weak Yen Could Fuel Inflation Risks and Delay Rate Action 
FxWirePro- Major Crypto levels and bias summary 
RBA Raises Interest Rates by 25 Basis Points as Inflation Pressures Persist 
Bank of Canada Holds Interest Rate at 2.25% Amid Trade and Global Uncertainty 
Fed May Resume Rate Hikes: BofA Analysts Outline Key Scenarios 
Fed Governor Lisa Cook Warns Inflation Risks Remain as Rates Stay Steady 
China Extends Gold Buying Streak as Reserves Surge Despite Volatile Prices 
Elon Musk’s Empire: SpaceX, Tesla, and xAI Merger Talks Spark Investor Debate 
U.S. Banks Report Strong Q4 Profits Amid Investment Banking Surge 
The currency market has been acting as the adjustment factor between countries positioned at different parts of the economic cycle clock. It has been one of the few assets on which carrying long volatility positions has not been a constant pain. It has also led to a dramatic reversal in the correlation regime, leading to some significant discounts on equity options contingent to currency levels.
Adding longs in EUR rates vol with positive vol roll-down: Equities are demonstrating late-cycle behavior, and a sharp drop in risky asset prices combined with a flight to high-quality sovereign bonds would amount to a double hit on insurers and pension funds’ balance sheets. Positive vol roll down finances a significant part of the theta on this hedge.
We believe there is an elephant in the room that market participants are struggling to see, despite it having huge implications for equity markets. It is the EURUSD impact on US and Eurozone equities. Traditionally, a stronger euro is said to be a drag for Eurozone equities, and in particular core country indexes (e.g. DAX and CAC), and symmetrically a stronger dollar is said to be a drag for US exporters and hence US equities.
But the US and Eurozone equities are also strongly positively correlated. How can this correlation matrix work? In fact, it is the relative performance between US and Eurozone equities that is generally driven by the EURUSD rather than the outright equity performance. Hence a higher euro, despite being negatively correlated with US equity (in a log return correlation), can still coincide with higher US equities.
In the US: The Federal Reserve is no longer expected to pause the rate hike cycle early next year for two main reasons. First, the nomination of Governor Powell as the next Fed chair, in our view, represents a vote for continuity of policy. Second, the unemployment rate is falling again. At 4.1 percent, the risk of a substantial undershoot is rising, as a result, the dollar remains cheap to rates, and this gap could close on the passage of tax reform or the Fed’s insertion of another dot next week.
