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Just Like that – An Explosion of Financials Volatility

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A couple of weeks ago, Managed Futures managers were begging for volatility. There was none to be found in the financial markets, but it’s a totally different story post-election. Whether you want to look at the surging U.S. Dollar index or the free falling Euro currency market, there’s movement to be seen.

For example, the Euro has fallen nine consecutive days which has only happened once in its existence. It’s never  fallen 10 consecutive days, something that officially took place on Friday.

(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: christopher keane

Or looking at the U.S. Dollar, up roughly 5.5% in the last week (Disclaimer: Past performance is not necessarily indicative of future results.)


(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: Finviz

This chart doesn’t really do the rally justice – as the U.S. Dollar Index is at its highest marks in the last 13 years. And it’s worth noting the dollar index represents the dollar against a basket of different currencies, making it that much harder for the dollar to move such a large amount in such a short time against the whole basket (see here for a list of the six currencies comprising the index).  In fact, the last time we saw a move like this in the U.S. Dollar was in the third quarter of 2014. But that move was much more gradual, rising 6% over 3 months – whereas this move is about 6% in 7 days! Talk about volatility.

A trending Dollar whether it is up or down has traditionally been good for Managed Futures and Global Macro programs. It means that multiple currencies are trending – and usually interest rates as well – as those are the engine which drives currency prices.  And what’s more – a trending Dollar can actually affect non currency markets as well. Remember that all those Gold, Corn, Oil, Cotton and other commodities are priced in US Dollars – so all else being equal – a rising US Dollar means a falling commodity priced in US Dollars. This hasn’t necessarily been the case thus far in this 2016 move. Metals (albeit copper) have fallen off, as well as softs, but not to the same degree we’re seeing from financials. This could mean we’re seeing an overreaction to the election results, setting us up for a sharp reversal – something markedly absent from these moves so far.

It’s not every day you see a major market move the same direction 10 days in a row, so this move in the Euro definitely bears watching – as do those plane ticket prices to Paris next spring… US travelers are going to be getting a lot more for their dollars now.  In the meantime, give us a call to see which programs have benefited from this move.

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