Oil crash spurs massive wave of risk aversion in the market
The moves in the currencies space so far today is the sort of thing you'd expect in a few weeks or months in trading last year. It is risk-off in the market but the moves are quite something following the crash in oil prices to start the new week.
Oil is down by nearly 30% on the day with the low hitting $27.34 after the events from the weekend. The OPEC+ alliance fell apart as Russia did not agree to additional output cuts on Friday and Saudi Arabia responded by cutting prices and increasing production.
The dramatic fall in oil prices triggered a fresh wave of risk aversion across the market with Treasury yields capitulating once more (30-year yields under 1%!) while equities tumbled across the board. S&P 500 futures triggered its circuit breaker on a 5% drop.
In the currencies space, the yen and franc are the two main beneficiaries with USD/JPY sinking as low as 101.57 before recovering a little to 102.64 currently.
The dollar is mixed across the board as it holds gains against the commodity currencies but against the kiwi and aussie, the greenback has pared some of its earlier gains from the Asia Pacific morning.
Looking ahead, it is all about balancing the risk mood and in that regard, US stocks will be a key spot to watch. A 7% drop will trigger a level one breach of its circuit breaker - halting trading for 15 minutes - and the next threshold will be at 13%.
I doubt we will reach the level two or even the level three breach of 20% - where trading will be halted for the rest of the day - but any sizable moves later today will just feed the negative risk narrative in the market currently even more.
