And all the liquidity in all the world…

Posted by Tracy Alloway on Jun 16 11:35. 1 comment | Share

Ongoing Greek turmoil. The end of QE2. Slowing growth. An oversupply of credit. A US default.The list of current developments to keep investors up at night could go on.

No surprise then, that the dollar’s been rallying on the back of risk-reversal — a development which in itself could feed through to plenty of other asset classes. More…

Ongoing Greek turmoil. The end of QE2. Slowing growth. An oversupply of credit. A US default.

The list of current developments to keep investors up at night could go on.

No surprise then, that the dollar’s been rallying on the back of risk-reversal — a development which in itself could feed through to plenty of other asset classes. (It’s interesting to note, for instance, that the dollar is gaining at the same time that US Treasury prices are rising).

From Marc Ostwald at Monument Securities:

The attached charts highlight the sharp spike in USD volatility, with the 10-vol at 12.5%, i.e. breaching all the previous highs since October, while the USD Index is testing the key 100-day Moving Average at 75.76 and the recent 76.10 23-May peak, with a break of these levels seemingly likely to pave the way for a run at February’s 78.6 high. The spike in volatility combined with the apparent trend reversal may thus precipitate a disorderly reshuffling of options positions position (above all in the correlated commodity and high yield/carry currencies), which may well generate a domino effect in terms of stops being hit.

Elsewhere in money markets, there’s this to think about too:

Last but not least, keep a very close eye on today’s USD LIBOR fixings, which may start to rise (if OIS, FRA spread widening indications are anything to go by) despite reaching fresh record all-time lows over the past week. This in turn may suggest that, despite the flood of USD liquidity, counterparty risk concerns – above all with respect to Eurozone banks – are gaining some traction, especially as quarter end approaches.

Three-month dollar Libor was 0.245 per cent on Wednesday. Ostwald has suggested we could get a fixing over 0.25 per cent on Thursday, which would be the biggest jump in about four months.

We should get the number in just a little bit.

Update: Almost, but not quite. Three-month dollar Libor is quoted at 0.247 per cent on Thursday.

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