USD flows: Noise picking up, still risks of fresh volatility spikes

Session to session volatility is picking up even if it isn’t necessarily finding additional expression in the FX market where levels are not greatly changed.  

The fresh exchanges are for the market at least being taken as measured telegraphed reactions and within Trump’s definition of a ceasefire being everyone ‘shooting each other less’ in the region. All that given the latest exchanges do also encompass fresh Israel strikes in Tyre in southern Lebanon so the situation still seems fragile and easy to spiral. among the four parties Oil has in any case managed to flatten out with Nymex now slightly off on the day and mid bar from Monday, still towards the low side of range, so limiting any FX spillover. 

A phlegmatic market also looks to be trying to digest ongoing corrective if very two-way pressure seen in techs, Kospi giving back 5% overnight and Nasdaq future off 0.5% but likewise still net well up on yesterday’s sharp downward spike test to next support area. VIX is still off its very lows but currently sitting below 20 so not in spike territory that would be asking more questions of how JPY carries want to perform these days in such outbreaks (so far dollar direction still tending to dominate).

Overall, maybe a sense of complacency and too much confidence in noise cancelling and markets stabilising but it will require a clearer stress test of positioning to see price action pick up again. There are of course a number of event risk on the radar, including US CPI next as a key input to the US inflation and policy assessment.