The Fed surprise last week has indeed weighed heavily on risk assets, particularly in the commodities and equities world (i.e. reflation trades):

We see further evidence of this in our Currency Bloc Monitor, with every major Currency Bloc down versus the dollar last week:

The intensity of these moves tells us of the global economies sensitivity to the global liquidity picture, which looks set to contract if the Fed continues down its current path:

This is coincident with a time where we think that global growth has peaked in YoY% terms:

All of this points to us going into an environment less supportive of risk assets, which brings us back to one of our favorite trades earlier this year- short EURUSD. We think of EURUSD as a stabilized risk-on currency, where the central bank needs to print massive amounts of money to keep the economy from falling into deflation. The divergence between ECB & Fed policy and EU growth versus US growth will likely support a weaker Euro. This is conditional upon the Fed following through on its newly set path towards taper:

As a refresher on our lenses:

  • Trading Range: These ranges represent a trading bank within which a currency should trade based on multiple market factors. If we are long- prices above the upside range indicate the asset is expensive, and prices below the downside range suggest that they are cheap and vice versa if we are short.
  • Year-to-Date Returns: This is the price performance of a given currency over the course of the current calendar year, in percentage terms. We also compare the current price to the 52-week high and low for reference.
  • Price Momentum: This looks at cumulative rolling returns for a selected lookback period.  Positive momentum is good if we are long and bad if we are short. 
  • Implied Volatility Discount/Premium: This tells us what the market expects in volatility relative to the history of volatility. If we are long a currency, we typically want market implied volatility to be higher than historical volatility and vice versa if we are short.

As a reminder- it is not just enough to have the technical tools we provide here daily. You need to know the fundamental developments in markets that are driving these moves promptly. Head to to get access to our research and analysis!