Stressed FX markets – Nomura

By FXStreet Bilal Hafeez, Research Analyst at Nomura, suggests that if we rewind to the middle of February and markets were in turmoil and the S&P500 was plummeting to two-year lows, credit spreads were exploding higher and oil was testing $25 a barrel.

Key Quotes

“Fears of a Chinese hard-landing, European bank instability and the reverberations of the Fed’s December hike – its first in almost 10 years – were engulfing the market.

Fast-forward to today and that period seems like a distant memory. Admittedly, the Bank of Japan did provide another market shock by not easing in late April, but it does not appear to have been enough to tip markets back to those dark days in February. Indeed, if we look at an array of risk measures from equity volatility to credit spreads we find that the bulk of them are not too far away from their one-year averages. In February, they were all over two standard-deviations above the average.

The one measure that is still in elevated risk or “stressed” mode is FX volatility. While it has fallen in recent months, it remains one standard-deviation above its one-year average. Other measures such as credit spreads have been on a steady …read more

Source:: FX Street