Risk Could Seriously Blow Up Here

Tyler Durden's picture

From Nic Lenoir of ICAP

The S&P just broke the 200-dma which held as support yesterday and on May 6/7. AUDJPY broke through 76 which was the key support we had bounced off of as well. Put your helmets on if you are long risk here. Unless we have a massive reversal on the day and we close above the key levels mentioned here above: this could open the flood gates for a lot more de-risking. A lot of stops have been triggered when the S&P future crossed 1,100 and anybody still long will probably have to bail out and head for cover.

On a side note apparently funding markets in USD remain very difficult to access for most foreign players, and we are going to get to a point where outright FX buying of USD and selling USD denominated assets will be the primary source of funding. This can get very nasty very quickly, especially since corporate flows in FX seem to indicate that corporates are still short USD and keep pushing the amrekt as they try to cover. This is a theme we discussed at length back in the days when the USD was roaring in the fall of 2008 and reports of companies on the brink of bankruptcy in Brazil of Mexico was making headlines. Similarly governments in Venezuela and Nigeria who thought it was a good idea to issue debt in USD better have their FX hedges already on.

I thought that yesterday's price action would give us a bounce to resell higher in a few days but it seems that the market is not taking any prisoners, and from here on we are going to get to the area where real money is driven out which is when the huge moves start happening.

Good luck trading,

Nic