INTERESTING TAKEAWAY - So the back and forth trade in US equity markets continues, while currencies are also starting to show signs of volatility. We finally saw some excitement from the Euro on Thursday, with the post rate decision Draghi press conference sparking a whipsaw reaction. The Euro spiked to fresh yearly highs against the buck, before sharply retreating on some dovish comments from Mr. Draghi. It isn't too often you see an hourly RSI tracking in violently overbought territory, and then within less than an hour, showing oversold. Unfortunately, I didn't catch the move, as the short trade up at 1.3990 was a real beauty. As we head into the final hours of trade for the week, I think one of the most interesting takeaway has been the unified concern from central bankers of geopolitical risk. Fed Yellen expressed these concerns in her testimony this week, while Draghi also spoke at some length over the potential threat of the current turmoil to the Eurozone economy. I have been positioned for vulnerability in risk correlated assets over the past several months, and I believe this concern as expressed by these central bankers, could start to have a more weighing influence on global investors.
FAMILIAR CORRELATIONS - I have said repeatedly that I do not believe risks assets need the help of geopolitical risk to weaken, as I already see these markets overvalued on a cyclical basis and exposed to the pending monetary policy reversal at the Fed. But at the same time, there is no reason why geopolitical fears should not further contribute to this outlook. Over the coming days, I will be looking for a return of traditional correlations, which show broad weakness in risk correlated markets, and across the board demand for safe haven currencies like the US Dollar, Swiss Franc and Yen. This outlook should also translate into a resumption of declines in currencies like the Australian and Canadian Dollars, and I suspect the now recently relatively underperforming New Zealand Dollar, will make a bigger habit of longer-term relative underperformance. Finally, US equities should start to top out and accelerate to the downside. I am not calling for a collapse here, but do believe a 10-15% correction is warranted. As a reminder, a 10-15% correction would still have the S&P 500 trading above record highs established in 2013. Doesn't sound so crazy when you think about it like that does it?