THINGS TO COME - So as we head into the new week, it looks as though the stage is set for a nice uptick in volatility. Although US equities enjoyed a little rally on Friday, we did still see some decent moves to the downside last week, and I still expect rallies from here will be well capped and find lower tops in favor of continued weakness. Overall, an improving labour market and less anchored inflation, should put a little more pressure on the Fed to accelerate its policy reversal timeline, and this is what should drive markets in the days and weeks ahead. On the currency front, nothing too exciting has happened just yet, but it feels like we are getting close. The Euro is flirting with some key medium-term support below 1.3700, while USD/JPY is contemplating a drop out of a multi-month range and to fresh yearly lows. Meanwhile, emerging market and commodity currencies have been well bid of late, but this period of demand looks like it is running out of steam and we should expect to see a resumption of what was some more prominent selling in these markets not too long ago.
NOT COMPLAINING BUT - While the "sell in May" mantra hasn't exactly rung true to this point, there is still some good prospect for broad risk liquidation, and this is where I will be looking for markets to go. I remain very focused on the New Zealand Dollar, and will be looking for this currency to turn a corner in the days ahead. An NZD/USD break below 0.8600 should get things started and expose more critical support down at 0.8515, below which opens the floodgates. But there is no denying this has been one of, if not the strangest year I have seen since watching markets. Volatility has been no where to be found in FX markets, and yet I have managed to find good profit. And even stranger is that my profits have come through shorting a US equity market that still tracks near record highs. Just a weird market environment. I am not complaining, but at the same time, I wouldn't mind seeing a little more excitement in currencies. It would be nice for me as a currency guy, to actually be trading more currencies than equities. I'm not sure how much longer I can keep up this charade. Yet, in truth, so long as I am presented with opportunities to sell equity rallies near these record highs, I will happily continue to take my shots.