• Major currency pairs (GBP, YEN, USD, CHF) have seen significant increases of implied volatility over the course of the last several months.
• Implied cross volatility pairs such as AUD/YEN and NZD/YEN have moved into crises levels not seen since 2011.
• Equity portfolio managers re-hedging (liquidating dollar positions), against established long USD positions.
• Market uncertainty of what the Yellen cakehole cannon might say tomorrow.
Equity portfolio managers (PM’s) are heading for the door. They have been selling winners (Netflix and Amazon for example) to lock in profits against the losses incurred on their dogs (European energy and banking). This liquidation (fancy word for sell at market order or ’Get me out!’) of positions is forcing PM’s to hedge their resulting USD exposure. They have sold USD aggressively over the last several months in the face of a market that has been long USD positions.