It’s been a wild ride aboard the risk on, risk off train over the past 24 hours or so. Stock markets went full circle, selling off aggressively as the sharp moves lower in the crypto space took the breath away. But the dip buyers were out in force and with the strong bounce back in cryptos, so risk assets went bid too with US equities posting minimal losses into the close.

US stock futures are modestly lower with the Vix, Wall street’s fear gauge, moving above 23.

Fed timeline

Meanwhile, during all that excitement, the dollar climbed off the floor thanks to the headlines in the FOMC minutes, which mentioned that there was some taper talk among participants. Bond yields moved higher but importantly, the 5-year part of the curve, which is most Fed-sensitive, has retraced most of its move this morning while emerging market FX sold off less than 1% in the aftermath of the minutes release.

The reality is that the Fed will want to see a number of strong jobs reports before any more forewarning about tapering and even then, it is expected to take three quarters to slow its bond buying. Add to that probably the same time frame again before a first rate hike and we are into the first half of 2023 – which is when the market is actually pricing it in.

The greenback found support again at the February lows which corresponds to the early May highs in EUR/USD. Buyers have stepped in today and will again aim for 1.22446 if bullish momentum picks up. The trendline from the end of March low is acting as good support so far this month with the 100-day SMA just above 1.20.

Crypto deleveraging

Intense selling in Bitcoin saw it down over 30% intraday at one point and touching $30,000, before rebounding quite unbelievably back towards $40,000. Other digital coins like Ethereum also got hit, losing a quarter of its value before easing back to losses over 20 per cent. More than $8.6 billion of positions have been liquidated in the last 24 hours.

The worry for crypto fans is that the China clampdown is the start of a wider one by western regulators too. The worry for institutional fund managers is that these assets involve extended leverage so in prolonged periods of volatility, we could get a broader scale of position adjustment in other markets.

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