In options trading, the risk reversal is the difference in price between puts and calls. If calls are in demand relative to puts, you pay a premium for calls. Today we’ve seen another type of risk reversal: thee market is pulling in its horns after taking the dollar to trend lows earlier today. Stocks have fallen back despite strong earnings, a sign of fatigue, commodities have seen profit-taking and the commodities currencies have fallen in tandem.
I’m blaming Brazil for starting the fire, but what ever the reason, we’ve seen a moderate correction to the trend thus far.
Let’s throw some credit the BOC’s way as well. They sent a very clear signal that they are not even contemplating following on the heels of the RBA. The strong CAD has more than offset the rebound in the global economy, the Bank said pointedly. USD/CAD has soared above 1.05 on the tough rhetoric.
Failures at 1.50 in EUR and $80 in oil are both contributing.
