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Forex Flash: Survey shows crash expectations higher than options pricing - Societe Generale

Sebastien Galy, Senior FX Strategist at Societe Generale comments on a recent survey which shows that the 106 respondents feel that the probability of a crash in the next three months is 33% and 43% in the next 6 months.

He notes that this is much higher than what is priced into the options market over three months, while the equity market is far more fairly priced over 6 months, suggesting an arbitrage between expensive EQ tails and cheaper FX ones over that horizon. He writes, “Underpriced risks are the mix of growth and fiscal sustainability, with specific issues in Europe, the US and to a lesser extent China.”

Forex Flash: Euro to remain under downside pressure - BTMU

Lee Hardman of the Bank of Tokyo Mitsubishi UFJ notes that the Euro continues to remain under downward pressure following the inconclusive Italian election results which has resulted in investors adjusting higher Italy’s sovereign credit risk premium.
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Sequestration reconciliation unsuccessful ahead of final meeting later today

The spending cuts once deemed ‘intolerable’ or ‘draconian’ in nature seem to be coming to a reality Friday, as each side posters and braces for damage control as the March 1 date has finally arrived. Despite conflicting partisan sources, the automatic cuts threaten to eventually send poor children home from pre-school, heighten airport security wait times, reduce unemployment benefits and furlough defense workers were the way out of a standoff almost two years ago that put the US on the edge of a debt default.
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