When the Levee Breaks

Markets finished off a wild week today with the S&P losing -0.92% on the rising possibility of Great Britain leaving the European Union; more commonly referred to as the 'Brexit.' 

The move comes just one week after the U.S. printed a payroll report that was disappointing to politicians and economists, but welcomed by the market as it gives cause for the Fed to kick the monetary policy can even further down the road.  Market chatter is now suggesting the next Fed move may likely not come until December... a full year after the last rate hike.  Britain's shenanigans will only serve to complicate matters further; but for now, the U.S. dollar has been subject to some dramatic whipsaw volatility as a result.

Today's price action served as a stark reminder that global macroeconomic risks still pose a threat to domestic markets as they attempts to breakout to new all-time highs.


GIMME SHELTER

Here's the USD chart:

Last Friday's move shocked the greenback out of its recent rally and erased the previous three weeks of gains.  Following today's move, however, the dollar's direction is less clear.  What is more evident is the impact the dollar will have on markets going forward.  Dollar denominated assets, namely oil, are currently being dictated by the greenback.

Here's the dollar vs oil chart for the last 5 years (US Dollar in red, oil in blue):

While obvious supply & demand issues played a major role in oil's almost two year drop, the correction certainly wasn't helped by the dollar's appreciation as the U.S. recovery outpaced global economies that originally opted for austerity following the financial crisis.  Furthermore, oil's recent rebound has largely been attributed to recent dollar weakness... that rebound could now be in jeopardy.


I AM THE WALRUS

Janet Yellen?... Mario Draghi?... David Cameron?... Angela Merkel?

Exactly who will dictate the next currency move is not yet clear.  It may very well end up being British voters.  What is more clear at the moment is that the impact will be felt globally.


For anyone wondering, the title and subtitles are British Invasion references which I thought seemed appropriate.