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After Last Night’s Fireworks, Citi Unveils The “Insanity Index”

Friday, October 7, 2016 10:51
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Earlier today, we laid out some of the most notable trader and Wall Street quotes describing last night’s pound sterling flash crash. However, Citi’s Brent Donnelly has done one better and has actually created a whole new index to show not just the flash crash, but the overall impact of unorthodox, lunatic monetary policy. Appropriately, he calls it the “G10 Insanity Index.”

This is how he presents it in his latest edition of his blurb to Citi FX clients.

Today the Today’s AM/FX has a low word count as I try to put last night’s GBP move into historical perspective using two visuals. First, I took the majors in G10 and found each day’s range divided by the standard deviation of the range and then squared it. Then I took the biggest mover each day and plotted it in the chart below, calling it the G10 Insanity Index. You can see that absurd, multi standard deviation moves have become more frequent in G10 FX.

For perspective, I did the same thing, but added in EMFX, stocks, bonds and gold. See the second chart. I’ll let you draw your own conclusions but one takeaway is that G10 FX has lost its mind a bit in the past two years, taking over from EM as the tail risk king.


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