Anyone looking at the ASX futures this morning would think that we export as much oil as we do iron ore and that Greece is an island off Tasmania. Last night's sell-off is an odd one if you ask me, and can be attributed to seasonally-low trade volumes as well as an escalation in Greek-exit rhetoric and the fact that WTI and Brent fell about 5-6%. What strikes me as odd is that Greece is the country whose culture of fiscal irresponsibility and parliamentary carnage has been a leading contributor to the inaction by the European Central Bank (ECB) to stimulate the region; i.e., if it is going to help the Union by purchasing more sovereign bonds and various other assets, its leading members don't want to purchase them from a country that demonstrates an unlikelihood of paying it back. What's more is that Germany's CPI was released last night - it was only expected to achieve a year-on-year change of +0.3% but couldn't even manage that, coming in at +0.2%. But that only adds urgency to the ECB's job of pumping the economy up, with its biggest member now heading in the direction of consumer price deflation. It seems as though just the concept of a "European Event", irrespective of what that is, is going to be enough to unsettle some nerves, and at this stage the rumblings of a Greek exit of the European Union are giving investors flashbacks of debt crises in Portugal, Italy, Ireland, Greece, Spain etc.

Today's first chart shows the EURUSD currency pair's response to all of this, which has broken below US$1.20; however, this is exactly what the ECB wants and it seems as though (like many other currencies trading against the US dollar) this currency pair is finally going to break through its 2010 lows.

The US response to all of this, seemingly further fuelled by the fall in oil prices, was pretty consistent across the various indices - from the DJIA to the NASDAQ to the Russell 2000, the falls were pretty similar. Thus this was not really a targeted sell-off in the oil producing sector of the US equity market, rather a broad response by investors to hit the sell button. The US dollar rallied hard once again - the US dollar index (shown in orange in the second chart, Rivkin Trader clients can use the USDINDEXMAR15 instrument to trade) has continued to move higher since mid-December, while the two other commodity currencies in the second chart (Canadian dollar in black, Aussie in blue) have been on the receiving end. Larger falls were seen in Canadian stocks, which are more sensitive to oil prices as a whole given the relative size of the industry there and the inflows of construction capital coming from projects via foreign producers, many of which are now in question.

You can see on the last chart (WTI crude oil in orange) that the final bearish candle that illustrates last night's sell-off in oil--meaning that it had a large fall and closed right near its lows--certainly sticks out a little, but we saw higher volatility in November. The big orange candles that you can see in late November certainly seemed to precipitate equity market selling at that time, but there is no doubt that the S&P 500's response (in black) from last night was pushed further by something more, which is almost certainly the anticipation of an event in Europe.

This oil price is going to create a bit of a temporary change in the way the global economy thinks about inflation, because it's having a big effect on it and economists need to know whether it will sit at US$50 or rebound back to the levels that the world had previously gotten used to. It looks to me that, more than anything, 2014's most overwhelmingly-evident global economic theme (disinflation) came back early to haunt investors in 2015!

Today’s charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to get your free $100,000 demo account.

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