There is a serious rumbling in risk trends for the global markets, and the dollar will be one of the front-line measures for sentiment moving forward. We know the greenback as the Forex market’s preferred safe haven, but its true appeal is as a ‘currency of last resort’. A move that sees the dollar surge againstall counterparts would speak to a disorderly market crunch that reaches beyond regular risk-based trends. Instead, the combination of performance we’ve seen through this past session speaks to a fundamental performance that offers greater follow through potential. From the carry trade angle, the greenback showed the best performance: a 2.1 percent rally against the New Zealand dollar, 1.9 percent versus the Aussie dollar and 1.2 percent when matched with its Canadian counterpart. The fundamentally questionable – but unmatched for liquidity – EURUSD showed a more restrained 0.6 percent dip. It was USDJPY’s 1.6 percent decline – the biggest in six weeks – that real speaks to true risk aversion. The preference for the yen on this pair reflects ‘orderly’ carry unwind rather than systemic panic.
The safe haven watch has begun. In the coming session, we will look to measure the breadth of the financial market’s deleverage from risky exposure. Having seen the dollar climb, yen crosses drop, US equities tumble, the 10-year Treasury yield slide and commodities hammered; there is a uniform effort to avoid risk. The next level of escalation would be to see key technical breaks along with meaningful momentum to fully establish commitment. There are highlights on the upcoming docket that can provide that can tap into confidence including the IMF’s world economic outlook update, a continuation of 1Q earnings season (Goldman Sachs and Intel) and numerous Fed policy officials scheduled to offer up commentary that can further destabilize resolute expectations of unlimited stimulus support.
News By lakforex.com