Regardless of the market you are following (Forex, stocks, commodities) or the specific assets you trade (whether the safe haven US dollar, low-yielding Japanese yen, recession-prone crude), risk and panic are the common threads for activity. The world's economic super powers have already attempted to forcibly revive confidence in lending and investing; but to no avail. Now, with the G7 convening - and with the knowledge that only dramatic efforts may be able to stabalize the markets - investors the world over are waiting to see whether the broad market crash will continue next week or a bottom can be put in place.
Flight-to-safety triggered major gains for the US dollar on Friday, as volatility remained exceptionally high in the market. However, if the G7 or EU comes out with a statement this weekend that leads the credit and stock markets to stabilize a bit, the US dollar could see a sharp reversal lower.
Risk aversion spreads, leading to the worst market downturn in recent history. Will the carry continue to plunge and dollar sustain its rally next week? Fear will determine activity.
It is difficult for anyone to miss the massive wave of risk aversion that has washed over the global markets these past two weeks. With basic lending and borrowing (the lifeblood of the financial system) frozen by oppressively high rates, the markets are being held hostage by sentiment; and until pessimism eases, the risk-related assets will maintain their bearish trajectories.
In the last few weeks, data out of Japan has revealed a fundamental shift in capital flows that will continue to offer USD-JPY support, and will help offset the U.S. dollar selling pressure that has emerged in the wake of the Wall Street financial crisis.