News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
EUR/USD
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Oil - US Crude
Mixed
Wall Street
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Gold
Mixed
GBP/USD
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • What are some trading takeaways from 2020, as we jump into the new year? Find out with your free guide here: https://t.co/e7udCTJlmf #DailyfxGuides https://t.co/OXUgYIl2ru
  • Key levels in forex tend to draw attention to traders in the market. These are psychological prices which tie into the human psyche and way of thinking. Learn about psychological levels here: https://t.co/8A1QhwMVKo https://t.co/xncree8XaW
  • Becoming a forex trader means living and breathing the excitement, risk and reward of trading in the biggest and most liquid market in the world. Do you have what it takes? Read here to discover the qualities and processes it takes to build consistency: https://t.co/EfWEACQ6Cz https://t.co/gGOU1RVQzq
  • Becoming a forex trader means living and breathing the excitement, risk and reward of trading in the biggest and most liquid market in the world. Do you have what it takes? Read here to discover the qualities and processes it takes to build consistency: https://t.co/EfWEACQ6Cz https://t.co/wrI29FTN41
  • Do you know how to properly Identify a double top formation? Double tops can enhance technical analysis when trading both forex or stocks, making the pattern highly versatile in nature. Learn more about the double top formation here: https://t.co/t9Flsqcxo9 https://t.co/UzzC1bGzRJ
  • It’s important for traders to be familiar with FX spreads as they are the primary cost of trading currencies. Understand a pair's spread here: https://t.co/zEEUHZBx7g https://t.co/46bdHdOmOV
  • Central banks often deem it necessary to intervene in the foreign exchange market to protect the value of their national currency. Learn how central bank intervention can impact your trading here: https://t.co/8G8mUX4so6 https://t.co/6FokpDbL65
  • Use this technical analysis pattern recognition skills test to sharpen your knowledge: https://t.co/Qgz89PTxnu https://t.co/TwrOBFgIwj
  • Gold prices were crushed this week as yields continued to climb. But with a big spot of support coming in, can buyers bring a bounce ahead of NFP? Get your market update from @JStanleyFX here: https://t.co/E1TTXVJGUm https://t.co/pD4TeAY3ZP
  • Get your snapshot update of the of market open and closing times for each major trading hub around the globe here: https://t.co/BgZLFljIhZ https://t.co/PiLYJDVvtY
The US Dollar:  The World's 'Safe-Haven'

The US Dollar: The World's 'Safe-Haven'

James Stanley, Senior Strategist

As we often see in the carry trade, investors acting rationally in normal market environments will follow yield. Meaning, if all factors are equal and you are given a choice between an investment paying one percent and an investment paying five percent – most rational people will choose the five percent option.

This article will examine the what’s and why’s of the times when you might want to pick the one percent investment instead.

One look at the AUDUSD chart from 2010, which saw lows of .8000 move up to 1.1000, the entire period of which positive rollover was being accrued for holding long positions in the pair, will confirm the fact that, typically, investors will follow yield.

The US Dollar:  The World's 'Safe-Haven'

Created by James Stanley

But what happens when the market environment isn’t normal?

Such as the 2008 Financial Collapse... or the Tech bust… or the S&L crisis?

These are just three of the bigger and more recent examples, but you probably see where this is going: While a five percent investment will often be more attractive than the one percent investment – once the question of losing your investment altogether comes into play, the ‘safety’ of each option becomes all the more important.

As a matter of fact, if you look at the above chart you’ll notice it wasn’t all roses and daylight for ‘The Aussie’ in 2010. I’ll post the chart below from a different angle than we had looked at previously:

The US Dollar:  The World's 'Safe-Haven'

Created by James Stanley

Relative Safety

While the thought of an entire economy such as Europe, or Australia going bankrupt may seem ludicrous, we have to realize that investors, in all of their fashions whether they are hedge fund traders or central bankers – all hate to lose money.

And through the tests of time, the United States Treasury Bill has proved to be one of the safest financial instruments the world has ever seen.

In the article, How Treasuries Impact Forex Capital Flows – we saw exactly that; how traders in panicking markets will often choose ‘return of capital,’ over ‘return on capital.’

The above chart illustrates this: If investors are fearful of a recession – they will buy US Dollars despite the fact that any potential returns may be minimal. They are instead choosing ‘safety’ over ‘profit potential.’ They can then invest those US Dollars into Treasury Bills, and despite the fact that they may have smaller profit potential there is also a far smaller risk of actually losing their investment.

Because – if I can earn a rollover payment for holding the position at 5 O’clock today – but the trade loses more money than I make in rollover – what is the point?

So if there is perceived economic weakness, investors may run to US Dollars in an attempt to avoid the chaos. This is often called a ‘flight-to-quality,’ or a ‘safe-haven run.’

A strengthening currency, much like what we’ve seen in Switzerland or the ravaged economy of Japan, can rapidly change the balance of payments and cost a country greatly. But because of the sheer size of the United States economy, investors continue to look for ways of safely parking money so that it may not be exposed to principal risk.

Next: Trading Around the US Dollar (20 of 48)

Previous: Trading the Yellow Metal - Gold

--- Written by James B. Stanley

To contact James Stanley, please email Instructor@DailyFX.Com. You can follow James on Twitter @JStanleyFX.

To join James Stanley’s distribution list, please click here.

Forex Trader’s Guide to Price Action

Treasuries Part 1: A History of US Debt

How and Why Treasuries Matter to FX Traders

How Treasuries Impact Forex Capital Flows

Traits of Successful Traders

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES