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.

Free Trading Guides
EUR/USD
Mixed
GBP/USD
Bearish
USD/JPY
Mixed
Gold
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
Oil - US Crude
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
Bitcoin
Bearish
More View more
Real Time News
  • Russia's Novak does not state if Russia will support deeper oil output reductions #OOTT
  • 🇬🇧 GBP Retail Sales Ex Auto Fuel (YoY) (JAN), Actual: 1.2% Expected: 0.5% Previous: 0.7% https://www.dailyfx.com/economic-calendar#2020-02-20
  • The spread of #coronavirus promises a global economic hit at a time when the global economy is perhaps especially ill-equipped to deal with one. Growth-correlated assets are vulnerable. Get your market update from @DavidCottleFX here: https://t.co/0If0Jw7c2P https://t.co/KEWY1dET4m
  • Join @PaulRobinsonFX 's #webinar at 5:30 AM ET/10:30 AM GMT to learn about how you can become a better trader. Register here: https://t.co/WeWGKtdlyz https://t.co/eNA6uFXAXa
  • Heads Up:🇬🇧 GBP Retail Sales Ex Auto Fuel (YoY) (JAN) due at 09:30 GMT (15min), Actual: N/A Expected: 0.5% Previous: 0.7% https://www.dailyfx.com/economic-calendar#2020-02-20
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 97.20%, while traders in France 40 are at opposite extremes with 82.49%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/sCyvK3iy6d
  • The $USD gained versus SGD and IDR despite a “risk-on” tone in markets, boosted by strong declines in the Euro. What is the week ahead for USD/SGD, USD/IDR, USD/PHP and USD/MYR? Get your market update from @ddubrovskyFX here: https://t.co/3zCSbkEQ2c https://t.co/uFdMkQrZtZ
  • RT @SaraWalker_IG: Watch Anglo American at the open $AAL after higher #PALLADIUM prices boosted results, FY profit up 9% in line with estim…
  • Commodities Update: As of 08:00, these are your best and worst performers based on the London trading schedule: Oil - US Crude: -0.05% Gold: -0.14% Silver: -0.79% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/Vctc4lToMc
  • Forex Update: As of 08:00, these are your best and worst performers based on the London trading schedule: 🇨🇭CHF: -0.00% 🇪🇺EUR: -0.14% 🇨🇦CAD: -0.18% 🇯🇵JPY: -0.33% 🇦🇺AUD: -0.58% 🇳🇿NZD: -0.63% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/oCl2xnI9yd
US Dollar Ready to Make a Real Run as Markets Risk Panic

US Dollar Ready to Make a Real Run as Markets Risk Panic

2011-09-23 22:51:00
John Kicklighter, Chief Currency Strategist
Share:
US_Dollar_Ready_to_Make_a_Real_Run_as_Markets_Risk_Panic_body_Picture_5.png, US Dollar Ready to Make a Real Run as Markets Risk Panic

Fundamental Forecast for the US Dollar: Bullish

Risk aversion has once against overrun the markets; but the current situation is different than what we were seeing back in July / August. While that tumble covered remarkable ground; it would be more appropriately labeled a technical break. What we are seeing now is more fundamentally rooted. And, what makes it much more extraordinary (dangerous) is that extreme emotions are creeping in at the same time that we are testing the boundaries of stimulus and moral hazard. For the dollar, these are ideal conditions.

If we were to run down the list of appreciable traits for a currency, it is quite clear that the US currency is severely lacking. For the greenback: interest rates are near-zero and will likely remain there for a few years; economic activity is clearly slowing; pained markets are drawing capital away from efficient investments; and its prized safe haven status is under constant pressure (China’s Finance Minister this past week revived the call for the IMF to diversify its reserves). Under most circumstances, when the broader markets are stable or expanding; these problems would undermine the dollar’s appeal. However, there is one feature that the dollar possess and none of its alternatives come close to matching: proliferation. The currency is the primary reserve for the world, it is used in the bulk of currency exchanges and dollars are used for the bulk of the world’s purchases for physical goods and services. In other words, it is liquid.

A tame risk aversion move encourages capital to move from risky positions (those with a greater risk compared to their potential return) to a safe haven. This occurs in an effort to both avoid risk and to repatriate capital. However, in this orderly move; there are many alternatives to this ‘risk aversion’ shift with competitive safe havens and more prolific funding currencies. Yet, when fear turns into panic and the regular functioning of the markets starts to come undone; only the most liquid assets survive. That means: the dollar, US Treasuries and US money market funds are seen as a last resort.

To this point, we have seen the break in bullish momentum that began back in the first quarter of 2009 and was fueled by stimulus; and we have moved on to the need to unwind risk. For further progress into this descent into financial gridlock, we need the capital lines to start freezing and speculative interest in the short-side to increase. We are seeing both take place. In addition to the Fed announcing it had put a cap on stimulus; we saw major US banks downgraded (Bank of America, Citi and Wells Fargo), swap costs with Europe’s banking sector jump to a multi-year high and insurance costs (implied volatility costs, credit default swap premiums, etc) surge. We don’t need further negative developments to keep capital markets tumbling and the dollar rallying – it is now the dominant trend. Yet, we still need to be cautious about leveraging up behind the risk aversion move.

While the dominant trend in sentiment and price action have shifted; there are always corrections in larger moves. And, when it comes to a panicked selloff, there is a far greater precedence for intervention and manipulation. When capital and credit markets freeze, economies suffer and social unrest develops. In these instances, policy officials are spurred into action to force calm. Yet, what can they do this time around? The Fed (the largest central bank in the world) has tapped out of further stimulus. Efforts to stem the European crisis have been ignored because of in-fighting and the sheer cost involved with the expected recover. And, the investor, consumer and government of the world is simply still too highly leveraged. Expect coordinated efforts in the foreseeable future. These moves can generate short-term and volatile jumps; but they will not turn the tide. – JK

Written by: John Kicklighter, Senior Currency Strategist for DailyFX.com

To receive John’s reports via email or to submit Questions or Comments about an article; email jkicklighter@dailyfx.com

Follow John on twitter at http://www.twitter.com/JohnKicklighter

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

DISCLOSURES

News & Analysis at your fingertips.