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Forex: A Shift in the Taper vs Risk Trend Balance Hits the Dollar

Forex: A Shift in the Taper vs Risk Trend Balance Hits the Dollar

John Kicklighter, Chief Strategist

There are two dominant fundamental themes vying for control over the markets - speculative appetite and stimulus dependency - and a falter for one of those drivers lead the dollar to a sharp tumble. Both the greenback and S&P 500 (as a benchmark for risk trends) have climbed side-by-side over for months. Having been pushed to an extreme in May, this unusual relationship was delivered a jolt of potential resolution through Friday's close through heavy selling behind the US equity index. By most accounts, the most probable theme to pick back up this week would have been a full escalation towards risk aversion. Instead, investor sentiment stabilized and the dollar plunged as 'taper' hopes cooled. Is this the trend development with legs or is a market-wide risk aversion move lurking just beneath the surface? We discuss this and more in today's video.

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