Talking Points:
• The shift towards market-wide risk wind down - the theme with most potential - slowed this past session
• Speculative momentum is taking over from fundamentals as the Dollar rally and Euro plunge grow extreme
• A dovish shift from the RBNZ leads to an unexpected rebound from the Kiwi dollar
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While momentum would carry the incredible Dollar rally to further 11-year highs and the Euro's epic plunge to 1.05, the more fundamental 'risk' move slowed this past session. Compared to the two currencies' impressive runs, general sentiment can encompass the entire financial system and it is sitting on deep reserves of untapped potential. Using the S&P 500 as the high water mark for skepticism in risk aversion, the index slowed its pace materially from Tuesday as its multi-year rising channel floor appeared on the horizon. This is a good representation of the distinction between the speculative swing that can be generated from the short-term crowd that has been more active recently and the stoic buy-and-hold crowd that cling to status quo / moral hazard. There are setups more appropriate for the limited risk move and those that are tuned to a full-scale delever. Meanwhile, monetary policy considerations are keeping the EURUSD moving and generating volatility for the New Zealand Dollar. We take stock of the market in today's Trading Video.
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