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Fear Has Erupted and Its Intensity Will Drive Stocks, Dollar and Euro

Fear Has Erupted and Its Intensity Will Drive Stocks, Dollar and Euro

John Kicklighter, Chief Strategist

Talking Points:

• The S&P 500 has suffered its biggest weekly drop in four years, fueling fears of true 'risk aversion'

• While equities' plunge is a strong sign of sentiment, speculators have been deleveraging for some time

• Stocks are a first line response to this bout of fear; but the mix of Euro, Yen and Dollar will prove unusual

Want to develop a more in-depth knowledge on the market and strategies? Check out the DailyFX Trading Guides we have produced on a range of topics.

The hold out for speculative sentiment took a serious blow this past week. Global equities tumbled led by US stock benchmarks. The S&P 500 collapsed 5.8 percent on the week for its biggest plunge in four years. As dramatic as this move is, it isn't the first sign that sentiment was on the skids. We have seen unwinding in other speculative asset classes - high-yield debt, emerging markets, carry, commodities, etc - for some months. However, with this particular capitulation, we enter a new phase of the sentiment shift. As fear intensifies, we will find historical FX lines between haven and high-yield reform. However, in the transitional phase; currencies like the Dollar, Euro and Yen will take unexpected courses. We look at the high profile opportunities that arise from the big market moves unfolding in this weekend Trading Video.

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

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