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Video: The Dollar Will Signal the Next Stage of Risk Aversion

Video: The Dollar Will Signal the Next Stage of Risk Aversion

John Kicklighter,

Talking Points:

• There are many different assets and markets that represent good measures of 'risk appetite'

• When the various assets show a tightened correlation along with strong momentum, it is a strong sentiment signal

• At the severe stage of the speculative spectrum, the US Dollar and its haven appeal represent a critical gauge

See the DailyFX Analysts' 1Q forecasts for the Dollar, Euro, Pound, Equities and Gold as well as our favorite 2016 trading opportunities in the DailyFX Trading Guides page.

Fear is tightening its grip on the global capital markets and nearly forced full capitulation this past session. The late session rebound for equities Wednesday, however, is evidence that the markets have yet to fully surrender on their speculative pursuits. The intensity of risk aversion (also considered 'deleveraging' and 'flight to quality' among other names) is certainly building. The breadth with which the need to reduce risk exposure is reaching across all markets and a building pace of selling suggests conviction is solidifying. That said, we have yet to reach the self-fulfilling vicious cycle of selling. Tighter cross-market correlations and breaking further levels on key benchmarks (like S&P 500 and USDJPY) can offer evidence to that view. Yet, there is one asset that is particular adept at signaling the next stage of market fear: the US Dollar. We discuss these stages and the Greenback's utility for this watch in today's Strategy Video.

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