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Forex Strategy Video: Where is the Risk Aversion Drive for the Dollar, SPX?

Forex Strategy Video: Where is the Risk Aversion Drive for the Dollar, SPX?

John Kicklighter, Chief Strategist

Talking Points:

• Strong US data has fed expectations of a near-term Taper and in turn has stirred risk trends

• A drop for EURUSD and certain Yen crosses has given us a 'false positive' on full-scale risk aversion

• Until all investors are forced to reposition - and S&P 500 topples - the markets are in equilibrium

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'Why isn't the S&P 500 collapsing on the renewed risk aversion drive?' This is a common question that keeps popping up. With the positive US 3Q GDP and NFP readings supporting a shift in expectations for a nearer FOMC Taper than was feared/hoped for, traders were quick to pick up on the drop from EURUSD and yen crosses as evidence that speculative deleveraging was in full swing. Yet, underlying sentiment has not fully shifted, and there are a few key signals that are providing some with a false sense of assurance. In the weekend Forex Strategy Video, we discuss the true health and bearing of risk trends and how it impacts our trading.

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