The old forex saying is that Swiss franc doesn’t lie – meaning a nation where negative rates and huge surpluses – remains a constant safe-haven even with SNB confusions. The risk off trade will gather steam if euro/Swiss franc (EUR/CHF) 1.12 breaks much like 110 in JPY.

Whether today is a sustainable change or not depends on the type of relief. Treating the symptom or the disease matters.

Doctors for the market – commonly known as central bankers – did little to change things today. Witness the Norges Bank decision to keep rates unchanged but to likely hike in September. What did change the mood overnight was two stories –

1) China/US talks on trade (U.S. Malpass meets China Wang in late August).

2) Qatar promising $15 billion for direct investment into Turkey. There is also hope that Brexit talks restarting led to something better than a no-deal ending of UK/EU trade. However, the event of the day is the conference call of new Turkey FinMin Albayrak, seen as many as a key test for Turkish lira (TRY) holding below 6. Despite all the talk of relief, the sinking of Turkey and China has led this week to the MSCI EM index to reverse from its January highs to bear territory (down 20%).

Asia just didn’t buy into the relief trade while Europe has except for Italy. This brings out the key theme for the day – what type of relief has been delivered for the symptoms. The U.S. dollar (USD) strength has led to gold to touch 19-month lows and most currencies beside the Japanese yen (JPY) to weaken substantially, that has led to another round of Hong Kong intervention to hold the Hong Kong dollar (HKD) peg and it has brought mining shares to 5-year lows. The USD relief starts with hope that U.S./China trade talks are real, continues with the Turkey alternative plans for its economy to have some credibility, and extends to how central bankers – particularly the FOMC – see the world financial stability.

The summer vacation trading is easy to ignore and to push off as due to illiquidity and extreme over-reactions to the usual set of headlines about dire geopolitics. This begs investors to find the right safe-haven barometer to guide us through whether the doctors have fixed the markets or the just hidden the symptoms.

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