The moves in equity markets this month have been breathtaking, while FX is attempting to join the risk-on party, says Adam Button of ForexLive.com.
The US dollar ended the week lower against all G10 currencies, with JPY as the second weakest in a classic risk-on performance. Gold has never stopped falling at its 200-DMA. So how far does it go? see below. NZD and AUD led, while GBP and CHF lagged ahead of JPY and USD.
Take AUDJPY for instance—It's a classic “risk appetite” trade that's up 4.5% in the month. That would normally be a great month but considering that many equity indexes are having their best months in decades, it's surprisingly mellow. A similar story is seen in other classic FX risk trades; some of that is yield-spread compression but much of it is simply the slower-moving nature of FX.
Yet, it's not difficult to imagine a scenario where risk currencies begin to run. A number of yen crosses are threatening to break out and commodity prices have been on a strong run. Notably, oil rose to the highest since March, while USD/CAD broke below 1.30 with authority.
Metals were in focus again today, falling back sharply, this time gold knifing below (and closing) under the 200-day MA—a level deemed critical test for the bulls. If they give way easily then it's a sign of a dramatic reversal of sentiment on gold and silver. The XAU/USD may drop by as much as 3%-5% below its 200-DMA before stabilizing. Whether this means 1745 or 1730 is in the works, remains to be seen. The other question is “how long the slow burn will last before any semblance of stabilization?” No real positives are expected before year-end.
Learn more about Adam Button by visiting ForexLive.com.
