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Bouts of risk aversion return, will it last?

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 21, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Bali) - Risk has worsened in the last 30 minutes, taking AUD/USD back towards the 0.69 handle from 0.6960 high, USD/JPY is re-testing the 117.00 handle, while EUR/USD is well off lows at 1.0867, last at 1.0889.

    Equities erase most gains

    The fresh bout of risk aversion, while developing in a slow fashion during the Shanghai/Tokyo lunch break, has taken equities back to opening levels, with the Nikkei 225 now up only 0.26% after printing gains of over 1.4% during the morning session. Meanwhile, copper, perceived as a key indicator of a 'demand environment' market, has also erased most of its gains, while Oil seems to have now resumed its bearish trend, last at 28.40.

    Keep eye on Oil, 25 Delta RR in USD/JPY warrants caution

    A few factors that traders should be taken into consideration are, firstly, the price of Oil as a leading indicator for sentiment. In recent times, since the crack of $30, it means more energy-related enterprises may be going out of business unable to service their debts, which in turn keep the dumping effect in junk bonds, and that created unrest in the market, thus risk aversion. In other words, a lower Oil is a recipe for risk aversion. What's more, judging by the premium asked to hold Yen calls vs puts, market makers remain quite pessimistic on the outlook for a lasting bounce in USD/JPY despite having recently tested 116.00, a key level, even for Japanese authorities, who seem to have begun once again a campaign to talk down the Yen.
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