Inter-market: Risk-off Flows Return in US Hours
The market profile turned into a less constructive 'risk on' mode during
the last US session, with the S&P 500 erasing almost entirely
Tuesday's gains, to end the day near flat levels following a strong
bullish gap.
The present environment in the very near term, based on the action seen
in the last US session, can be classified as 'risk off' given the rise
in both the VIX and gold, also confirmed by the steep fall in 30-year US
Treasuries, all indicating the deterioration of sentiment.
Amid this scenario, currencies the likes of the Euro and Japanese Yen
(borrowing currency types given its negative interest rates) ended up
strengthening the most, with the US Dollar being the weakest as the
market continues to be disheartened by the lack of signals from the Fed
to raise interest rates again in the near term.
Should Asian market track the worsening risk sentiment, expect USD/JPY
to remain under pressure, while the likes of EUR/USD or EUR/AUD catch a
decent bid tone. Note, however, that while the risk has worsened short
term, in the big scheme of things, the environment remains neutral to
constructive to still engage in risk appetite trade ideas judging by the
levels where the VIX trades at.
