Risk off, for now, as the Christmas rally commences

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Forex Market News

Safe haven bid came off in the run to the end of the week, particularly in the Yen. The VIX dropped back as stocks rallied on positive US economic data and earnings results. Whilst this was a minor turnaround at the end of the week, volatility in most asset classes (stocks, bonds, currencies, commodities) finished the week much higher. Gold has dropped back a little but the open position is net long for the first time since 2010.

The US interest rate expected rise has now been pushed from June 2015 to October 2015. The markets is 51% convinced of this new date now. This saw some profit taking in the US dollar last week, but I do not think the dollar strength story is over yet.

There is some concern over global growth, and Greece has reared its debt head again as the can they kicked down the street 18 months ago appeared on the horizon again. This has made the pencil pushers in Europe scramble to meet this week in concern that not enough is being done…its comical isn’t it? Friggin knee jerkers, that is what this world has come to be run by. Knee jerkers who react to the ignorant media that feed the masses. And political correctness, the bane of society. If only we had pro-active strong statesmen or women who understood the situation and made the call before things happened and didn’t just kick the can, but crushed it and dealt with it. Anyways, Monday morning rant over. I am still smarting from the Wallaby 1 point loss when we had the win 90 seconds from the bell.

So, what I see happening here in the mid-term time frame is that the US stock market will have its seasonal Christmas rally. What this will do is form the right shoulder of a very large head and shoulder pattern. By early January this should be clear to see and the sell-off will commence again. The Greenback will rally with it, but once the US stock market starts to tank, the US bond market may become a safe-haven (as would gold) which could see some big swings in the US dollar.

I do not see Europe growing, nor Japan. For them I see more stimulus being added which will drive down their currencies. That said, safe haven flow would see the Yen strengthen, so again, whippy markets. The antipodes will initially sell off as the Christmas rally occurs but then, with the high interest rates, people will park they’re funds into the Aussie and Kiwi as safe place to earn yield.

In short, I see some good trends happening until Xmas, then a choppy New Year.

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