The Near-Term Shift in Risk Sentiment

Monday, Jun 11, 2012

The U.S. equities market has stole the spotlight and there’s no doubt that the market is on a good bit of “hope-ium” as the risk seems to be coming back on the table. But is it really? As a forex trader there are markets we look at to confirm that the risk is truly on the table. So far, there are more signs of confusion ahead than clarity.

Examining a number of interrelated charts is the key to understanding the global view on risk, not just the U.S. The fundamentals have not shifted in any significant way. Just a glance at the headlines show that there’s still plenty of pessimism to go around surrounding China’s slowdown, the European debt crisis, low commodities prices, and a strong U.S. dollar.

And yet, the U.S. equities market seems to be shrugging off this fear and worry as the Dow and S&P are rallying 

Past performance is not indicative of future results

The Dow Jones Industrial Average has broken the downtrend. “Risk off” has been the dominant trend for over a month and today’s rally and move to the 50 period SMA close is the confirmation that while there may be exhaustion in the market off the near-term ceiling, the downtrend is no longer the dominant trend.


Past performance is not indicative of future results

Crude oil is not rallying at all despite the Dow’s gap up this morning; in fact the trend is still convincingly down. This lack of participation from the “king of commodities” must be a concern for equities bulls. Without participation from commodities, it will be difficult to convince a longer-term crowd to buy into the rally.


The U.S. Dollar Index’s strength notwithstanding the risk off (risk aversion) outlook is still holding on to many markets like the AUD/JPY and EUR/USD. The AUD/JPY has shifted sideways enough to put the downtrend in jeopardy and strengthen the argument for a pair that is not entering a potentially choppy sideways market. 


Past performance is not indicative of future results

The daily AUD/JPY is not showing the strong RISK OFF attitude that was seen in the steeper part of the downtrend. The Japanese yen has begun to weaken with equities strength and the Australian dollar is more stable. The recent rally (a bounce) has done enough to transition the daily AUD/JPY out of the downtrend. But do not assume that a broken downtrend is automatically an uptrend. Look for sideways chop as transition invites volatility.


Past performance is not indicative of future results

The daily EUR/USD (aka the “fiber”) had gapped higher into the resistance of the 34EMA Wave before losing footing and slipping lower. This is in fact not only a gap close to 1.2500 but also the follow-through for a swing short. It will be difficult to convince longer-term traders and investors to get prematurely optimistic while the fiber still is hammered on rallies.


As an active forex trader and Chief Currency Analyst for I do write for a number of sites all over the web and I am happy to say that I will be posting updates at My Activity Board will feature the trades from my trading account as well as intraday commentary.

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Posted By: 

Raghee Horner

Raghee Horner, chief currency analyst for IBFX, provides her personal daily trading tips and insights through An experienced trader with over fifteen years in the markets, Raghee is the co-founder of EZ2Trade Software and has taught her brand of technical analysis and charting strategies to students all over the world. She is an international author and has taught currencies, futures, and equities trading for over a decade.
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