FX to Join the Party?
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. Ashraf reminds us that XAUUSD 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 stabilisation?”. No real positives are expected before year-end.
For ideas on how trade EURUSD into the rest of the year, take a look at the Premium subscribers' video above.
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