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Talking Points:
• We discussed how to identify a market-wide 'risk aversion' move yesterday
• Now we cover what the fallout in sentiment would entail given the unstable backdrop it developed on
• The Yen crosses will prove early movers on risk aversion but EURUSD may be the most exposed
See the DailyFX Analysts' forecasts for the Dollar Euro Pound and Gold through the 4Q on our DailyFX Trading Guides page.
Given the messy close for the markets this past week it is important to discuss what a market-wide deleverage of risky positioning would entail. Raising the threat level of a break in complacency and subsequent need to unwind exposure were key technical breaks in the US equity indexes a drive to extreme for volatility measures and other important cues. How would a shift in sentiment and positioning actually play out Does a five-and-a-half year bull trend record usage of leverage multi-decade lows in participant and exposure to exceptionally risky asset types change the mechanics of a turn And what FX trades are better suited for the near-term reaction versus those that face deeper fundamental trends We discuss this in the weekend Trading Video.
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