There have been a lot of comments on “risk on/off” this week. Generally speaking the EUR/CHF is the best guide for risk direction. This week the EUR/USD went down and the EUR/CHF went down. Then the EUR/USD went up, but again the EUR/CHF went down. This is about as strong a signal as the market can give for a risk off environment. There is however a problem. Where does the money go? Risk off would normally mean a weak EUR,GBP and spill over into the commodities AUD and NZD. This should also see the USD and CHF bid (in a perfect world). Obviously Japan has lost any consideration as a safe haven. But despite the taper, the dismal economic data coming out of the US has had the market none too keen on buying USD for the most part. So its a flight to the safe haven CHF. But the CHF peg is only 137 pips below current levels meaning the 800 pound gorilla SNB is waiting in the wings. So if you aren’t buying USD and you don’t want to short this close to the peg, what is the option? Its the NZD right now. We have seen in prior years the NZD used as a safe haven for short periods of time. The strong economic outlook has added fuel to the fire as well. But as the NZD/USD approaches strong daily resistance lines and the AUD/NZD approaches all time resistance lines, it also becomes less appealing. It is possible given the market’s nature to trend more lately that it could blow through the resistance lines, but who wants to be buying at this level? More likely we will see moves to the sidelines. If there are no good buying or selling opportunities the smarter move is just not taking a position until we get some direction. Less money in the market(liquidity), more volatility, unpredictable violent swings (sounds a lot like trading in December). This could be a scalper’s paradise market, but if your not willing to job it out, might be better off just waiting for now. ECB, US jobs, Ukraine/Russia…… There are a lot of potential market movers on the horizon.
