Lessening risk aversion was all we needed to spark a renewed rally in the currencies, right? That’s the way it looked until late this morning when suddenly the dollar stopped slumping at the same rate as the equity market was accelerating. News that US intelligence officials are taking Chinese harassment of a US navy ship off China’s coast very seriously seemed to prompt traders to book profits and ask questions later. Others held on, assuming the inverse stock/dollar correlation would reassert itself are now being stopped out as EUR/USD dips below the 1.27 level.
On the charts, it is interesting to note this is the fourth straight EUR/USD rally to edge just above the 20-day moving average before reversing sharply to the downside.
