The EUR ( EUR ) has gained just over 100 pips vs The Australian Dollar ( AUD ) since this morning – as suggested.
When risk comes off ( markets cool or turn lower ) commodity related currencies such as AUD, NZD and CAD generally fall. This you can file away in your tool drawer, for the lifetime of your forex trading career.
Risk on = AUD, NZD and CAD UP! Risk off = DOWN.
When risk comes off…..”funding currencies” such as the Japanese Yen rise…as the money that was borrowed at near 0% interest, comes flooding back to Japan when stocks are sold. This too you can include in your “basket of trade secrets” for the forseeable future ( or at least until Japan totally implodes ).
So!
We’ve got USD falling, EUR rising…..and in turn can formulate a tonne of trade ideas knowing as well that JPY rises when risk comes off….and the commodity related currencies fall.
EUR Looking To Fly Hgher
There it is! You’ve got this!
Now…..things get a little tricky when you then consider trading pairs such as USD vs AUD where ( in theory ) BOTH should be falling! The trick here is two-fold. One – don’t trade a pair that you can’t work out where each of the individual currencies “fit” in the grand scheme of things ( based on the above breakdown ). Two – keep these ambiguous pairs “on watch” until you can clearly discern which way they’re going.
Always look for the largest moves to come in currency pairs that pit a funding currency ( cheaply printed JPY ) against a commodity related currency ( AUD ) when risk appetite/aversion shifts.
Getting a “macro view” of how each currency “behaves” during times of “risk on vs risk off” can be very valuable, and will help you simplify your trading. If you can’t reference each of the currencies you are trading, within this general framework – don’t trade’em!
Patience is the key I just bougt dollar index. As I said before, I think dollar has another leg up and we are starting right now!
That’s unfortunate Nyen..as USD is now “just entering” it’s intermediate decline.
Good luck though!
Green, green everywhere. That’s unfortunate you are on other side of my trade, but I am sure you kept your risk manageable.
Hi Kong, thanks for the article! I guess what I’m interested in is how do you get a feel for whether we are in a risk on or a risk off environment? I guess we’re talking about global sentiment, so how could we with some degree of confidence say that today is a risk off environment, versus some particular set of circumstances in six months time which you would classify as a risk on environment? Thanks!
Its tricky James as……for the past year we’ve barely moved in $SPX, and most would still view it as a ¨risk on¨environment. I call it ¨sideways distribution¨and a time when the big boys are quietly unloading their positions on retail traders…even if it´s taken the entire year of 2016 to getter done.
This environment has been difficult to characterize…as we lose sight of direction…endlessly in range really.
BUT! As per the article….these generalizations in forex markets can still be made, just that picking your shots has been tough.
Funny thing is…..human psychology wise…..they always think it´s ¨risk on¨…until of course the day it isn´t, then the day after that…..than perhaps a single day more – and then your toast. Stuck there with a massive loss, and a lack of ability to pull the plug.
People love to buy……and hate to sell. I dont get it.
Kong,
would you consider USD a risk-on or risk-off currency? I know traditionally it is viewed as a safe haven, but i think recent history has shown us otherwise.
It flips and it flops, as for the longest time ( during all the QE ) USD was clearly a “funding currency” and fell in to the catagory of a safe haven. I beleive that time has now passed…after this last large scale run up in USD, that has coincided with a rise in U.S Equities.
I believe we will see both the US Dollar AND stock market move lower together here post elections…and then further USD deterioration late 2017 when QE 5 kicks in.
I bought Gold Miners yesterday given the mini pullback, I don’t think its doing down much further. Kong, I’m enjoying your site. Thinking about being a subscriber but its not in my budget, also I don’t do forex and see you are mostly concentrated on trading forex but I recognize you call out what else would do well in the context of FX moves.
Do you have a private Twitter handle when posting real-time trades?
Im re working the paid area here soon as I will likely “finally” release my Kongdicator alert/indicator….and in turn a new service.
Hang tight for a little longer, Ill keep you posted.
Nice calls Kong, but are you starting to worry that the tide is turning on your trades? Today is a VERY risk off environment, yet we see significant USD strength all over for the second day. Oil is also turning, hard.
Please don’t tell me now you think it will be ok in 2 months, your calls were very specific and spot-on, and you were very serious about getting on the train in time.
I am clearly “on the train” as entry short USD is STILL in profit, as well the small mining stocks doing well.
I dont get shaken out….I get stopped out and just start planning the next trade. This one looking good to me!
Yeah, i get that you get stopped if unlucky. I was just wandering if you got worried about the tide turning, thats all.
Kong, where do see GDX topping out on this leg? Its pulled back for a couple of days but I suspect it will bounce back stronger this week.