We are in the most reactive periods of time that we have seen all year, in regard to forex valuations following virtually to the tick or point, equity futures and oil. Although it is hard sometimes to know whether oil leads equity trade, or vice versa, the one thing that is for sure is that forex pairs are doing the following, not leading.
We hear a lot of headlines talk about 'the flight to safety', and 'risk aversion'; the bottom line right now is that equates to currency valuations that are not being gauged on regional strength, or GDP outlook, or interest rate variables. Forex values are being set by wherever equity and bond (Treasury and Gilt) markets are trading.
In this week's first global trading session, equities traded lower in Asia, (Usd got stronger), gapped lower in Europe, (Usd got stronger), reversed higher in Europe, (Usd got weaker), moved up initially at the Wall Street open, (Usd got weaker), and then moved lower after 20 minutes, (Usd got stronger).
The commodity related pairs, aussie and cad, still have enlarged 15 minute candles, that are way above the average size, and reflect the indecision in both oil and equity market trade. It will be unusual to see these pairs with consistent 40-50 pip candles, virtually through the whole 24 session, as the year progresses, and they will work back towards an average 20 pip range as equity markets find buyers.
The other major pairs have started to reduce the average size from 40-50, and are trading around 30-40 pip 15 minute candles sizes, with a main change being that the wider size candles are actually now starting to come at the regional equity market opens, and calm down as those sessions evolve. That is historically what we are used to seeing. There is nothing wrong with volatility, it is what a trader looks for, and it is good now to see it getting back to a more settled pattern.
The equity bear creates forex patterns that have to be respected; get in, bank some, move stops, get out, wait patiently again. The equity bull by comparison is a far more relaxed ride, but right now it is the Grizzly Bear, not the Benign Bull, that the global markets are riding.
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