A week of risk aversion in the forex market

Last year we saw some jitters in the stock market around the world on the back of the Shanghai Composite rapid decline. That translated into high volatility in the financial markets and obviously the forex market. But the first 3-4 days of this New Year the market sort of calmed down which gave traders a false sense of security, because since the 5th of January the fears and volatility has returned, so this week has been pretty volatile too. The Chinese stock exchange continued its relentless decline, falling from around 3,150 points to 2,900 points which means that the companies listed in the Shanghai Composite have lost around 8% of their value by the end of the week comparing to Monday morning.

So, the fear of another spread financial crises like the one we saw in 2008 spread to other stock exchanges around the globe and most of the major stock exchanges closed the week in red, although the losses were minimal compared to the Chinese stock market. This led to a selloff of the risk currencies and an appreciation of the safe havens such as the Japanese Yen and the Swiss Franc. The Euro ended the week with reasonable gains against most pairs except the JPY and is has done so every time there was trouble in the financial markets in the recent months. Despite the uptrend, we opened one sell forex signal in EUR/USD which hit both take profit targets. The Euro used to be one of the risk currencies which use to find bids when the risk appetite was high and depreciate when the fear prevailed, same as the commodity Dollars and the British Pound. But now we see it behave in the opposite way, so that brings the question; has the Euro turned from a risk currency into a safe haven currency, and if so, why?

 

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