FxWirePro: Take a Look on Risky vs Safe Haven Currencies Amid Risk-Off Situation

With the volatile markets, global trade turbulence, elections and geopolitics, “risk” was one of the key business words of 2018. It is completely normal that the yen eased intraday yesterday and also today. Of course, the flash crash of the exchange rates on Wednesday night would not have been possible without any fundamental justification: “risk-off” in times of increasing economic concerns. 

However, episodes like the one we saw yesterday also have the tendency of overshooting. The largest share of overshooting (e.g. USDJPY below 105) was corrected right away, but after that the FX market has to shake itself down a little. What is the residual effect that is acceptable for the average FX market participant? 

In the case of marginal exchange rate moves this process happens continuously, in the case of major distortions like the one seen two night ago this takes some time.

Difference between net spec positions on risky & safe currencies. 

Net spec position is calculated in USD across 5 "risky" and 3 "safe" currencies (safe-haven currencies also include Gold). 

These positions are then scaled by open interest and we take an average of "risky" and "safe" assets to create two series. 

The chart is then simply the difference between the "risky" and "safe" series. 

The final series shown in the chart below is demeaned using data since 2006. 

The risky currencies are: AUD, NZD, CAD, RUB, MXN and BRL. 

The safe currencies are: JPY, CHF and Gold. Courtesy: JPM

Currency Strength Index: FxWirePro's hourly EUR spot index is inching towards -31 levels (which is mildly bearish), while hourly USD spot index was at 37 (mildly bullish), while articulating (at 12:16 GMT).

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex