Inter-market: Risk-off Flows Return in US Hours

Inter-market: Risk-off Flows Return in US Hours

12 May 2016, 07:06
Roberto Jacobs

Inter-market: Risk-off Flows Return in US Hours

The market profile turned into a less constructive 'risk on' mode during the last US session, with the S&P 500 erasing almost entirely Tuesday's gains, to end the day near flat levels following a strong bullish gap.

The present environment in the very near term, based on the action seen in the last US session, can be classified as 'risk off' given the rise in both the VIX and gold, also confirmed by the steep fall in 30-year US Treasuries, all indicating the deterioration of sentiment.

Amid this scenario, currencies the likes of the Euro and Japanese Yen (borrowing currency types given its negative interest rates) ended up strengthening the most, with the US Dollar being the weakest as the market continues to be disheartened by the lack of signals from the Fed to raise interest rates again in the near term.

Should Asian market track the worsening risk sentiment, expect USD/JPY to remain under pressure, while the likes of EUR/USD or EUR/AUD catch a decent bid tone. Note, however, that while the risk has worsened short term, in the big scheme of things, the environment remains neutral to constructive to still engage in risk appetite trade ideas judging by the levels where the VIX trades at.


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