Separating the risky from the safe currencies

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Risk sentiment is the name of the game in recent days and will likely continue for quite a while. What currencies should we focus on?

Here is their view, courtesy of eFXdata:

SEB Research discusses the relationship between FX markets and risk sentiment in 2018.

“The USD has outperformed all other G10 currencies in 2018, although it has traded roughly sideways with the JPY while the CHF has done almost as well.

What this suggests is that defensive currencies have outperformed more risk-friendly currencies like commodity-related currencies and smaller currencies like the Scandies. Apart from January, it appears that current trends have been defined by temporary setbacks in market risk appetite triggered by unexpected events rather than the underlying growth scenario,” SEB notes.

The JPY, CHF and the USD are defensive currencies while the AUD, NZD, and CAD are typical pro-risk currencies. The NOK and SEK seem to react similarly with pro-risk currencies although we have seen that these have recovered less when sentiment has stabilized. The business cycle is still in a mature stage and as long as there is no convincing recovery in the business sentiment outside the US, currencies are unlikely to change their behavior and their reactions on swings in global risk appetite. However, should the sentiment show convincing signs of recovering again while business sentiment in the US stabilized at the current level it would clearly drive pro-risk currencies significantly higher in 2019,” SEB argues.

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About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.