
Use this in your trading
In times of danger or trouble, it is normal to seek places of safety. During a fire, we head to the nearest exits to preserve life. During a bad storm at sea, you might head to the lifeboats to avoid sinking with the ship. During times of economic uncertainty then the markets have their places of safety too. These are known as the ‘safe havens’.
What is a safe haven?
A safe haven is simply a place where value is expected to remain during times of economic uncertainty. Two of the most popular places of safety in the FX sphere are the JPY and the CHF. The Japanese Yen is most probably the largest risk sentiment mover and is the go-to currency of choice for risk-on and risk-off moves. When there is a shift in risk sentiment, remember that you are likely to see strong movements in the JPY. One key sign that you are going to see risk-off moves is by looking at the equity markets. Just check out the main indexes like the S&P500, FTSE100, DAX, and the Nikkei225 alongside the Shanghai Composite. When these markets are falling then we know we are in a risk off-market. Why? Simply because equity markets are very vulnerable to risk. Whenever times are uncertain the outlook for a country’s companies becomes uncertain too, so people reduce their risk and exposure to these markets:
Falling equity markets = risk-off = YEN strength
Rising equity markets = risk-on = YEN weakness
The other safe havens are commodities like gold and silver which retain their value as a ‘place of safety’ during a crisis. This is why on the US-Iran flare up at the beginning of the year we saw strong bids into gold. Knowing if we are in a risk-on or a risk-off market will help you decide when to buy and when to sell the Yen.