Risk has stalled

Risk has stalled on the concern that the US will not roll back September tariffs which, in turn, may cause China to step back from signing phase 1 of the deal. Hence the risk rally has stalled. Asian indices followed Wall St.’s flat lead and now Europe is joining the wait-and-see club with a very flat session:

DAX: +0.01%
UK FTSE: -0.14%
Euro Stoxx: +0.12%
France 40 (CAC): +0.18%
IBEX: -0.36%
Italian FTSE: Flat

If we get news that the US is going to roll back tariffs (look out for Trump’s tweets), then risk is firmly back on. The trigger for risk trades is now simply whether the US confirms that tariffs will be rolled back. In a scenario like this, we will see the following:

  • JPY will be sold. As a risk currency, it will immediately devalue as investors rotate out of the safe-haven currency.
  • CHF will be sold. As a risk currency, it will immediately devalue as investors rotate out of the safe-haven currency.
  • AUD will be bought alongside NZD. As a high-beta currency, they will be bid on risk-on trades.
  • US OIL will be bid as more demand is expected to come, and alongside promised OPEC cuts, US OIL would find buyers at market.

The currency pair that I would favour in such a situation would be AUDJPY. In that scenario, I expect AUDJPY buyers from market and would look for a near term target at 76.00. Watch out for Trump’s twitter feed!