Continuing to Book Profit on Risk Asset Shorts and Safe Haven Longs

Posted Wednesday, March 15, 2023 by
Skerdian Meta • 1 min read

Until a week ago, everything was looking quite bright, as the economic data was showing improvement in the global economy, inflation was slowing and the FED was not picking up the pace of rate hikes again, which was keeping risk sentiment positive and stock markets bullish. A week after, the situation has turned upside-down and risk sentiment is deteriorating.

Today the market started the day slow with 2-year US bond and German bond yields rising, but the focus shifted to central banks as the SVB fallout receded. However, Credit Suisse’s troubles caused credit swaps to blow up, with markets pricing in a serious risk of default by the Swiss bank. This led to a plunge in bond yields and banking stocks, with Credit Suisse itself down over 20%.

US futures and European indices also experienced heavy losses. In the FX market, the dollar and yen strengthened, while the euro and franc tumbled due to idiosyncratic risks affecting the currencies. The EUR/USD fell 1.7% below 1.0520, while USD/CHF moved up to a high of 0.9260 before settling around 0.9215, up 0.8%. USD/JPY climbed up to hit 135.00 before falling to 132.20s.

The market is currently pricing a 60% chance that the ECB will only hike by 25 bps, but there is uncertainty regarding what will happen beyond that, as it is possible that the ECB will reach a lower terminal rate. BAFIN has released a statement emphasizing the strength of German banks, but the prevailing sentiment is that there is always some problem somewhere, and in the current environment, there will be no mercy.

We have been buying safe havens and selling risk assets. We have opened two sell EUR/USD signals, both of which closed in profit as risk sentiment turned negative, while also booking profit on EUR/CHF and USD/JPY shorts, as safe havens surge.

USD/JPY Live Chart


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