Chart of the Week: FX Risk Indicator
Head of Macro Analysis
Summary: In today's edition, we focus on the FX space and discuss the evolution of risk perception.
Our FX risk indicator is based on the evolution of Asian currencies (excluding Japanese yen) versus the US dollar. Since Q2 2019, we see a continued improvement in risk appetite in the FX space, which has not happened since the end of 2017/early 2018. In our last update, our indicator is up 1.3% vs the USD on a quarterly basis. The most important driver of risk appetite/risk aversion has undoubtedly been the US-China trade war over the past two years. It has played a key role as driver of FX exchange rate, notably in Asia. The recent trade truce which has been formalized by the Phase 1 trade deal, along with year-end improvement in USD liquidity have favored risky assets versus safe heavens. We expect this trend will be prolonged in Q1 this year as liquidity will keep increasing and geopolitical risk should remain broadly contained, at least on the Chinese-US front.
Latest Market Insights
Quarterly Outlook Q3 2022: The Runaway Train
- Central banks' attempts to kill inflation is a paradigm shift, which could end in a deep recession.
Tangible assets and profitable growth are the winnersWith US equities officially in a bear market, the big question is where and when is the bottom in the current drawdown?
Understanding the lack of investment appetite among oil majorsThe everything rally seen in recent quarters has become more uneven, as its strength is driven by commodities in short supply.
The pressure is on as the wind leaves the sailsWith cryptocurrencies in sharp decline, are we entering a crypto winter or is the bear market a healthy clean-up of the crypto space?
Why the Fed can never catch up and what turns the US dollar lower?Many other central banks are set to eventually outpace the Fed in hiking rates, taking their real interest rates to levels higher than the Fed will achieve.
Bank of Japan: Swimming against the tideThe Japanese economy has gone from the age of deflation to rapidly rising prices in no time, leaving the Bank of Japan in a pickle.
Green transformation detour and bear market hibernationWith the impending risk of global econonomic derailment, we share the five things investors need to consider in this new half year.
Crisis redux for the eurozone?Whether there's going to be a recession in Europe or not, the path towards a stable economy will be agonizing.
Technical Outlook: Gold, Oil and a remarkable multi-decade perspective on EquitiesThe Nasdaq bubble pattern, USDJPY resistance, crude oil uptrend losing steam and the technical outlook for USD.
China: the train of new development paradigm left the station two years agoChina is transiting to a new development paradigm, as they are hit by deteriorating terms of trade, a slower global economy and an uncertain future while continuing attempts to contain the pandemic.