Risk aversion and refuge seeking. Safe havens. This is what is happening on the markets, after the umpteenth crash of the Chinese stock markets, which has led to the extension of the panic to emerging markets and American stock exchanges as well. In our opinion, the latter represent the compass capable of providing the reading of the current market.
In fact, faced with a Fed that has hinted at its perplexities about a rate hike in September, the stock markets could have sought new highs, before proceeding with the potential reallocation of part of the capital put at risk on the bond exchanges.
The fact that US stock exchanges instead dropped significantly, in conjunction with sales that hit world lists, with gold returning to around 1.170 dollars a barrel (the only scenario that would have proved to be supportive for gold would have been precisely that of generalized sales on the lists) confirms the scenario of heavy risk aversion, a confirmation also supported by the decorrelations that have occurred on the currency market.
In fact, the market is not proving to be dollar-centric, since if this were the case we would have probably had capital flows in general purchases against the dollar (against all other currencies), which would have put the USA and its normalization policies in difficulty of monetary policies.
The market therefore preferred to diversify its purchases of safe-haven currencies (until now only the yen, on which it was preferred not to concentrate all purchases due to the danger of Chinese contagion) preferring the European ones (euro, pound and franc) while it bought dollars against commodity currencies, suffering also due to the heaviness on raw materials.
The results, especially on the Australian and New Zealand front, were not long in coming with downward movements of more than 200 points in the space of a few minutes due to the stops hit (most of the retail traders appeared to be buying these currencies, on the contrary of us and institutions, data retrieved from FXCM's Speculative Sentiment Index, a proprietary indicator of sentiment).
On the euro front, we saw a move from 1.1500 to 1.1720 during the day, with a yen in sharp appreciation against the dollar. The entity of the movements is also due to the fact that the markets are still characterized by summer liquidity and by the presence of strong stop losses, which are affected today.
