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Whatever Happened to Risk?

Source: forexfactory
Author: Danske Bank

US subprime mortgage woes have long been casting a shadow over the financial markets. Until recently, however, there had not been much fallout on financial markets in general - the problem was considered as limited to the US housing market. But perceptions changed in the course of the past week as subprime fears spread to other risk assets, and the past few days have seen pretty much all risk assets feel the heat - global equity markets have fallen, high yielding and Emerging Market currencies have come under pressure and credit spreads have widened.

In other words, there has been a broad-based fall in global risk willingness. There have been a couple of instances of this earlier this year, but this time it looks stronger and more broadly based - reviving memories of May-June last year.

But what is the cause and when will the current bout of jitters end? There can be no doubt that risk appetite has been high in the global financial markets. So in a way a correction is natural - with the catalyst being subprime woes this time around.

But how long will the correction last - this is the big question. While the global economy is generally sound, we would definitely urge caution, as it is likely that the correction may continue for some time yet (see “Fixed Income”). That said, with the global economy in a healthy state, a long-lasting general downturn in the financial markets is probably not on the cards.


I had 2 consecutive false analysis made last week, which in a drawdown right now. The carrys recover a bit during the Tokyo session today, but continues downtrend is still expected. We won't see must clarity 'til wednesday and thursday important news announcement. With BOE and ECB expected to hold rate hike this thursday, swap earnings from carrys will tighten and will be less attractive for investors. We need to hear how they deliver their announcements.

July 31 (2am EST)- I just opened a short hedge at around 1.6490 (EUR/CHF) on Volker account (Our new manage portfolio). Price just bounce off the round number 1.6500 with confluence of minor trendline, 38.2 fib and 72EMA.

While on PMTFC and TN accounts, I'll put them on hold for a while. The margin used are too tight to handle another false move. The floating loss need to recover some more before I enter again.


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