The Dollar is weak, here’s why.
Anyone who has been checking the currency strength meter in the last week will have noticed consistent weakness in the US Dollar.
And it’s a similar story for the Japanese yen (JPY) and Swiss franc (CHF) too.
Because these are all safe haven currencies.
The market generally tends to be in 1 of 2 states:
Risk on or Risk off
Right now the market sentiment is ‘risk on’. Traders are optimistic about a more encouraging outlook in the aftermath of the Coronavirus. As a result investors are moving money out of safe havens and into riskier assets.
You are literally watching money pouring out of the USD, JPY & CHF into riskier assets such as AUD, NZD & CAD.
The opposite is true when the risk tone is ‘risk off’. In this state money flows into the safe havens (USD, JPY & CHF) and out of riskier assets (AUD, NZD & CAD).
This process repeats again and again and can change on a daily basis.
Why is this important?
If we know the overall risk tone we can drastically increase our chances of success by trading in line with the risk flows in the market A.K.A the smart money.
Trillions of dollars flows through the market each day. To trade in the opposite direction would be crazy.
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