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USD

Trader thoughts - why the turnaround in risk?

Chris Weston
Head of Research
Feb 24, 2022
As anyone trading the US session would attest, the turnaround was staggering.

SpotCrude traded 102.19 but currently sits at 95.28 and back below the March 2021 uptrend. XAUUSD has traded a 5.1% range (or $96) and is the biggest since November 2020, coming well off the highs of 1974. EURUSD traded to 1.1106 but has come back to 1.1200. Our NAS100 index got to 13,030 but now sits 6.7% higher, and after a 4% close lower in the DAX cash, our opening call for the GER40 (if the index was to open now) sits 1.6% higher. Crypto is well off the respective lows, with Bitcoin nearly $4000 from its lows.

So, what caused this? This is the point of debate, but sometimes we just must understand that it’s all flow with the suite of market players (including algo’s) hedging, liquidating, initiating new positions (long and short) and reacting aggressively – illiquidity simply exasperates moves.

Flow aside, we always feel like we need a reason for these reversals. The feeling is the market was looking for even harder sanctions than we saw from G7 nations. Specifically, the US and other nations are allowing Russia access to the SWIFT interbank payment system and while this is still something that could be imposed in the future, for now, Russia has access to make and receive payments. We also haven’t heard anything (at the time of writing) that takes direct aim at Russian exports.

Of course, we can also suggest that after 20% drawdown in the NAS100 that investors were also lining up with a ‘value’ shopping list and it doesn’t take much for the algo’s to sense a chunky buying order and then it's on – subsequently correlations across asset classes go to 1 and we see risk rebound. The question now is obviously can it last, especially heading into what could be a long and eventful weekend.

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