The USD is in its fourth straight day of weakening in relation to the Euro and other major currencies. This continues a formidable move made by the Euro from the lowly levels of 1.2000$ to current levels of 1.3187$.
Why is this happening and what can we predict for the future?
It seems that once again the correlation between the USD and risk aversion has been shown in the market. Ever since the financial crisis made its dramatic appearance in 2008, the USD has been perceived as a safe-haven currency, even when the US economy seemed to be heading to catastrophe.
In fact, it was the risk aversion that was rampant in those days that helped the USD gain ground versus the Euro and other currencies. Now, it seems that the appetite for riskier investment has risen and more investors are taking their money out of the USD and USD quoted investments and placing them in other tools. This is driving the Euro up and the USD down.
Further proof of the market’s risk appetite is shown in the data which this month was the largest global IPO month since 2007. IPOs or initial public offerings are when a company offers its stocks to the public for the first time and becomes public. This doesn’t happen in great numbers when people are averse to risk.
IPOs are always a risky business as you’re dealing with new stocks which have no track record at all. The fact that the public is eager to buy these stocks is a sure signal of less risk aversion.
What can we deduce from this?
It will be in the Forex trader’s best interest to watch for signs of risk aversion rising or continuing to fall as this may lead to a change in the USD’s value which may be turned to profit in a smart Forex trade.
Naturally, this isn’t the only thing that’s influencing the value of the dollar but it is something worth paying attention to.
