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forex risk rally

Last week, the markets were moving significantly higher on improved risk sentiment.

The media tends to focus on specific events that might have a short term impact, such as the ECB raising asset purchases (which buoyed the euro as expected.) However, such a consistent move in investor sentiment generally implies a combination of factors pointing towards optimism.

The S&P 500, the premier gauge of equities in the US, has recovered 40% since touching the bottom at the end of the best 50-day stretch in history.

Just as the crash from COVID-19 was historic, so too appears to be the recovery. Another example is that the AUD, a strong correlation of risk sentiment, has not only recovered all its losses since the beginning of the outbreak but is actually moving higher.

At this point, whether we are talking about a V-shaped or U-shaped recovery seems to be something of a semantic argument.

But, Will it Last?

Risk sentiment buoys markets until it doesn’t. If we go by historic trends, ...

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