A Sign of the Market’s Systemic Fears


Dollar Talking Points:

  • The S&P 500 continued its decent punctuated with a tripped breaker in pre-trade and Level 1 during exchange hours, but a late rally spurred hope
  • Full economic and financial effects of the coronavirus response is confronting the fight mounted by central bank and governments to secure sentiment
  • There are a range of havens to refer to in these unprecedented times, so why is the Dollar proving a preference across the globe?

The Panic Edge Eases Back…For Now

As the day closed Wednesday, there was little dispute that what we ultimately experienced was another session of broad risk aversion. However, some of the more panic-stricken qualities of previous sessions seemed to have abated. Looking at the previous day’s performance, the New York session was already on the back foot before official trade started. Pre-market trade in futures saw the S&P 500 hit a limit down 5 percent to freeze price action until the exchange opened. After the initial gap when the NYSE came online, the Level 1 circuit breaker (-7 percent) was tripped before mid-day. Despite the continued selling pressure thereafter, the sense of dread didn’t seem to leach through. The break in the clouds moment seemed to come in the final thrust into the close where a rally seemed to follow reports that White House Economic Adviser Larry Kudlow suggested stock purchases could be factor in future aid efforts.

US 500
MIXED

Data provided by



of clients are net long.



of clients are net short.

Change in Longs Shorts OI
Daily -8% -7% -8%
Weekly -2% -9% -5%

Chart of S&P 500 (15-Minute Chart)

Why The Dollar Is In Such Demand: A Sign of the Market's Systemic Fears

Chart Created on Tradingview Platform

While there was a measurable easing of fear through trade on the day, it is not wise to commit to a full-blown speculative view – bullish or bearish. Underlying these markets is a strong correlation across the speculative-leaning assets which is an indication that sentiment itself remains the principal motivator. Markets are predisposed to sudden changes in view and irrational escalation to the extremes of the sentiment curve (greed to panic). Until that mercurial tendency ebbs, these will remain markets prone to sudden changes in both temperament and direction. Adapt accordingly with your own approach.

Chart of ‘Risk’ Intensity Curve

Why The Dollar Is In Such Demand: A Sign of the Market's Systemic Fears

Chart Created by John Kicklighter

A Rising Wave of Stimulus to Fight a Daunting Economic Outlook

The tendency to fall into despair is an understandable one for the masses. The coronavirus headlines continue to plague the population, but the measures taken to halt the spread are coming with very clear economic warnings. The response from central banks and governments should be enough to draw our attention. However, a numbers-based warning every now and then can make the fears material. According to JPMorgan’s updated forecast for the US economy, the world’s largest country could suffer a -4 percent contraction in the current quarter followed by an incredible -14 percent slump next quarter. That is followed by a projection of +8.0 percent in the third and +4.0 percent growth in the fourth quarter, but self-preservation is a powerful motivation and typically front-loaded.

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This fear is quite clear for the world’s policymakers and no doubt a factor in their ever-escalating efforts to instill calm. This past session, a host of new measures were announced or secured. Canada announced a C$27 billion stimulus effort while the Bank of Canada expanded its list of eligible collateral in its operations. Europe’s major players had a smattering of updated, but the late-in-the-day ECB commitment to do whatever was necessary to stabilize the Euro – paired with a large ‘pandemic’ stimulus – struck a familiar chord to other successful rescue efforts. The US had its own headline with the Senate voting 90-8 to approve the House’s coronavirus bill. There are further reports that a larger stimulus is in the works that would essentially safe guard the economy while the populace stays at home to halt the spread of the virus.

Graph of Google Search Traffic for ‘Liquidity’ and ‘Volatility’

Why The Dollar Is In Such Demand: A Sign of the Market's Systemic Fears

Chart from Google Trends

Why the Dollar Bid Outlasts Other Havens, And Causing Different Problems

As we see so-called risk assets come unbound, we are also seeing the bid for safe haven grow even more pronounced. Yet, as the intensity increases, there is increasingly a preference arising around what assets investors are pursuing. In particular, the Dollar is experiencing an exceptional bid. This can be readily registered in the DXY Index which is heavily weighted towards EURUSD. The interesting thing about the Euro is that it is the second most liquid currency to the Greenback. That can somewhat hide the principal appeal of the USD. The interest is for absolute liquidity, and there is nothing that rivals the Dollar in those terms as it represents 60 percent of reserves and is the backing for Treasuries which are still preferred risk-free holdings.

Chart of Equally Weighted Dollar Index and One-Week Rate of Change (Weekly)

Why The Dollar Is In Such Demand: A Sign of the Market's Systemic Fears

Chart Created on Tradingview Platform

In contrast to USD’s charge, the British Pound has tumbled markedly these past weeks. In fact, GBPUSD has dropped to new generational lows -taking out the swing low after the Brexit fallout. This is certainly a consideration for the Sterling as there are meaningful declines versus the Euro, Yen and Swiss Franc. However, the currency is also holding firm versus the Canadian, Australian and New Zealand Dollar. The scale of liquidity seems the tipping point to gains or losses. Locally, a large stimulus can be seen as deflating the value of the fiat and the financial consequences of the Brexit may be weighing, but that is unlikely to drive the Pound further along the risk-haven curve.

Chart of GBPUSD with 1-Monthly Rate of Change (Monthly Chart)

Why The Dollar Is In Such Demand: A Sign of the Market's Systemic Fears

Chart Created on Tradingview Platform

If you want to download my Manic-Crisis calendar, you can find the updated file here.

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