The Risk-Off trade is in full force. No doubt about it. Lower highs and lower lows until further notice. But who is going to present us with that notice? Who is going to give us the heads up that a turn is coming? I like the Aussie vs Yen cross ($FXA:$FXY). When the stock market gets this volatile, it almost doesn’t even matter what stocks you’re trading. They all become correlated as one asset class. Stocks are a risk-on asset. Period. Sure some names have higher betas than others but the directional moves are the same.
This Currency Cross has been leading us lower. When the stock market ultimately turns (and we can speculate where that will be), I believe that the Aussie Dollar will dramatically outperform the Japanese Yen:
The Australian Dollar is one of the most sensitive currencies to risk. A lot of that has to do with their exposure to China and commodity exports. In times of stress, traders retreat to the Japanese Yen. So this cross is one to watch. If you want a sign of a bottom, don’t be shocked if this one turn up first. As long as we keep seeing lowers lows in $FXA:$FXY, expect lower lows for Stocks.