Trader confidence is improving as market fears about the coronavirus have receded, boosting demand for riskier assets at the expense of safe havens.
However, as the death toll rises, it is possible that risk aversion will return.
TRADERS SHIFT CAREFULLY OUT OF SAFE HAVENS
Traders have become modestly more optimistic about the economic impact of the coronavirus, moving out of safe havens and into riskier assets. However, the flows so far have been small and it is hard to argue that the previous “risk off” mood will not return.
As the chart below shows, the move up in AUD/USD, for example, needs to be seen in the context of the previous tumble in the Australian Dollar, which is seen widely in the markets as a proxy for China as the two economies are so closely linked.
AUD/USD PRICE CHART, DAILY TIME FRAME (OCTOBER 29, 2019 – FEBRUARY 4, 2020)
Chart by IG (You can click on it for a larger image)
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