When Fear Hits the Markets, Traders Go Where?

Markets stutter, screens begin to flash red, and we all sit here asking the same question. 

Where the hell is the trading opportunity now?

Let me introduce you to the safe havens. These are the assets traders run to when the market feels all out of sorts. But not all safe havens benefit from uncertainty at the same time. 

Think of it like this. When the road is dry you're more likely to put your foot down on the gas a little more, brake a little later, take a little more risk. But when the rain comes in, the road gets slippery, you don’t want to push it, you slow down and take less risks. 

Safe havens are where traders go when they want to take less risk. 

Depending on the type or level of risk will often determine which currency or asset gets the safe haven headwinds. 

With political unrest between the Trump administration and the Federal Reserve, the USD is losing some of its safe haven resilience. The Fed is expected to cut rates in September and this adds to the USD bearish fundamentals, but if Trump begins to fire Fed members it could bring fresh uncertainty and no one really wants to touch the US dollar in that situation.

The top performers of late have been the Swiss Franc, Gold and the Japanese Yen. The Swissy (CHF) is considered the European safe haven, but with the USD under pressure it has been one of the strongest currencies. The Japanese Yen would be the natural currency for traders to shift into, but the BoJ could hike rates narrowing that yield spread further. 

Different market dynamics can push money into different markets. Not all the usual suspects will get the same treatment so it’s important to watch where the flows are. The easiest thing to do is open up the charts and look for the biggest movers and when they happen.