Risk-Weighted Index: In An Established Downward Channel

After cracking the 100-hourly MA, the risk-weighted index is clearly communicating that the dynamics may favor a re-adjustment higher in the value of the US dollar and the Japanese yen, given the depressed level both currencies ended at on Wednesday.

The latest impulsive leg in risk FX, led by the renewed optimism over the Brexit negotiations, distorted what should have been a much soggier price action in risk trades, as the sell-off in emerging markets continue with the clock ticking away before the US imposes an additional 25% tariffs in $200b of Chinese products. The overly short position held by leverage accounts in G4 FX vs USD caused another rather epic short-squeeze which is not being backed up by risk sentiment, as depicted by the chart we present.

What this means is that as long as the downward channel in the risk index continues its course, a bid in the Japanese yen and the US dollar, especially on low levels of support, may see good buying opportunities.