Risk Demand Strong; Euro, Crude Oil Gain
May 27, 2010 at 11:21 UTC || By Forex Playmaker
Demand for risk appears broad-based and quite strong in early trading, potentially signaling renewed strength in the short-term.
The euro is gaining sharply on the session against the US dollar, which speaks volumes for risk appetite. Last priced at 1.2290, the EUR/USD traded above the 1.23 handle earlier in the session.
Crude oil, too, is benefiting from elevated risk demand, with contracts for July delivery trading back above $74 per barrel for the first time since May 13. Meanwhile, crude oil’s proxy in the Forex market, the Canadian dollar, is reaping the rewards of higher crude prices. The CAD is trading higher across the board, gaining notable ground against the US dollar, euro and Japanese yen.
Equities markets and global demand for risk has slumped extensively over the past several weeks. While troubles concerning global growth and credit remain unresolved, riskier assets may see a rebound in the days ahead. Today’s finish for riskier assets will be extremely important to watch, as a strong or weak close will tell us everything we need to know about the coming day’s of price action.
In the equities space, adding some risk at present levels may prove fruitful; however, riskier positions must be counterbalanced with protective ones.
“In the equities space, adding some risk at present levels may prove fruitful; however, riskier positions must be counterbalanced with protective ones.”
To clarify, I’m using options in the present market environment to limit downside. I picked up some calls on a badly beaten stock earlier today — a bet that the stock will rise — and simultaneously bought some puts on a broader market index — a bet that it will fall. In the simplest terms, I will make money if markets drop or if they rally, but will lose money if they remain at present levels.