Forex news

Optimism among the world’s investors continues to rise – well, the influx of capital from otherwise safe haven assets is keeping the markets buoyant at least. It is important to differentiate between a true measure of confidence and a natural adaptation of the market. The ICI’s Money Market Funds Assets index dropped to its lowest level in a year; but even after this steady, nine-month decline the gauge still shows $3.402 trillion on the sidelines. Much of this capital will eventually find its way back into the speculative space; but if it hasn’t been rediversified yet then those managing the funds are likely skeptical of the aggressive bull run we have experienced so far this year and are awaiting a true return of yield income. It is not a stretch to assume a high percentage of the capital that has migrated back to equities and other risky assets belongs to speculators and traders that are looking to take advantage of the impressive capital gains since February. If this is the case, then a correction could easily encourage a broad wave of profit-taking. A reversal is just a matter of time; but depending on when it takes place, the impact can be very different. Given enough time for dedicated capital to return to stabilize the market, the pullback could be mild. Alternatively, a turn when speculative funds define the market could trigger a plunge.
A Closer Look at Market Conditions
The bullish trend behind the market’s most high profile benchmarks is still intact; but the progress these securities are making is growing strained. The Dow Jones Industrial Average produced a new high today at 10,119.47; but the session would actually end the day in the red and maintain congestion that has been building for a week. It seems the 3Q earnings session is finding a more skeptical crowd this time around as the realities of medium-term growth set in. A moderate recovery also has its tempering effects on commodities. Crude set a new 14 months high today; but supplies are ballooning and demand is shrinking with limited expansion on the horizon.
For the most part, fear and volatility within the market continues to deflate. The standard measures of activity are at or near yearly lows and the steady influx of capital is padding the winning sense of capital returns. However, this complacency suggests the makings of trouble. With fear gauges steadily declining and positioning measures showing an increasingly one-sided market (behind bulls), the imbalance will eventually have to be corrected. When the profit taking starts, it will likely be relatively staid at first; but the sheer interest in assets that bear no interest, just the hope of capital return, could easily incite panic of evaporating profits. This reversal may be closer than many expect.