The USD wrecking ball - Understand the USD ‘smile’ theory
To understand the fundamentals at hand we can revert to the USD smile concept. Essentially, this portrays a model where the USD outperforms in times of ‘risk off’ (equity drawdown/higher volatility), and/or when global economic data slows, and the US economy looks 'exceptional'.
In the past 24 hours, one could argue that both the left and right sides of the smile have been working concurrently. On the right side of the smile theory, poor China Caixin Services PMI data (at 51.8 vs. 53.5 expected) and EU country services PMI promoted USD inflows. The argument on the left side is somewhat weaker given the VIX index has barely moved, but Chinese/HK equity did see heavy selling, with some 4.6b of outflows through the Northbound Shanghai-HK ‘Connect’. China will play a key influence on sentiment again today.
In the past 24 hours, one could argue that both the left and right sides of the smile have been working concurrently. On the right side of the smile theory, poor China Caixin Services PMI data (at 51.8 vs. 53.5 expected) and EU country services PMI promoted USD inflows. The argument on the left side is somewhat weaker given the VIX index has barely moved, but Chinese/HK equity did see heavy selling, with some 4.6b of outflows through the Northbound Shanghai-HK ‘Connect’. China will play a key influence on sentiment again today.
Global risk Warning CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading in CFDs. You should consider whether you understand how CFD
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