The dollar has fallen sharply in recent days, with the Dollar Index falling below 100 for the first time since March 2020. This move has been driven by a number of factors, including expectations of slower economic growth in the US, rising inflation, and the ongoing war in Ukraine.

While the dollar’s decline is good news for some, it is important to be cautious. The move has been so sharp that the risk/reward ratio for further downside is not attractive.

In other words, there is a risk that the dollar could rebound, and traders could lose money if they chase it lower.


In addition, other asset classes have also been volatile in recent days. Equity markets are close to flat, while commodities and high-beta currencies are lower. This suggests that risk appetite is waning, and that a corrective move in the dollar could be on the horizon.


Traders should also be aware of the upcoming US earnings season, which starts today. Big bank names like JPMorgan, Citi, and Wells Fargo will be reporting earnings, as well as United Health. This could provide some volatility in the markets, and traders should be prepared for any surprises.


Overall, the dollar’s decline is a positive development for some, but it is important to be cautious. The risk/reward ratio for further downside is not attractive, and other asset classes are also volatile. Traders should be prepared for a corrective move in the dollar, and should be aware of the upcoming US earnings season.

Key Takeaways

  • The dollar has fallen sharply in recent days, but the risk/reward ratio for further downside is not attractive
  • Other asset classes have also been volatile in recent days, suggesting that risk appetite is waning
  • Traders should be aware of the upcoming US earnings season, which started yesterday
  • A corrective move in the dollar could be on the horizon

What to Watch

  • US University of Michigan Consumer Sentiment report
  • VIX and VVIX
  • US earnings season

Risks

  • The dollar could rebound, leading to losses for traders who have been shorting the currency
  • Other asset classes could continue to fall, leading to losses for traders who are long on these assets
  • The upcoming US earnings season could be volatile, leading to losses for traders who are not prepared for surprises

This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. INFINOX is not authorised to provide investment advice. No opinion given in the material constitutes a recommendation by INFINOX or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

All trading carries risk.