This Chart Proves Risk Sentiment Dynamics Rule Forex Atm

As the trading war between the US and China edges closer, as Canada and the US struggle to hash out a NAFTA deal, as emerging currency markets implode, the markets are taking note of such fractious times by behaving based on risk sentiment. What this means is that in the short-term, if one monitors our risk-weighted index, which takes into account 9 risk-sensitive assets, all equally weighted, it will help you gauge the next potential moves.

The increase in correlations (daily on a 30-day period) in risk-sensitive pairs such as all Yen crosses or G4 FX vs US Dollar is evidence that the market's main theme and upcoming ebbs and flows will be determined by a sense of higher or lower risk aversion, therefore, by adjusting the risk index to your most suitable trading timeframe, you will be able to get some powerful clues as to where sentiment stands at any time to provide potential trading opportunities if divergences are spotted.