Russian Fighter Jet Shot Down by Turkey; Risk Trade is No More

November 25, 2015

Image: Guardian

Russian Fighter Jet Shot Down by Turkey; Risk Trade is No More:
Once upon a time, if a world super power on the brink of war had a fighter jet shot down after entering the airspace of another sovereign nation for barely a few seconds, all hell would break loose in markets and risk-off would reign supreme sending stocks tumbling. Not any more.

SP500 15 Minute:
Click on chart to see a larger view.

The news of the Russian fighter jet being spectacularly grounded in a ball of flames saw only a mild spike down in the SP500 during early trade, but that was only a short lived move and quickly erased losses to actually close well in the green for the session. Amazing!

So just to make it absolutely clear, if you want to be a successful trader, DO NOT listen to the textbook definitions of what should or should not happen to markets during times of geopolitical risk. Times have changed and so have the perceptions that markets take on events like these.

I felt almost dirty saying it last week following the Paris attacks and again it doesn’t feel right saying it again, but as a trader it has to be said:

“Markets are slowly becoming more and more immune to these types of events.”

Aussie Rips:
RBA Governor Stevens’ speech also helped push the Aussie to new highs overnight. Speaking at a dinner in Sydney, Stevens’ gave markets the one key quote that mattered, establishing the bank’s stance is firmly neutral.

“Lower rates were not as stimulatory as they used to be.”

That is not the type of thing that someone looking to cut any time soon would say.

AUD/USD Daily:
Click on chart to see a larger view.

The Aussie catches a bid and tucks back above the hugely important weekly trend line again.


On the Calendar Wednesday:
JPY Monetary Policy Meeting Minutes
AUD Construction Work Done q/q

AUD RBA Assist Gov Debelle Speaks
GBP Autumn Forecast Statement

USD Core Durable Goods Orders m/m
USD Unemployment Claims


Chart of the Day:
Following the news of the Russian fighter jet being shot down and it’s effect on the SP500, today’s chart of the day moves across to AUD/JPY.

AUD/JPY is often regarded as being highly correlated to the SP500, something you can check for yourself with the ‘Correlation Matrix’ in our Vantage FX Smart Trader Tools add-on for MT4. The pair tends to find buyers when markets go risk-on, while sellers enter when the environment turns to risk-off.

AUD/JPY 15 Minute:
Click on chart to see a larger view.

Compare the 15 minute AUD/JPY chart here with the above SP500 chart we featured at the top of this blog and the correlation is clear on the plane spike, with the pair dropping but then immediately rallying hard as the market determines the event to just about be today’s normal.

AUD/JPY Daily:
Click on chart to see a larger view.

Zooming out to the daily and we can see that price smashed through the 100 SMA that we were watching last week, and looks like it is reaching for channel resistance. I have re-drawn the horizontal support/resistance line to take in the spikes and we now have a nice confluence of possible resistance from which to take trades from.

Do you see opportunity trading AUD/JPY in the current geopolitical environment?

Dane Williams – @VantageFX

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