Saxo FX risk barometers are flashing a warning signal

The coming months will certainly be even more challenging as investors will need to cope with a continued flow of bad statistics and as lockdown measures will remain in effect for a prolonged period of time (up to June in the United States according to some simulations). The best way to assess the level of risk in the forthcoming days and weeks is to observe AUDJPY – the ultimate barometer of risk on / risk off. Back in 2008 when Lehman wasn’t rescued, the AUDJPY cross collapsed from 105.00 to 55.00 in less than four months. The scale of the depreciation is far more limited now (minus 14% since January) but the cross is already back to GFC levels. After a short-lived bounce at the end of March, the cross has entered into a bearish trend again. The formation of an inverted head-and-shoulders pattern confirms that bears are still in control and that more losses are about to come in the medium term. It is probable the AUDJPY cross will go all the way down to 60. This is a clear signal that risk aversion will stay elevated for the time being.

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Basically, a real improvement in risk appetite is unlikely until some of these combo materialize: RoW growth rate for COVID-19 cases slows, oil price rebounds or funding/liquidity stress significantly decreases (see our G7 Policy Tracker to follow the latest Fed’s monetary policy tweaks to facilitate access to USD funding).

Important note: The March Employment Report that is due today at 12:30 GMT is the most useless number released this week. Due to methodology (the Labor Department’s surveys took place during the week that contains the 12^th day of the month), it is unlikely to show labor market disruption related to the COVID-19 outbreak. Investors will need to wait for the April Employment Report to be released on May 8 to assess the real impact.