Risk sentiment in markets continued to fluctuate yesterday. Coinciding with a non-US trading day, liquidity was relatively thin with lighter volumes in markets frequently obscuring decisive market movements from the noise. Entering the European open yesterday morning, the market was positive with a stronger risk appetite compared with Friday’s close. This saw the US Dollar already fall in value by 0.7% versus the Euro since the start of trading in the far East. The weaker Dollar that was created by the stronger risk environment was built upon the foundation of news of Russia’s Vladimir Putin arranging to meet with US President Joe Biden. The diplomatic progress was enough to sustain the market’s relative calm.
However, as the session developed, news flow was able to up-end this progress with reports coming from Moscow that Russian troops had killed five Ukrainian troops entering its territory. The report, despite being unconfirmed, showed one of the first clashes between troops with Russia now having amassed 190,000 troops at the border. The Dollar subsequently reversed its earlier losses with risk assets, in particular Russian equities, instead taking considerable losses.
Thin liquidity yesterday, however, may have served to hide scope for even further adjustments in the value of safehaven and risk assets if tensions continue to rise. CFTC data published yesterday has shown us an insight into a market that has not yet priced in the potential for significant conflict on the border. Within the G10 space, the two key safehaven currencies, the Swiss Franc and the Japanese Yen, are the two most shorted currencies by funds. In turn, across the wider market it is the Brazilian Real that has amassed one of the most significant long-positions with investors taking considerable open market risk in a volatile and risk-sensitive currency. The dissonance between reality and financial positioning in much of FX may provide volatility across the market in days to come.
The short positions in defensive assets is something that could be squeezed quickly if tensions build and conflict ensues on a wider scale. The Dollar retains a more balanced positioning however it too could find further support under such conditions.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Daily Brief – The Hassett Trade
Charles Porter
Thu 4 Dec 2025
The Hassett Trade Not another one, I hear you say. So far this year we’ve seen bandied around the TACO trade, the Trump put, FOMO trade, the MEGA trade, surely there isn’t another to surface before year end?! Wrong. The so-called Hassett trade is that which is currently pushing the Dollar lower but coming to […]
Daily Brief – A week out
Charles Porter
Tue 2 Dec 2025
A week out Markets are now in their final few trading days ahead of a Fed blackout that will precede the Reserve’s decision next Wednesday. The US government shutdown, despite now feeling like a distant memory, continues to weigh on the Dollar and market pricing in general. In particular, as we approach the decision next […]
Daily Brief – OBR: Oops, Budget Released
Charles Porter
Thu 27 Nov 2025
OBR: Oops, Budget Released Traders who might have been out grabbing a coffee ahead of the planned publication of the UK budget yesterday afternoon would have returned to chaos. Reuters, a popular financial news agency, revealed that although not directly discoverable via a link on their website, the OBR had published its report on Chancellor […]
