The week has started with more risk off, with the S&P500 losing more than 2.5% on Monday. This time, the US equity slump was not isolated and European equities also suffered. As a result, the dollar hung on to its haven status better than when US-EU equities were diverging, and we saw some textbook risk off trading in FX: JPY, USD, EUR and CHF gaining against high-beta and commodity currencies, ING's FX analyst Francesco Pesole notes.

Balance of risks for the coming weeks has shifted to the upside

"It remains hard to pick a bottom in the US sentiment slump and the ramifications for US equities. Markets are questioning both elevated valuations and the broader US investment/macro environment, and while data can stir near-term sentiment, further loss of confidence may need to be tempered by the US administration itself."

"Indeed, scattered calls for a US recession in the first quarter – even if probably overblown – aren’t helping. Today’s JOLTS job opening figures will be watched very carefully. The Fed’s focus on the jobs market means that there will be high sensitivity for short-dated USD swaps to today’s figures. Expectations are for job openings to have flattened in January, although greater focus may be on the layoff figures. We’ll also watch closely the quits rate, which is a good leading indicator of wage growth."

"Our view is that the dollar is embedding quite a lot of negatives at the moment and the c. Nevertheless, in this jittery market environment, we are not ready to pick the bottom in the dollar before key data events have passed."