The last two months can be characterised by the theme of sell the dollar, buy everything else. Upon coming back to the new year yesterday, we got a treat of the opposite. And then in trading today, we’re seeing more of the same once again. It’s hard to read into opening week flows at times but what if the price action we’re seeing is no fluke?

Are market players starting to realise that they have brought the euphoria a little too far at the end of last year?

Looking at broader markets today, the dollar is higher while almost everything else is lower. Stocks are struggling again as bonds are also offered i.e. higher yields, while we are seeing gold and Bitcoin also track lower on the day. What gives?

When you look at the CME Fedwatch tool here, the odds of a March rate cut have dwindled down to ~67% currently. Just a little over a week ago, it was ~85%. It points to some unwinding of the aggressive rate cut pricing by traders in recent weeks and if that continues, it looks like there may be more pain to come for risk trades.

In turn, that itself will set up the dollar for a stronger correction of sorts – especially if the FOMC meeting minutes today conforms to the thinking that the Fed is not preparing for such an early rate cut.

This article was written by Justin Low at www.forexlive.com.