The dollar charge of recent weeks has been halted this Tuesday, not least with USDJPY pushing down to new intraday lows near 119.50. Saxo Bank's John Hardy says the FX market seems to be "all about market nerves and risk appetite" at the moment after volatility in Chinese equities overnight and signs of nerves spreading on world bourses after last week's session.
While that sentiment could easily reverse, there is growing alarm in some quarters about the broader consequences of a strong dollar. John says a big concern is that the US Fed may be forced into a steeper trajectory in terms of unwinding its current accommodative stance. Such aggressive tightening may be a long-shot, says John, but if we were to see a tightening of liquidity conditions we are also likely to see an unwinding of leveraged positions and that will have big consequences for traders.