Risk On vs Risk Off
The two regimes — how to spot the switch in real time
- Identify the cross-asset signals of a regime shift
- Read the same currency move under both regimes
- Avoid the classic mistake of trading FX without checking risk regime
You're long GBP/JPY for a perfectly good fundamental reason — UK yields are rising, Japan still printing. Then Russia invades somewhere and your trade gets hammered. Not because GBP fundamentals changed, but because the risk regime did.
Three signals that say 'risk-off'
(1) S&P 500 futures down >1% pre-market. (2) US 10y yield falling sharply (flight to safety). (3) Gold ripping. When all three happen at once, you're in risk-off — and your FX positions should be checked through that lens immediately.
Three signals that say 'risk-on'
(1) Equities making new highs. (2) Yields rising on growth optimism, not panic. (3) Credit spreads tight, high-yield bonds bid. AUD, NZD, EM FX rally; USD and JPY underperform; copper and oil firm.
AUD strong (high-beta loved), JPY weak (safe haven dumped). Pair rallies 100+ pips on no AUD-specific news.
AUD weak (high-beta dumped), JPY strong (safe haven bid). Pair drops 100+ pips on no JPY-specific news.
S&P -2%, 10y yield down 8bp, gold +1.5%. Best FX read?
- Risk regime is the macro backdrop every FX trade lives inside
- S&P + 10y yield + gold are the 30-second regime check
- Same currency move means different things in different regimes
- Don't fight the regime — trade with it or sit out
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