Benchmarking the Economic Recovery is the Next Major Fundamental Driver

Written by John Kicklighter, Currency Strategist
During the worst of the financial crisis through the end of 2008 and even into the opening months of 2009, the market’s primary concern was risk appetite. Interest rate cuts were pervasive and expected return was the last thing on any traders mind. Sharp losses in nearly every investment class leveraged capital preservation into the upper echelons of importance. However, with interest rates bottoming out and safe havens no longer essential, we have seen speculative funds slowly finding their way out of risk-free zones and coming off of the sidelines to once again be put back to work. This leads us to a natural market truism: when fear isn’t the dominant influence, greed takes over.
Always trying to beat the market, traders are trying to find outsized returns and doing so by investing in the economy that is expected to recover from its economic recession first and most aggressively. This evaluation of relative growth potential comes with a hearty mix of objective data and highly-sensitive speculation; but with the markets, the latter is always more influential.
Since this market dynamic is developing greater clout among the speculative class, we should gauge which economies are considered leaders and laggards in the early global ‘recovery’ by market participants and which actually have the fundamental underpinnings for a timely return to expansion. As this is a highly speculative endeavor, we will have to leave out a number of factors to simplify a complex market appraisal; so we will need to narrow our focus for contributing factors. We will go over those dynamics that are essential for a genuine recovery; and you can decide whether the market’s outlook (and therefore the currency) has overshot or come up short of fundamentals