In my previous piece last week, I saw the best possible trades for the coming week as long of the Forex currency pairs EUR/USD and, to a lesser extent, GBP/USD. The individual results were not good, with EUR/USD falling in value by 1.65%, and GBP/USD falling in value by 2.09%, producing an average loss of 1.87%.

The most important development in the market is the continuing sharp fall in the U.S. stock market from an all-time high price only two weeks ago. Although many analysts are pinning the fall on rising long-term U.S. bond prompting profit taking, which came into focus two weeks ago with strong earnings data suggesting a steepening pace of rate hikes, the market had already been falling strongly before that, with stronger downwards momentum over time than the preceding price rise over recent weeks. Weekly falls as strong as last week’s are not very common, happening only 58 times since 1950. They often coincide with the start of a major bear market, although the price tends to recover at first. This suggests that it is worth keeping a close eye on the stock market over the next few weeks as we may be seeing the beginning of the end of the long-term, multi-year bull market. The price of the S&P 500 Index is currently down 8.79% from its high, although it reached correction territory exceeding -10% during early trading last Friday, when it hit a 4-month low. I consider a weekly close at a new 6-month low to be indicative of a bear market in U.S. stocks.

The sharp falls in stock markets have had a pronounced impact on the Forex market, dwarfing the effect of anything from central banks or major economic data releases. What we see now is a strong flow into safe-haven assets such as the U.S. Dollar, Japanese Yen, and Swiss Franc, and a strong flow out of risky assets, especially the commodity currencies. This is counter-trend, as the U.S. Dollar is below its prices of three and six months ago, which puts it in a long-term downwards trend. However, sentiment is so strongly in favor of safe-haven assets now that it probably makes sense to be positioned counter trend.