"TACO" trading reappears! Greenland crisis eases stirs forex market, USD temporarily stabilizes, risk currencies rebound.

As the US threat to buy Greenland eases, global market tension is relieved, the US dollar stabilizes, and high-risk currencies show strength. Data shows that currencies like the Norwegian krone and the Australian dollar, which usually fluctuate with risk preferences, both rose more than 0.6% against the US dollar on Thursday, leading among major currencies. Market volatility indicators have fallen, and US Treasuries are gradually stabilizing after days of deep selling. Valentin Marinov, Head of Forex Strategy at Credit Agricole CIB, said, "Although global geopolitical risks may still dominate forex market trends, the impact of such risks has probably peaked after US President Trump signaled that the US and Europe have reached a 'framework agreement.'" He added that this situation may continue to boost the performance of high-risk currencies while providing a brief respite for the US dollar. The dramatic fluctuations in the forex market this week is a typical example of "TACO" trading, highlighting Trump's tendency to first create market panic by using tough threats and then ending by reaching agreements. However, the Greenland geopolitical storm still serves as a warning to the market: this event not only disrupts long-term stable global international relations but also reminds investors to remain vigilant. Despite the stabilization of the US dollar index, the dollar still faced significant impact this week, with an accumulated decline of about 0.5%. Long-term volatility indicators show that traders expect the current market calm state to continue; however, the price of a volatility futures contract for next week has started to rise due to the impact of the upcoming Fed monetary policy decision. Francesco Pesole, FX Strategist at ING, said, "The Davos Forum has eased geopolitical and tariff risks. As the market focus shifts to positive macroeconomic fundamentals, the US dollar may receive more support." He also stated that in the short term, the USD/EUR rate may approach the range of 1 euro to 1.16 US dollars. The rebound in the US Treasury market resonates with the easing market volatility. The range of volatility in the US Treasury market this week is expected to reach a near record low since 2021, and the ICE BofA MOVE Index, which measures expected Treasury market volatility, is also close to its lowest level in over four years. Ahead of the Fed decision, investors are now turning their attention to a series of US economic data, including the core inflation index- the Personal Consumption Expenditure (PCE) Price Index, which will be released later. If US economic data continues to show strength, it will further support policymakers to maintain current interest rates, thereby providing positive news for the US dollar. Some forex analysts warn that the US dollar's bounce may be rather moderate after Trump's attitude reversal. Evelyne Gomez-Liechti, Multi-Asset Strategist at Mizuho Securities, believes that the sudden emergence of this geopolitical conflict may further drive market funds to gradually withdraw from US dollar assets, leading to a trend of "dollar depreciation trade." She said, "The current global geopolitical landscape seems to have entered a new phase, and the repeated occurrence of such geopolitical storms may normalize the cautious sentiment of some market participants."