We may be seeing a paradigm shift in the forex market. Bad news in the U.S. is no longer translating into a broad risk trade.

In the past, bad news in the U.S. would lead to a ‘risk off’ trade where the JPY was the main beneficiary but the USD also rallied against EUR and the commodity bloc. Over the past three days we have seen risk aversion coming from China and bad news in the U.S. Instead of seeing EUR/USD strength, we are seeing weakness.

Remeber that currencies are relative. Over the past 8 months, the euro has slumped based on euro-centric worries. The thinking was that European economic growth would lag U.S. growth by a large margin.

The outlook hasn’t improved for Europe but it is now darkening for the U.S. and elsewhere. Relatively, that’s a good thing for the euro.

If this is a paradigm shift, it’s major. It’s would be reminiscent of the USD during the financial crisis. Initially, the USD was falling to record lows as it appeared the crisis was limited to just the U.S. housing market. Later, when it became clear that the U.S. housing crisis was going to send the worldwide economy into recession, the USD rallied. This wasn’t good news for the USD, rather, it was relatively good news.

We are not yet saying there has been a paradigm shift but we are on the lookout. The caveat is that we are at the start of a new month and new quarter. Trading patterns often get skewed by flows. We won’t get a real idea of what is happening until July 6, when the U.S. returns from holiday.