Risk Aversion Deepening On Trade War & Middle East Tension

Nothing To Write Home About in USD

The US dollar continued its stagnation over the European on Thursday with the index trading 97.37 last, remaining well within the range of the week so far. A lack of tier one US data along with opposing risk sentiment drivers has seen volatility in USD grind to a halt. The rate remains range bound between the 97.10–97.68 levels. Looking ahead today, traders will be paying attention to Fed Chair Powell who is due to speak at a community Development conference.

Euro Muted

EUR/USD remains muted this week also with price hugging the underside of the 1.1217 level as the market awaits fresh directional catalysts. Speaking yesterday, Draghi struck a resilient tone saying that the ECB will not admit defeat over inflation. He claimed that rising wage pressures will eventually transmit into higher consumer prices.

Pound Keeps Going Down

GBP/USD remains under pressure again today. This marks its fourth straight day of losses as price continues to retreat following last week’s spike higher in response to the UK local elections. Price is once again testing the lower level of the 1.30–1.33 range. However, with an absence of any key data today, it will likely take tomorrow’s GDP print to fuel either a rebound or a proper break lower.

Risk Sentiment Weak on Trade War Fears

Risk assets have continued their slide lower today with the SPX500 moving below the 2872.76 support. This week, risk sentiment has been rattled by news of the US increasing 10% tariffs on Chinese imports to 25% as of Friday. This is along with the deployment of US warships to the Middle East as tensions between the US and Iran rise. The trade war, which marred world growth last year, has once again been reignited. China has threatened to retaliate if the US presses ahead with the planned tariff increase.

Safe Havens Surge on Weak Risk Appetite

Safe havens have been higher again today, benefitting from the deterioration in risk sentiment. Both gold and the Japanese yen are trading higher against the US dollar. XAU/USD trades 1284.18 last as price remains above the 1280.58 support level. However, for now, price remains capped by the bearish trend line from year to date highs. USD/JPY continues to move firmly lower as safe haven inflows favor JPY this week. USD/JPY is currently testing the 109.74 March low which is a key short term support level.

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Moon Kil Woong 3 months ago Contributor's comment

A lot of money has been bet against oil recently on China trade woes, however, they are missing the point that oil demand across the globe is increasing and that the Middle East is becoming more unstable not less. Oil companies that benefit from rising and falling oil prices should trade at a premium not a discount.