Safe Haven Demand Steady Despite Risk on Market Environment Amid High Volatility in Holiday Season

Geo-Political & Economic woes continue to escalate in unfavorable direction ahead of the year-end amidst high volatility, despite thin market volumes on subdued USD in the broad market.

Summary: Equity and forex markets continue to trade positive on the last trading session of the week. Also, increased risk appetite amid thin trading volumes owing to the holiday season for the second consecutive session has helped European equities trade positive despite ongoing political and economic issues that put a dovish dent on European indices yesterday. While US equities struggled in earlier sessions last night, they managed to close positive which helped improve risk appetite in the market on the last trading session of the week. However, fears of highly volatile markets and worries over the US and Global political issues kept precious metals and safe haven currencies in demand during today’s Asian and European market hours. Despite thin trading volume in holiday season market, volatility in Europe and in the United States has spiked to highs not seen since the sharp global correction in stock markets in February.

EM FX Asia: Emerging Asian currencies advanced against a weaker dollar during today’s trading session as a slump in U.S. consumer confidence revived worries about a slowdown in the world’s largest economy. A slide in the dollar index which measures greenback’s strength against six major global currencies combined with weak US macro data and renewed escalation in Sino-U.S trade wars greatly helped improve EM Asian currencies exchange rates. The Thai baht led gains among Asian currencies, climbing 0.5% to a near three-month high, while Indian Rupee was raised by 0.4% and Philippine Peso was up by 0.3% respectively. A drop in crude oil price has also helped improve and support exchange rates of EM Asian currencies.

USD/JPY: The Japanese yen gained over 0.60% against the US greenback during European market hours today, as investors cut back positions in risky assets owing to highly volatile markets and concerns over geopolitical issues, many of which are escalating in unfavorable direction boosting demand for safe haven assets. The Japanese Yen was further supported by the 10-yr Japanese bond yields falling below zero for the first time since September last year. As of writing this article, USD/JPY pair is trading at 110.26 down by 0.66% on the day.

AUD/USD: The AUD/USD pair is trading upwards from Thursday’s low of 0.7015 as the Pacific markets follow Wall Street’s closing lead, with risk appetite looking for a lift through the week’s final trading day. While escalating Sino-U.S. tensions dragged the pair into 0.704 handle, AUD bulls were supported by a rebound in Oil price and Gold price which rose above six month tops greatly boosting resource linked AUD which provided fundamental support for the pair to recover and stay above the 0.7050 price handle. As of writing this article, the AUD/USD pair is trading at 0.7060 up by 0.40% on the day.

marketOn the Lookout: Investors continue to exercise caution as 2018 comes to close with major indices and forex pairs seeing significant losses. There is no major market impacting macroeconomic releases in European and US markets until New Year. Meanwhile, investors are redistributing funds in their portfolio with a significant portion being focused towards safe haven over highly volatile holiday season market and dovish forecast for some key geopolitical events. The prime event that is in focus is the Sino-U.S. trade negotiations. While talks seem to be proceeding in a favorable direction, tensions surrounding talks spiked sharply as headlines stated that Washington was considering an executive order in 2019 to declare a national emergency that would bar U.S. companies from using Huawei Technologies & ZTE products, a move that could erase the progress in trade talks between China and the United States. This and proceedings surrounding Brexit will be two main events investors would look out for in early January 2019.

Trading Perspective: Wall Street cues continue to inspire positive price action in global equities which in turn boosted forex markets ahead of New Year’s Eve. But safe-haven demand is also expected to remain unchanged while next week will see key markets across the globe closed for the first two days on account on new year celebration, suggesting very little change in ongoing price action.

EUR/USD: The pair trades at fresh weekly highs around 1.1470 as appetite for riskier assets keeps improving, while US political tensions persist. Major currency movements are limited due to thin holidays’ trading as the dollar continues to lose market’s favor over ongoing geopolitical issues and escalating tensions between China & USA. The prevalent US Dollar selling bias, further aggravated by weaker-than-expected data is now the exclusive driver of the pair’s strong positive momentum as there are no major market impacting headlines and macro data releases until January 1, 2019, which suggests the pair will maintain a range-bound price action with bullish bias in favor of the common currency.

marketGBP/USD: The GBP/USD pair quickly reversed a mid-European session dip to an intraday low level of 1.2635 and rallied over 50-pips in the last hour. The latest leg of sudden spike followed positive comments by the UK Foreign Minister Jeremy Hunt, saying that the parliament can pass the UK PM Theresa May’s Brexit deal if the European Union provides clarification that the Northern Irish “backstop” will be time-limited.

The British pound was also supported by broad-based weak USD owing to ongoing US political woes and weak macroeconomic data. The pair is expected to maintain current price action steady until trading session resumes normal activity post-holiday celebrations next week.

USD/CAD: The USD/CAD pair is cycling near 1.3630 as the Canadian Loonie, hampered by lagging oil prices, plays towards the downside, giving up steady ground to the Greenback heading into the weekend. Despite frequent bouts of weakness for the USD as broader markets swing into and out of the risk appetite camp at a frenetic pace, USD/CAD remains a steadily-trending pair as slumping crude oil price buries the CAD. There are no macroeconomic releases in the near future leaving price dynamics of the pair to be dictated by global crude oil trading activity.