Trade war tensions and elevated risk aversion is the theme in the markets at the beginning of the week. President Trump’s decision to impose tariffs on China and the Asian giant’s retaliation means that we’re now in a “state of trade war” between the world’s two largest economies. What currencies are beneficiaries of risk aversion? Gain insight on the 26 March Risk Aversion Pound and Yen Impact.
26 March, ADS Securities – Risk-off currencies like the Dollar would usually benefit from such a development but with the US being the one initiating this war the greenback is trending lower.
26 March Risk Aversion Pound and Yen Impact
Investors realize that trade tensions between the US and China may have a heavy toll on the US economy and contrary to what one would expect it’s the Euro and the Pound that are benefiting from this development. Traders wouldn’t naturally look towards higher-risk currencies like the European majors in a risk-off environment but with the Dollar being dumped across the board both European currencies are testing the upper boundaries of their recent range.
With little in terms of fresh news and data pending for release during the first 48 hours of trading this week the US-China trade dispute will remain the main catalyst in the markets. The instruments to look towards right now are the Japanese Yen, Gold and the British Pound.
Yen and Gold are beneficiaries
Yen and Gold are the usual beneficiaries when risk aversion is elevated and even though we’ve seen some consolidation for the Dollar/Yen on Friday our base scenario suggests more losses ahead: a break below Friday’s lows will clear the path towards the 104 mark.
The British Pound is also at the top of our watch list this week as the Dollar comes under pressure. Contrary to the bearish bias coming from the ECB that keeps the Euro capped, last week the Bank of England communicated their intention to raise interest rates soon.
This further supports the bullish outlook for the UK currency and with the BoE expected to be the next central bank to hike rates Sterling may enjoy further gains especially while the Dollar trends lower. A break above the 1.42 barrier will expose the 1.43 area as the next target.
Equities in Asia are trading higher at the beginning of the week following a negative week for stocks on a global scale. A news report from the Wall Street Journal that the US and China are quietly negotiating a way out of what starts to look like a full-scale trade war might be the reason why Asian equities are trending higher.
The European and US futures are also pointing towards a positive opening bell but we’re hesitating to assume an optimistic view at this time. We believe that it’s very likely that the bearish sentiment in equities will remain in place and it will get worse before it gets better with the Dow Jones eyeing the 23,400 points’ floor.
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This article was provided by analysts of ADS Securities.
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