Commerzbank’s ‘Daily Currency Briefing’ raises some interesting points about the trading in the Asian session for Friday (July 18)… and more.
In brief:
- The sentiment on the market was initially “risk off“ yesterday, in particular following reports about a passenger place having crashed in Easter Ukraine
- Reinforcing the impression amongst market participants that more (and more painful) economic sanctions against Russia are becoming more likely
They go on …:
- “Risk on / risk off“ is obviously not an argument for or against EUR-USD. The outlook of a continued ECB zero rate policy (which will continue for much longer than that of Fed or BoE) has turned the euro into an ideal funding currency
- Even if one assumes that from a fundamental point of view the greenback is more of a safe haven than the euro, the argument of the funding currency counter balances these fundamental reasons
- During Asian trading hours the market trend is reversing again -yen has started to ease again, AUD and NZD are gaining ground
- It seems that risk-off sentiment does not last very long under current circumstances. And how should it? The hunt for yields, fuelled by the central banks, is driving risk appetite up and volatility down.
- Even if volatilities are beginning to bottom on the FX market (see chart 2) the pressure monetary policies are currently putting on volatilities is so high that even the news of yesterday afternoon do not cause sentiment to change fundamentally. The longer this situation continues the more fragile it becomes though.
