Forexlive Americas FX news wrap: Geopolitical tensions ease and "risk on" returns

Author: Greg Michalowski | Category: News

Forex news for NY trading on January 8, 2020

What a day!

A little less than 24 hours ago, the markets got moving after reports of a bombing of a US base in Iraq hit the newswires.  Stocks moved sharply lower.   US yields also moved lower. Gold prices soared as did crude oil.  

In the forex market, at 7:56 PM ET/0056 GMT, a snapshot of the forex market showed the JPY and CHF as the flight to safety currencies. The NZD and the AUD were the weakest.  This is how the snapshot of the percentage changes and rankings looked just before 8 PM ET last night. 

The rankings of the major currencies soon after the Iran bombings in IraqNearly 21 or so hours later the strongest to weakest ranking was literally turned completely around. 

Instead of being the weakest, the NZD and the AUD are ending the day as the strongest of the majors.  Instead of being the strongest , the JPY is ending the day as the the weakest (the EUR and CHF were also weaker - see the end of day rankings below).  

The rankings of the major currencies at the end of the near trading session

What was the catalyst?

  1. The old saying that "Almost is only good in horseshoes and hand grenades" proved not to be true. The bombings of the US base were "almost", but was not a direct hit (or close to it). In addition,  there were no US casualties which was the real "llne in the sand" that could have lea to a counterattack by Pres. Trump.  So "almost" was not good enough for a retaliatory strike, and that helped to reverse the currency trends. It was also speculated that "almost" was the intention of Iran as a way to appease the locals, but not to the point of escalating war tensions.
  2. President Trump in the NY session addressed the US people (and really the world including Iran) and announced that the US would increase sanctions against Iran.  He vowed that Iran will never be allowed to have a nuclear weapon. He reiterated that Soleimani was a terrorist and was planning planning other attacks.  He asked NATO to get more involved in the Middle East. He saidthat the US did not need Middle East oil anymore, and finally that the US had rebuilt the defense system to a point that it is all there to use, but warned against provoking an attack. He also did say that the United States is ready to embrace peace with all who seek it.  
Stocks moved higher after his speech as did US yields.  Gold moved lower.   In the oil market, it moved lower and was kicked even lower by weekly inventory data that the showed a surprise build and inventories (the private data and estimates were expecting a large drawdown).  

A snapshot of the other markets showed:
  • spot gold $-18.40 or -1.17% to $1555.90. The high price reached $1611.42
  • WTI crude oil futures are trading down $2.83 or -4.51% to $59.87. The high price reached $65.65
In the US stock market, the Dow was down as much as 400 points and the E-mini futures were down over 50 points in after hours trading late yesterday.  At the close today, the 

  • Dow closed up 161.41 points or 0.56% at 28745.09
  • S&P closed up 15.87 points or 0.49% at 3253.05
  • NASDAQ index faired the best with a 60.66 point gain or 0.67% and 9129.24
In the US debt market, 10 year yields are ending up 5.1 basis points at 1.869% after trading as low as 1.703% soon after the attacks.  Today the US treasury auctioned off $24 billion of 10 year notes, but demand was not that great.  That could be another indication that geopolitical risks are leading traders to think "higher yields" instead of lower yields from the flight to safety trade/fear.

US yields are ending the session higher Almost an afterthought in trading today, was the release of the ADP employment report. It showed a gain of 202K versus an estimate of 160K. Moreover the prior month was revised higher to 124K from 67K initially reported. 

Recall that last month the November US job report from the BLS came in much stronger than the ADP report at 266K (vs 67K initially reported).  So perhaps it was a little catch up.   The monthly US jobs report will be released on Friday. The estimate is for 160K.

Although the geopolitical winds may have died down today, the risks still remain. So traders will be monitoring the headlines very closely (there was already a report of a bombing in Baghdad late in the session).  If the tensions calm down, the focus will start to look toward the employment report on Friday. 

Good fortune in your trading. 

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