Jitters Over Syria Spark Risk Aversion in FX

Posted on

Market Drivers for August 27th, 2013
Syria – puts risk aversion back into markets
IFO beats but euro sells off on news
Nikkei -0.69% Europe -1.68%
Oil $106/bbl
Gold $1411/oz.

Europe and Asia:
EUR German IFO 107.5 vs. 107.1

North America:
Case Schiller 9:00
CB Consumer Confidence 10:00

Jitters over the growing escalation of rhetoric regarding the situation in Syria, pressured high beta currencies in Asian and early European trade today sending Aussie below the 8950 level, cable towards 1.5500 and reversing the gains in euro as the single currency fell towards the 1.3300 figure.

Yesterday’s emotional press conference by US Secretary of State John Kerry which sharply criticized the Syrian chemical weapons attack on civilians rattled both equity and currency markets as traders feared that US may engage in military action in response to the incident. Today, the UK government also stated that it is considering recalling Parliament early from its summer recess to discuss “appropriate and proportionate” response to the atrocities in Syria.

The sudden emergence of geopolitical risk, pushed aside an economic considerations as markets ignored the relatively upbeat IFO data selling the euro in the aftermath of the news. The IFO beat expectations printing at 107.5 versus 107 eyed. The index stood at 106.2 in July. This was the fourth consecutive monthly increase in a row as German economy continues to shows signs of growth amidst steady domestic demand and improving conditions on the EZ as a whole.

The positive data however, did not translate into a rally in the pair as EUR/USD quickly sold off on the news, with some market observers noting that there was heavy fund selling right after the data that may have tripped stops as trapped longs tried to get out of the way. Still, the EUR/USD remains relatively firmly bid and continues to hold the 1.3300 level for now.

Going into the US session the market will get a glimpse of the Case- Schiller data and the consumer confidence readings at 14:00 GMT. Both news may be dollar negative given the recent weakness in US economic data. However, it remains to be seen as to whether the markets will have much of reaction to the news given the focus on Syria.

Therefore, with risk aversion concerns now the prime focus of the currency markets, any dollar negative bets may be best expressed through the short USD/JPY positions. The pair broke below the 98.00 figure in late Asian trade today and could test 97.50 as the day proceeds, if geopolitical risks continue to concern the currency markets.

Boris Schlossberg
Managing Director

Leave a Reply

Your email address will not be published. Required fields are marked *