A burst of geopolitical risks across the globe is severely burning stock markets and fuelling risk aversion this morning.
Heightened concerns over protests in Hong Kong, simmering US-China trade tensions, persistent global growth fears and a crash in the Argentine Peso are clearly leaving investors on edge. Geopolitical jitters have already punished Asian markets this morning, with Asia Pacific equities flashing red, following the weaker lead on Wall Street overnight. In Europe, stocks may be infected by the caution from Asian markets, and this has the potential to trickle back down to Wall Street this afternoon.
Global equity bears remain in the vicinity as the unsavoury combination of geopolitical tensions and overall market uncertainty encourages investors to avoid riskier assets in favour of safe haven assets such as Gold and the Japanese Yen.
Yen bulls turbocharged by geopolitical tensions
Since the start of the trading week, the Japanese Yen has appreciated against almost every single G10 currency excluding the Australian Dollar and the US Dollar amid rising risk aversion.
Unfavourable global conditions coupled with geopolitical risks are making the Japanese Yen an investor’s best friend. Should uncertainty remain the name of the game in the near term, the Yen could be instilled with enough inspiration to break below 105.00 against the Dollar.
Focusing on the technical picture, the USDJPY is under pressure on the weekly charts. A solid breakdown below 105.00 could open the doors towards 104.50.
Currency spotlight – EURGBP
A technical recession is defined as two consecutive quarters of contraction…and the spectre of a no-deal Brexit has flung the United Kingdom halfway there.
Fears over Britain’s economy falling into a recession were elevated after UK GDP unexpectedly contracted by 0.2% during the second quarter of 2019. These concerns have certainly not been kind to the British Pound which weakened to a 10-year low against the Euro above 0.9320 yesterday. With appetite for the Pound diminishing by the day as Brexit uncertainty and recession fears haunt investor attraction, the EURGBP is positioned to push higher. Prices have the potential to test 0.9350, should 0.9250 prove to be a reliable support.
Commodity spotlight – Gold
There was no place like Gold this morning as the geopolitical tensions encouraged investors to sprint towards safe-haven assets.
The precious metal has entered today’s session in an incredibly bullish fashion with prices charging to a fresh 6 year high above $1525 amid rising risk aversion. With geopolitical risks and concerns over slowing global growth set to make Gold shine with glaring intensity this week, the outlook remains firmly bullish. While appetite towards the precious metal could be influenced by the US inflation report later today, the major drivers remain geopolitics, US-China trade concerns and overall market uncertainty.
In regards to the technical picture, a solid breakout and daily close above the $1525 level is likely to inject Gold bulls with enough inspiration to challenge $1550.
Argentine Peso collapses on Macri primary defeat
The Argentine Peso was an easy target for anxious investors following President Mauricio Macri’s defeat in the party primaries over the weekend.
The currency tumbled as much as 30% yesterday against the Dollar after Macri, who implemented austerity in an attempt to support the economy of Argentina, received 32% of the votes against the opposition candidate Alberto Fernandez who received 47%. With Argentina still mired in a recession and suffering double digit inflation levels, the outlook for the Argentine Peso points south. Speculation over Macri’s primary loss, which significantly reduces the chances of him coming up on top in October, is likely to pressure the local currency further.
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