The markets started Thursday’s session once again very quietly with the major currency pairs moving very little throughout Asian and the first half of the European session, before another tweet from Donald Trump caused volatility to spike. After stoking fears yesterday that an attack on Syria was imminent, today he appeared to backtrack slightly. He tweeted: “Never said when an attack on Syria would take place. Could be very soon or not so soon at all! In any event, the United States, under my Administration, has done a great job of ridding the region of ISIS…” As soon as the tweet was sent, stocks jumped, safe haven yen and gold fell and oil prices eased back slightly as well.
Syria and Russia to remain in focus
It remains to be seen what will actually happen, however. If the situation were to calm down further then risk-sensitive assets could make a more meaningful comeback, while further escalation in the war of words between the US and Russia would have the opposite impact, one would think. Given the lack of any significant data release for the remainder of the week, the market’s focus will indeed remain on geopolitics and on Syria. For now, however, the threat of imminent bombing of Syria has eased. But it could be that Trump is trying to buy time as the US allies – France and the UK – consider military action in the nation. If these nations show support for bombing of Syria then the US may have to take action.
Dollar bounces back modestly
Meanwhile the US dollar has managed to bounce back on the back of Wednesday’s release of slightly hawkish Fed minutes, although the slightly weaker inflation figures that were released earlier in the day have kept the gains in check for the buck. The dollar did particularly well against the euro, with the EUR/USD falling a good 65 pips from yesterday’s high, before bouncing back a little ahead of the US session.
Euro hit by disappointing data
The euro was hit by disappointing data this morning, which drove the EUR/GBP pair to below 0.8700 handle. This time it was industrial production, which contracted by 0.8% in February rather than increase 0.1% as expected. This is the latest Eurozone data which points to evidence that growth in the region may be slowing down, at a time when the ECB is considering to taper QE. But if the recent trend of soft data continues then the central bank may have to delay the normalisation process.
Cryptos show signs of life again
Also making a comeback are crypto currencies. Bitcoin and Ethereum in particular look relatively strong. There is no obvious trigger behind the rally, but the selling did look overdone and a bounce back was long overdue. The increased level of investor anxiety may have also supported the digital currencies.
Expect choppy price action for rest of the week
Looking forward to the rest of the week, there is not a lot on the agenda but the focus will definitely remain on geopolitics. Expect more choppy price action as traders respond to incoming headlines regarding Syria and Russia.