Japanese Yen And Oil Prices Rally Over Middle East Crisis
The Japanese Yen has its groove back as a safe-haven, amidst heightened geopolitical tensions in the Middle East.
The yen continues to gain ground against the dollar and other majors on the U.S. hinting at possible military action against Iran. Remarks by President, Donald Trump, following drone strike attacks on key oil processing facilities in Saudi Arabia sent traders scrambling for safe-havens early Monday morning.
Oil Rallies Yen Strengthens
The drone attacks sent oil prices rallying on increased concerns of a possible shortage in supply as the attacks knocked off as much as 5% in global oil supply. The USD/JPY, which is closely watched as a safe haven, dropped 0.3% after an impressive rally last week on minimal geopolitical tensions.
Tensions in the Middle East are edging higher in the wake of the Houthi group claiming responsibility for the drone attacks. The U.S. is pointing a finger to Iran, as backers of the group. It's all but heightened tensions in the financial markets. The fact that the attack targeted a crucial world energy supply, signals potential response from the U.S. and its ally Saudi Arabia.
The last thing that the fragile global economy needs at this moment is war in the Middle East, considering the outcomes of the Iraq and Afghanistan wars. The fact that the global economy is also in a precarious position amidst growing recession chatter also continues to heighten concerns consequently fuelling demand for safe-havens such as the Yen and Gold.
The Yen will be the center of attention in what promises to be a busy week in the financial markets. Policy meetings by a number of economic powerhouses should form the basis of many trading patterns throughout the week.
The Federal Reserve is poised to table results of a policy meeting with the markets expecting a rate cut. While the markets have already prized in the FED cutting interest rates, a contrary outcome could send shockwaves in the market.
U.S.-China Trade Talks
Trade talks between the U.S. and China is another key development, which could influence the Yen direction of trade throughout the week. The US dollar rallied last week as President Trump hinted at the possibility of reaching an agreement with Beijing, consequently pushing back on the implementation of trade tariffs on Chinese goods.
A trade pact between the two economic powerhouses should help calm the nerves in the financial markets, given the growing uncertainty about the global economy. Failure of the U.S. to reach an agreement with China, on the other hand, could trigger stringent reactions, as it has been the case in the past where investors turned to safe-havens.
The Euro and the Pound have also continued to edge higher in recent days after plunging to one-year lows in recent months. The Euro rose back to the $1.1000 level on the ECB resuming purchase of 20 billion euros worth of bonds.
The British pound, on the other hand, continues to strengthen against the dollar on parliament succeeding in blocking a no Brexit deal.