We are greeted on another Monday morning with risk aversion following yet another missile launch from North Korea. USDJPY, the traditional safe haven play saw the trading week open with a gap lower from Friday’s close by almost .8%, while gold also rallied in opening trade. Major indices have traded lower, with Asian markets in the red overnight and European stocks opening the morning weaker, while futures are pointing to a weaker US open as well.
Friday itself was a mixed day. The USD managed to trade slightly firmer despite a weaker NFP print, including weaker unemployment figures wage growth. The trifecta of data misses failed to dent USD demand and the greenback quickly recovered from initial selling while stocks closed the weak higher. The big focus this week will be on central bank action and there’s plenty to tickle our fancy, the main event will be Thursday’s ECB meeting but ahead of that we have the RBA tomorrow and the BOC on Wednesday.
The USD shook off the weaker data from Fridays Non-Farm payroll report, we had pointed out the headline figure would unlikely shift USD bias unless outside of the 150k to 210k range. The USD quickly found sellers on the headline reading but that recovered throughout the day and the dollar closed the day trading higher. What did cause some concerns was the weaker wage growth and higher unemployment figure but neither was weak enough to rock the greenback and stronger than expected manufacturing data helped boost sentiment into the afternoon. It is a US holiday today so we’d expected a quiet afternoon but looking at major pairs with USD we see EURUSD finding support around 1.1815/20 area. 1.1985 should hold moves higher for now and see some Euro sellers re-emerge, while a break below 1.1815 should see next support towards 1.1760. GBPUSD is locked in a slight cleaner range, 1.2775 up to 1.3000, and area we’re traded in for almost a month.
It’s a quiet day on the economic calendar so not expecting too much action driven by the usual fundamentals today. We’ll be watching North Korean developments closely, the general reaction has tended to be risk off and negative for the early morning and as world leaders unite in their consternation of North Korean actions. There are some strong words spoken, before things calm down and the worst case fear of nuclear war subsides, markets will then return to normal. However this cannot go on indefinitely and while we’d expect a recovery in risk through the week, the threat of retaliation or larger actions against North Korea pose a real market risk the longer this goes on.