Market News & Insights
18 July 2014

Safe Haven Currencies Rally on Rising Tensions

EUR/USD 1.3535
GBP/USD 1.7113
GBP/EUR 1.2642 (0.7910)
EUR/CHF 1.2142
GBP/CHF 1.5350
GBP/AUD 1.8230

Geopolitical tensions have seen a notable shift towards risk aversion in the last 24 hours following the shooting down of a Malaysian Airlines plane over the Ukraine, and a ground invasion by Israel into Gaza. Reports suggest that the Malaysian airlines plane was shot down by pro Russian separatists as Putin blames the Ukraine but does not deny separatist involvement. In markets stocks fell through the US session, with the S&P falling by the most in three months, while the VIX index, used to measure market volatility and often referred to as the “fear index”, jumped by the most in a year.

On the currency front safe havens like the JPY and USD enjoyed the demand of haven flows, while not surprisingly the Russian Ruble faced selling reaching a two month low. The slide in risk continued overnight with Asian stocks declining, the JPY reached the strongest levels against the EUR since January while EURUSD traded on firm support at 1.3520, with February lows at 1.3480 the next level below.

Today’s economic calendar is set to be very quiet through the European session with no major data points of note. The single currency’s proximity and exposure to the Russia/Ukraine, as well as its rise to strength through general complacency may leave it vulnerable to a rise in risk adverse trends. Yesterday’s CPI print was as expected with inflation running at .5% in the region, with the core reading remaining at .8% as expected.

There was no major data of note from the UK yesterday and the calendar is similarly light through today’s session. GBP lost ground against the USD and the EUR through the last 24 hours following a reduction in interest rate expectations through the session. There was no major data point to drive this shift but with UK rates pricing perfection the fall in global sentiment can see rate hike focus reduce. Next week’s focus for the UK will be on the BOE’s minutes, as well as the release of Q2 GDP figures, a pessimistic lean on this may see GBP face a larger retraction, especially after nearly three weeks of little change in range.

The most inviting data release of the day comes from the US session with the University of Michigan Confidence survey on tap, due to rise to 83 from 82.5. The USD index has been slowly tipping higher helped by the risk off environment but also by the Fed’s commitment to end QE by October. GBPUSD has failed once again to push through the 1.7200 barrier and once again has fallen back below 1.7100, a weekly close below this level, especially with next week’s data could see a greater run in GBP selling/USD buying bringing this pair back towards 1.6800.