FX market outlook

FX market outlook

Posted on Friday, April 7 2017 at 8:33 am GMT+0000

Gold and yen jump on risk aversion after US missile strike on Syria; focus shifts to nonfarm payrolls

Gold and the yen jumped during Asian trading on Friday, while stock markets fell on geopolitical risk, pushing investors out of risky assets and into safe havens. There were flows into US Treasuries as well. News of a US missile launch on an airbase in Syria rattled global markets, as it raised the risk of a confrontation with Russia and Iran.

The knee-jerk reaction in the forex markets saw the dollar drop against the yen to its lowest level since March 28, as investors rushed to the safety of the Japanese currency. The greenback touched as low as 110.12 in the Asian session before recovering to above 110.40.

Markets calmed down relatively quickly after a US official cited that there were no current plans for an escalation in the strikes and it was likely a one-off missile attack. Investors now shift their focus to a big risk event today, as the US nonfarm payrolls report is due later. The employment report is expected to show a rise of 180,000 jobs in March versus a prior 235,000.

Meanwhile, markets are also keeping an eye on the summit between US President Donald Trump and China’s President Xi Jinping. The second and final day of talks get underway today.

The euro remained weak after slumping against the dollar yesterday on dovish comments from ECB President Mario Draghi who said he saw no need to deviate from the ECB’s stated policy path at least until the end of the year. The euro dipped on the remarks to $1.0628, its lowest level since mid-March, and traded close to this level in Asia today.

Sterling will be in focus today as Bank of England Governor Mark Carney is due to speak later at Thompson Reuters in London. If he is overly dovish, the pound could fall. Cable traded around $1.2460 in Asia.

In commodities, gold jumped over 1% to $1,269.21 an ounce, its highest point since November 10.

Oil prices surged more than 2% on concerns the military intervention in Syria could affect supplies from the Middle East region. There is concern about what will be the response of Iran and Russia to the US strikes, as these nations are two of the world’s largest oil producers and strong allies of the Assad regime.

Both oil benchmarks hit their highest levels since early March, with WTI oil hitting $52.91 a barrel and Brent crude rising to $56.06 a barrel, and both are set to end the week with gains.

Looking ahead to the rest of the day, apart from US nonfarm payrolls, markets will also look out for UK economic data on manufacturing, construction and house prices, as well as BOE Governor Carney’s speech. Meanwhile, jobs data out of Canada are due.