Geopolitical risk weighs on Asia

Asia is trading risk-off today after picking up some negative leads from US trade.

Source: Bloomberg

Safe-haven assets were in play earlier with the yen and gold holding ground but this seems to have now waned suggesting perhaps geopolitical risk hasn’t quite heightened. The resilient yen has resulted in the Nikkei underperforming today with investors even ignoring some of the recent measures announced by Japanese officials.

With USD/JPY trading below 102 after a brief spell higher then it’s harder for traders to justify pushing the Nikkei higher. Developments on the geopolitical front have suggested Syrian warplanes attacked targets in western Iraq sent risk assets into a spin again. Additionally pro-Russian militants remained active in Ukraine, shooting down a warplane, despite reports Putin called a ceasefire.

Gold downtrend resistance caps gains

While gold would have been expected to remain buoyant in this environment, it actually experienced a bit of a pullback over the past few hours. Perhaps better than expected US economic data in form of the conference board’s consumer confidence and new home sales along with hawkish Fed comments are the factors coming into play now. We heard from Dudley who said a mid-2015 rate hike seemed reasonable, while Plosser suggested the Fed is closer to meeting its twin objectives.

There is a fairly busy round of economic data out of the US with the final GDP reading along with durable goods orders and services PMI due out. Yesterday I had highlighted a downtrend resistance line which has been in play since October 2012. This line currently comes in at around 1320 and presents a serious challenge for the bulls. After a test of this line overnight, it seems there isn’t enough conviction among the bulls to push it higher.

Europe to open weaker

Looking ahead to European trade, we are calling the major bourses weaker at the open. While EUR/USD remains quite choppy around 1.3600, there has been a bit of activity in the pound. GBP/USD dropping back below 1.7000 on the back of Mark Carney comments, reinforcing there is scope to absorb more slack before a rate increase. Additionally, while prices are rising, it seems wage growth is limited and this means any rate hikes are likely to be gradual and limited. While cable has pulled back on these comments, I still feel there is room for fresh longs on pullbacks.

The UK economic calendar is relatively light today but there is a bit of activity on the European calendar. The euro held steady yesterday despite a disappointing German Ifo business climate reading. Later today we have a German Gfk consumer climate reading and Italian retail sales to look out for. There will also be some officials speaking including the ECB’s Weidmann, Costa and Linde.

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