Forex Today: Middle East uncertainty keeps volatility contained
Here is what you need to know on Friday, April 24:
The action in financial markets remains subdued on Friday and major currency pairs trade in narrow ranges. In the second half of the day, the University of Michigan will publish a revision to the April Consumer Sentiment Index data, while investors will keep a close eye on headlines coming out of the Middle East.
US Dollar Price This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.41% | 0.05% | 0.53% | 0.07% | -0.14% | 0.10% | 0.64% | |
| EUR | -0.41% | -0.35% | 0.00% | -0.30% | -0.52% | -0.36% | 0.24% | |
| GBP | -0.05% | 0.35% | 2.17% | 0.04% | -0.17% | 0.00% | 0.58% | |
| JPY | -0.53% | 0.00% | -2.17% | -0.46% | -0.61% | -0.46% | 0.12% | |
| CAD | -0.07% | 0.30% | -0.04% | 0.46% | -0.11% | -0.01% | 0.56% | |
| AUD | 0.14% | 0.52% | 0.17% | 0.61% | 0.11% | 0.23% | 0.76% | |
| NZD | -0.10% | 0.36% | 0.00% | 0.46% | 0.01% | -0.23% | 0.56% | |
| CHF | -0.64% | -0.24% | -0.58% | -0.12% | -0.56% | -0.76% | -0.56% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
United States (US) President Donald Trump announced on Thursday that the Israel-Lebanon ceasefire will be extended by three weeks following the last round of talks at the White House. Later, President Trump told reporters in the Oval Office that he doesn't want to rush himself when it comes to reaching a final agreement with Iran. In the meantime, Trump ordered the US military to "shoot and kill" any Iranian vessels laying mines in the Strait of Hormuz. It's still unknown whether the US and Iran will hold talks in the near term or for how long the ceasefire will remain in place.
Wall Street's main indexes closed in negative territory on Thursday and the US Dollar (USD) Index registered gains for the third consecutive day. Meanwhile, the data from the US showed that the business activity in the private sector continued to expand at a healthy pace, with the S&P Global Composite Purchasing Managers' Index (PMI) rising to 52 in April's preliminary estimate from 50.3 in March. In the European session on Friday, the USD Index holds steady at around 98.80 and US stock index futures trade mixed.
The UK's Office for National Statistics reported on Friday that Retail Sales rose by 0.7% basis on a monthly basis in March. This print followed the 0.6% contraction recorded in February and came in better than the market expectation for an increase of 0.2%. GBP/USD largely ignored this data and was last seen trading virtually unchanged on the day at around 1.3470.
EUR/USD moves sideways below 1.1700 and remains on track to end the week in negative territory. The data from Germany showed that the IFO - Current Assessment Index declined to 85.4 in April from 86.7 in March.
Gold (XAU/USD) lost about 1% on Thursday and failed to stage a rebound in the Asian session on Friday. In the early European session, XAU/USD fluctuates in a narrow band below $4,700.
USD/JPY registered small gains on Thursday and came within a touching distance of 160.00 early Friday, before retreating toward 159.60. Japan's Finance Minister Satsuki Katayama noted that officials are in close contact around the clock with their US counterparts over speculative moves that are keeping the Japanese Yen (JPY) weak. Katayama confirmed that there are no plans to alter Japan's currency swap lines with the US.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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