Forex Today: Risk flows dominate markets on US-Iran deal hopes
Here is what you need to know on Monday, May 25:
Risk flows dominate the action in financial markets at the begining of the week as the latest headlines suggest that the United States (US) and Iran are looking to reach an agreement to reopen the Strait of Hormuz. The economic calendar will not feature any high-impact data releases on Monday and stock and bond markets in the US will remain closed in observance of the Memorial Day holiday.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.31% | -0.40% | -0.16% | -0.04% | -0.46% | -0.35% | -0.36% | |
| EUR | 0.31% | -0.09% | 0.15% | 0.26% | -0.16% | -0.05% | -0.07% | |
| GBP | 0.40% | 0.09% | 0.24% | 0.35% | -0.08% | 0.06% | 0.01% | |
| JPY | 0.16% | -0.15% | -0.24% | 0.12% | -0.34% | -0.23% | -0.26% | |
| CAD | 0.04% | -0.26% | -0.35% | -0.12% | -0.44% | -0.33% | -0.37% | |
| AUD | 0.46% | 0.16% | 0.08% | 0.34% | 0.44% | 0.12% | 0.07% | |
| NZD | 0.35% | 0.05% | -0.06% | 0.23% | 0.33% | -0.12% | -0.04% | |
| CHF | 0.36% | 0.07% | -0.01% | 0.26% | 0.37% | -0.07% | 0.04% |
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).
Citing a US official, Axios reported late Saturday that the US and Iran are close to signing an agreement that involves a 60-day ceasefire extension during which the Strait of Hormuz would be reopened. In this deal, Iran would reportedly clear mines it deployed in the waterway and allow ships to pass freely inn exchange for the US would lifting its blockade on Iranian ports.
US Secretary of State Marco Rubio said early Monday said that there is a "fairly strong proposal on the table regarding their capacity to open the straits." Meanwhile, Iranian news outloet ISNA reported that a senior Iranian diplomat said that the nuclear issue and highly enriched uranium reserves will be discussed with the US in 60-day negotiations in exchange for the lifting of sanctions and unfreezing of assets. On a more cautious note, Iran's foreign ministry spokesperson said that the framework deal has no specific details about the management of the Strait of Hormuz, adding that even though they have reached conlusions on many topics, that doesn't mean they are close to signing an agreement.
After starting the week with a bearish gap, the US Dollar (USD) Index stays in negative territory at around 99.00 in the European session on Monday. In the meantime, the barrel of West Texas Intermediate is trading at around $91.00, down about 5% on a daily basis.
Gold gathers bullish momentum and trades above $4,560, rising more than 1% on the day.
EUR/USD stays in positive territory slightly below 1.1650 after opening with a bullish gap.
USD/JPY closed the previous week marginally higher but corrected lower in the Asian session on Monday. At the time of press, the pair was fluctuating at around 159.00.
GBP/USD rises toward 1.3500 in the European session on Monday and trades at its highest level in 10 days.
NZD/USD trades above 0.5870 and gains nearly 0.4% on the day. In the Asian session on Wednesday, the Reserve Bank of New Zealand (RBNZ) will announce monetary policy decisions.
AUD/USD rises about 0.5% on the day above 0.7150 after ending the previous week in the red. April Consumer Price Index (CPI) data will be featured in the Australian economic docket on Wednesday.
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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