Forex Today: Risk flows command markets on US-Iran peace deal yet to be signed
Here is what you need to know on Monday, June 15:
Markets cheer news of the United States (US) and Iran reaching an agreement on a framework deal to end the war at the beginning of the week. Later in the session, the Federal Reserve (Fed) Bank of New York's Empire State Manufacturing Survey for June and May Industrial Production data will be featured in the US economic calendar. Later in the week, the Fed will announce monetary policy decisions.
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 weakest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.26% | -0.13% | -0.03% | -0.08% | -0.36% | -0.27% | -0.41% | |
| EUR | 0.26% | 0.09% | 0.24% | 0.17% | -0.13% | -0.02% | -0.16% | |
| GBP | 0.13% | -0.09% | -0.02% | 0.08% | -0.23% | -0.11% | -0.25% | |
| JPY | 0.03% | -0.24% | 0.02% | -0.07% | -0.35% | -0.21% | -0.39% | |
| CAD | 0.08% | -0.17% | -0.08% | 0.07% | -0.32% | -0.14% | -0.33% | |
| AUD | 0.36% | 0.13% | 0.23% | 0.35% | 0.32% | 0.12% | -0.03% | |
| NZD | 0.27% | 0.02% | 0.11% | 0.21% | 0.14% | -0.12% | -0.14% | |
| CHF | 0.41% | 0.16% | 0.25% | 0.39% | 0.33% | 0.03% | 0.14% |
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).
US President Donald Trump said that the Strait of Hormuz will be reopened as part of the agreement. Iran's deputy foreign minister also confirmed the news on state TV, while the top military command called it a victory for Tehran. The full text of the deal is yet to be published and sides are expected to sign it on Friday. According to the CNN, the ceasefire that started on April 8 will be extended in time and scope, and sides will have another 60 days to continue talks.
In the meantime, Iran’s National Security Council said the US naval blockade will be lifted immediately and the war will end on all fronts, including Lebanon. Still, Lebanon’s National News Agency (NNA) reported that there was a number of Israeli attacks in different parts of southern Lebanon, even after the deal was announced.
The US Dollar (USD) Index opened with a bearish gap and was last seen losing about 0.3% on the day near 99.50. Reflecting the risk-positive market atmosphere, US stock index futures are up between 1% and 2% in the European morning on Monday. Finally, Crude Oil prices decline sharply, with the Barrel of West Texas Intermediate (WTI) losing about 5% on the day near $79.
EUR/USD gains traction on Monday and trades slightly above 1.1600, rising nearly 0.4% on a daily basis. European Central Bank (ECB) Governing Council member Martins Kazaks said earlier in the day that the central bank would be ready to raise interest rates, while warning of upside inflation risks despite the finalization of a deal between the US and Iran.
GBP/USD climbed to a fresh 10-day high above 1.3450 in the Asian session on Monday but retreated below this level by the European morning. The Bank of England (BoE) will conduct its monetary policy meeting later in the week.
USD/JPY trades in a narrow range at around 160.00 in the early European session on Monday. The Bank of Japan is expected to announce a 25 basis points rate hike in the Asian session on Tuesday.
AUD/USD stays in positive territory above 0.7050 in the European morning on Monday. The Reserve Bank of Australia (RBA) is seen holding policy settings unchanged after the June meeting.
Gold (XAU/USD) benefited from the Middle East news opened with a big bullish gap after posting losses in the previous week. At the time of press, XAU/USD was trading above $4,300, rising more than 2% on the day.
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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