Daily Forex Review: Geopolitical Risk Affects Price Action – July 18, 2014

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Daily Forex Review: Geopolitical Risk Affects Price Action - July 18, 2014

The US dollar took advantage of the run in risk aversion recently, as several geopolitical tensions weighed on higher-yielding forex pairs. First was the news that a Malaysian Airlines plane was shot down near the Ukraine-Russia border, with Ukranian pro-Russia separatists being blamed for launching a missile on the commercial aircraft. Data from the US was mixed, with building permits and housing starts missing expectations and initial jobless claims and Philly Fed index posting stronger than expected figures. For today, the preliminary UoM consumer sentiment figure is up for release and a climb from 82.5 to 83.5 is expected.

The euro crashed against the dollar and the yen once more, despite euro zone CPI figures coming in line with market expectations. The headline figure showed a 0.5% gain while the core figure marked a 0.8% increase. Only the current account balance is up for release from the euro zone today and a larger surplus of 24.3 billion EUR from the previous 21.5 billion EUR surplus is eyed.

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The pound gave back some of its latest wins when risk aversion dominated the headlines yesterday. There were no reports released from the UK then and none are due today, suggesting that sentiment might be the major driver of price action, with worsening geopolitical risks likely to result in more losses for the pound.

The franc weakened to the dollar but managed to hold on to some of its wins against the higher-yielders when risk aversion took hold of markets yesterday. There were no reports released from Switzerland then and none are due today, which means that the franc could be sensitive to market sentiment once more.

The yen was one of the best performers in recent trading as it advanced against higher-yielders and even the safe-haven US dollar. There were no reports released from Japan but the BOJ’s relatively positive statement continued to provide support for the yen. Apart from that, the heightened political tension in Russia and Ukraine, along with Israel’s decision to send in ground troops to Gaza, also forced traders to flee to the lower-yielding yen.

The comdolls were in for a world full of hurt when geopolitical risks flooded the headlines yesterday. Not even Australia’s 0.2% CB leading index rebound was enough to keep the Aussie supported while the Kiwi continued to bleed from its weaker than expected CPI and dairy auction. The Loonie barely got any support from a stronger than expected foreign securities purchases report, although the CPI and wholesale sales data today could still affect its movement.

To contact the reporter of the story: James Brennan at james@forexminute.com

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Samuel Rae is an active retail trader across a variety of assets, including currencies, stocks and commodities and the author of Diary of a Currency Trader (Harriman House). His personal strategy focuses primarily on classical technical charting patterns with a fundamentally supportive bias, combined with a strict, risk management-driven approach to entries and exits. He is an Economics graduate from Manchester University, UK.