Slower Chinese Growth and Geopolitical Tensions Add to Fragile Tone
A soft start to the week provides a tailwind for safe-haven currencies, most notably the Japanese Yen. Overnight, Asian indices were broadly in the red as Chinese activity data missed expectations, reinforcing the view that growth is slowing in the region. What’s more, rising geopolitical tensions in Afghanistan after Taliban leaders took over the presidential palace add to the fragile sentiment. While at this stage, it is difficult to assess how much market focus is being placed on the situation in Afghanistan, should tensions escalate, naturally, this would be expected to underpin JPY and USD.
USD Drop to be Faded
At the backend of last week, U. of Michigan sentiment surprisingly dropped to a decade low, surpassing the lows seen at the height of the initial Covid crisis. In turn, the USD came under notable selling pressure, alongside US yields, with the 10 year falling 6-7bps. However, given the current market uncertainty and with the FOMC minutes due to be released, which in my view will lean on the slightly hawkish side given that we are nearing the time for a taper signal, the greenback is likely to fade the U. of Michigan sentiment inspired weakness, making a return to the 93.00 handle.
US Dollar Chart: 10 Minute Time Frame
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