US airstrikes soften Greenback momentum

The major news story dominating the headlines as we head into Tuesday’s afternoon session involves the US and reported to be Arab allies launching its first air strikes in Syria overnight.

As a result, we have noticed weakness/profit taking in the USD and a small rebound in Gold, which has so far appreciated by around $12 today. However, I remain undecided regarding how long this USD weakness will last. Unless the United States unexpectedly announces foreign intervention (deploying troops) in the Middle-Eastern region, this could just be a short term reaction to the overnight news.

The EURUSD has benefited from Greenback softness, with the pair appreciating to the 1.2882 level. Although at the time of writing, the pair is struggling to challenge resistance around a previous support level, 1.2893.

The reason behind the Eurodollar appreciating so far today should not be attributed towards the EU economic data we have just received, which was at best mixed. Germany’s Markit PMI coming in above expectations was followed by the weakest German Manufacturing PMI in 15 months. What this German data goes to show somewhat is that we are still struggling to notice a return to consistency, that we used to be accustomed to from German economic releases.

The reaction to the Eurozone Markit PMI was also mixed. The positive news is that the PMI came in above the figure which separates growth from contraction, but the PMI missing expectations will likely lead to suspicions that it will require more than a weaker EURUSD exchange rate to reinvigorate the EU economy. By this we mean calls for even further ECB stimulus, though I remain optimistic that a weaker EURUSD exchange rate over time will hopefully lead to an improvement in EU economic data.

The Cable also appreciated overnight but seems to have found resistance around the 1.6395 area, which is preventing the pair from entering 1.64. Despite the Scottish referendum concluding and the Bank of England (BoE) disclosing that a UK rate rise can be expected in spring 2015, investor appetite is still to return to the GBPUSD. Perhaps investors are waiting for Westminster to formally agree on what political powers Scotland will be awarded before confidence in the GBP will possibly resume. On Thursday afternoon, BoE Governor Carney is due to deliver a speech in Wales, which could spark some life back into this pair again.

The USDJPY declined heavily overnight, with the news regarding US airstrikes in Syria putting the brakes on the pairs upside rally.

At the time of writing, the USDJPY has dropped by around 80 pips in the last 24 hours, though the pair seems to have found support around the 108.350 area. If the pair continues to decline on today, further support can be found on the Weekly timeframe around 108.046. There are no major economic indicators scheduled from Japan until the early morning Markit Manufacturing release, therefore which direction this pair moves in is likely to depend on how the financial markets react to this afternoon’s US Manufacturing PMI, or news regarding US airstrikes in the Middle East.