Forex Today: Markets settle down, for now
Here is what you need to know on Tuesday, August 6:
Financial markets seem to have stabilized early Tuesday, following Monday's highly volatile action. Eurostat will release Retail Sales data for June and the US economic docket will feature June Goods Trade Balance and RealClearMarkets/TIPP Economic Optimism data for August later in the day. Investors will continue to pay close attention to developments surrounding the conflict in the Middle East.
The market mood seems to have improved early Tuesday, with US stock index futures rising between 1% and 1.8% on the day. On Monday, the S&P 500 and the Nasdaq Composite indexes both lost around 3%. Meanwhile, the US Dollar Index clings to modest recovery gains at around 103.00 and the benchmark 10-year US Treasury bond yield rises about 2% at near 3.85%.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.22% | 0.43% | -0.66% | -0.31% | -0.03% | 0.44% | -0.43% | |
| EUR | 0.22% | 0.57% | -0.57% | -0.22% | 0.20% | 0.44% | -0.31% | |
| GBP | -0.43% | -0.57% | -1.11% | -0.77% | -0.40% | -0.17% | -0.89% | |
| JPY | 0.66% | 0.57% | 1.11% | 0.37% | 0.58% | 1.11% | 0.25% | |
| CAD | 0.31% | 0.22% | 0.77% | -0.37% | 0.32% | 0.76% | -0.30% | |
| AUD | 0.03% | -0.20% | 0.40% | -0.58% | -0.32% | 0.35% | -0.52% | |
| NZD | -0.44% | -0.44% | 0.17% | -1.11% | -0.76% | -0.35% | -0.87% | |
| CHF | 0.43% | 0.31% | 0.89% | -0.25% | 0.30% | 0.52% | 0.87% |
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).
During the Asian trading hours on Tuesday, the Reserve Bank of Australia (RBA) announced that it left the policy rate unchanged at 4.35% as expected. In its policy statement, the RBA reiterated that the policy "will need to be sufficiently restrictive until the board is confident that inflation is moving sustainably towards the target range." In the post-meeting press conference, RBA Governor Michele Bullock noted that interest rates might need to stay high for longer, adding that a rate cut is not on the agenda in the near term. AUD/USD edged higher following this event and was last seen rising 0.3% on the day above 0.6500.
EUR/USD gathered bullish momentum and climbed above 1.1000 for the first time since early January but closed the day below this level. The pair continues to correct lower early Tuesday and was last seen trading below 1.0950. The data from Germany showed earlier in the day that Factory Orders expanded by 3.9% on a monthly basis in June, following the 1.6% contraction recorded in May.
Despite the heavy selling pressure surrounding the US Dollar, GBP/USD failed to shake off the bearish pressure and close in negative territory on Monday. The pair continues to stretch lower in the European morning on Tuesday and was last seen trading at around 1.2750.
USD/JPY erased a large portion of its daily losses in the second half of the day on Monday but still lost 1.6% on a daily basis. The pair gathers recovery momentum early Tuesday and rises nearly 1% on the day at around 145.50. Atsushi Mimura, Japan’s newly appointed Vice Finance Minister For International Affairs and top foreign exchange official said in a statement on Tuesday that they “discussed big moves in the financial and stock market with the Bank of Japan (BoJ) and the Financial Services Agency (FSA).”
Gold declined sharply on Monday but falling US Treasury bond yields and the US Dollar weakness helped XAU/USD limit its losses. Early Tuesday, the pair holds steady slightly above $2,400.
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.
Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
