The start of the new week sees a greater risk appetite in the markets, as traders and investors take on a more optimistic tone between the US and Iran since the weekend. In particular, there was a New York Times report saying that Iran had agreed to give up enriched uranium in an imminent deal to be announced by US President Trump.
This has since been downplayed, even by US Secretary of State Rubio, with Tehran also indicating that everything being prepared appears to be leaning towards a framework agreement instead. As a reminder, this framework agreement is mainly aimed at calling for peace and some kind of reopening of the Strait of Hormuz. It will not include a nuclear agreement yet, even if there are some hints about avenues that could be explored.
However, the optimism surrounding the developments is enough to move the markets. However, I would caution that all of this is happening amid very weak liquidity conditions. The UK and US markets are closed today, and even in Europe, it is a major holiday in Germany and France even if the Euronext and Chitra exchanges are still open.
Therefore, there is also the possibility that light trading conditions could exacerbate the moves we see most often.
But at least for now, the trend is fairly clear. Oil prices fell sharply with WTI falling more than 5% to US$91.10, while bond yields also fell today. 10-year bond yields in France fell by about 11 basis points to 3.73%, while 10-year bond yields in Germany fell by about 9 basis points to 2.95%. These levels are a far cry from last week’s highs of 4.00% and 3.20%, respectively.
In contrast, we are seeing the dollar also lower across the board with a smaller gap at the open today.
EUR/USD rose 0.3% to 1.1640 levels but did not do much beyond the 20 pip range after the opening gap higher:
EUR/USD hourly chart
The currency pair is hugging the 200 hourly moving average (blue line) very tightly, with some large options expirations also seen at 1.1635 today perhaps also acting as an attraction. As such, buyers have yet to regain a clear near-term bias yet.
In addition, the USD/JPY pair also fell by 0.2% today but this still puts it just below the 159.00 level. With Japan confirming a new round of debt to finance its additional budget, the yen will not find much relief as long as the double blow to the economy and its fiscal outlook in all of this continues.
The two most notable movers today are GBP/USD and USD/CHF, with the pound and franc rising to their highest levels since May 14 against the dollar. That’s not a lot but at least there is some momentum to the moves with GBP/USD in particular breaking above the 100 day moving average at 1.3473. The currency pair is now trading 0.5% higher to 1.3490.
As for the more obvious risk pair, AUD/USD rose 0.6% to 0.7167 on the day. But as with EUR/USD above, we are just seeing buyers trying to clear its 200 hourly moving average at 0.7163 currently. The currency pair has some minor resistance around the 0.7168-80 area to deal with since last week.
