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Wednesday 05, July 2017 by Jessica Combes

Yen supported by geopolitical risk

 

The Japanese Yen appreciated against its major counterparts during Tuesday’s trading session as investors adopted a cautious approach following reports of North Korea conducting a long-range missile test, according to Lukman Otunuga, Research Analyst at FXTM. 

In times of uncertainty, the yen remains a trader’s best friend and this was illustrated when the currency gained ground against the US dollar. Although the USDJPY eventually clawed back recent losses on Tuesday, further downside could be expected if uncertainty and geopolitical risk accelerate the flight to safety. From a technical standpoint, the USDJPY has found some resistance at 113.50. A failure of bulls to secure control above this level could open a path lower back towards 111.60.

Is market volatility making a return?
Asian stocks concluded lower on Tuesday while European equities were under pressure as geopolitical tensions stemming from North Korea’s missile launch have encouraged investors to develop a more cautious stance. It appears that geopolitical risks are starting to reappear in the headlines, something that has been complemented by reports that President Trump believes China should be doing more to contain the situation.

With the unexpected surprises from last week sparking discussions of volatility making a return, the developments seen today could fuel the speculation further. The re-emergence of geopolitical tensions in Asia, Brexit developments and ongoing political instability in Washington could make for wild trading conditions in the third quarter of 2017.

WTI Crude smashes into $47
WTI bulls crashed into a brick wall in the form of $47 on Tuesday, following reports that OPEC’s production in June climbed to its highest levels so far in 2017, as Nigeria and Libya pumped more oil. It’s quite remarkable how the seemingly harmless supply cut exemptions for Libya and Nigeria are threatening to sabotage the efforts made by the rest of the group to rebalance the saturated markets. 

With rising oil production in the US another painful piece of the equation that continues to compound to the oversupply concerns, WTI Crude is at risk of remaining depressed for a prolonged period of time. Although WTI Crude has staged an impressive rebound from the $42 level, sellers may be enticed to exploit the technical bounce to instal renewed rounds of selling, with $45 acting as a level of interest. From a technical standpoint, the $47 to $48 region should act as a check point for bears to jump back in. 

Commodity spotlight – Gold
Gold bulls found support in the form of geopolitical risk during Tuesday’s trading session as the metal rebounded from $1,220. Although the current market anxiety and flight to safety has the ability to support Gold, the sharp $23 depreciation observed on Monday will be difficult for bulls to claw back. Short term bears remain in control with Gold at risk of depreciating further if the Greenback continues to stabilise. From a technical standpoint, the yellow metal has turned bearish on the daily charts. Weakness below $1220 may open a path towards $1,214.