Will the terror driven safe haven shift be sustained?


  • Terrorism has hit Europe again as attacks across Brussels have been seemingly co-ordinated through the morning. This has had a knee jerk reaction into safe haven plays in the financial markets and it will now be interesting to see if these terror driven moves can be sustained. Clearly this has the potential to mould price action in the coming days but often you will find in the wake of terror attacks, the initial safe haven shift of assets does not last. The response of the authorities in Belgium and across Europe could have a role to play in this, but already it seems as though after the initial move, markets have started to settle once more. This could provide traders with opportunities this week.


  • The classic reaction in times like these is to sell high risk (such as equities and riskier forex) and buy into lower risk assets (such as Treasuries and Bunds, gold, the Japanese yen and to a slightly lesser extent, the US dollar). These moves have been seen today to some varying degree, but we will have to see if the moves will be extended. In some ways the moves this morning have not been as significant as perhaps might have been expected. Perhaps traders are now conditioned to accept that these events are somehow now considered to be less of a shock, even if they are still an abhorrent act against humanity. Already equity markets have unwound early losses and the moves on forex markets have also been retraced.
  • This all has been coming as the markets are still positioning to come to terms with a surprisingly accommodative and dollar weakening FOMC monetary policy. My expectation is that the slight dollar strengthening of the past couple of days which has unwound some of the moves on forex markets will again be a chance to play for a weaker dollar. The hawkish views of FOMC members Lockhart and Williams are not out of sync with their accepted views and although it has probably played into the recent dollar technical recovery, they are non-voters in 2016 and changes very little in reality. It does not change the fact that the FOMC as a whole is concerned by the stronger dollar and has shifted policy to weaken the dollar. This may not necessarily manifest itself in an explicitly weaker dollar in the coming weeks and months, but for me it should now in the least, keep a cap on any dollar strength.
  • This weaker dollar strategy from the Fed should help emerging markets with their huge swathes of US dollar-denominated debt, help China with the problem of outflowing fx reserves and help to generate more positive appetite for risk. This should all help to be supportive for risk commodities such as base metals prices and also help support oil.
  • Oil has also been guided higher by the prospect of the meeting in Qatar (Doha) on 17th April between OPEC and Non-OPEC countries. Saudi Arabia may well be committed to a production freeze even though rival Iran will continue to ramp up production. The volatility around that meeting is likely to be significant but in the run up to the meeting the potential for a production freeze should help to underpin oil too.
  • Equities have been edging higher in recent days and the Fed shift in monetary policy should be supportive, but the trend is beginning to look a bit tired near term. Perhaps there is room for a minor correction that would help to renew upside potential.
  • The only real US economic data that could be moving markets this week comes from the US New Home Sales which are expected to improve by 3.2%. This has taken on more of an importance after the Existing Home Sales disappointed so greatly yesterday. There is also the volatile Durable goods Orders which are expected to show a slight -0.2% monthly decline. With UK inflation holding broadly steady today, attention will turn to the UK Retail Sales on Thursday, a data point which has been strong in recent months. Furthermore on Thursday, can the Japanese CPI push back above zero to a meagre +0.1%?
  • Watch for: US New Home Sales, UK Retail Sales



EUR/USD – Bulls will look to hold on to $1.1100 breakout support

  • The Eurozone economic data has been starting to trend a little higher this month with the flash PMIs beating expectations although mixed data from the two German sentiment indicators (Ifo and ZEW) have painted an uncertain picture. The FOMC monetary policy shift to weaken the dollar should also help to support EUR/USD.
  • Holding the breakout above $1.1100 was a key move and despite the slight slide back in the past few days the outlook remains positive medium term. Corrections therefore remain a chance to buy.
  • Watch for: US New Home Sales

GBP/USD – Sterling is an underperformer again

  • The prospect of a Brexit hangs over Cable like a cloud and is a key reason behind the failure to sustain the post-Fed upside break. However, if this can be overlooked then traders will point to UK data having been more supportive recently.  The problem is that sterling has been an underperformer amongst the majors recently.
  • The support at $1.4050 is key now for the medium term outlook. A near term slide needs to now find support quickly to prevent the outlook turning negative.
  • Watch for: US New Home Sales and UK Retail Sales

USD/JPY – The support around 111 is likely to come under further pressure.   

  • The yen continues to be an outperforming currency (even before today’s terrorist attacks) and this is putting downside pressure on the pair. Japanese CPI sitting around zero may add to calls for further easing, but the efficacy of further easing measures is open for debate in Japan.
  • A close below 111 would really open the downside, but this has not yet been seen. However the momentum indicators are all pointing towards rallies seen as a chance to sell with a resistance band 112.15/112.60 now in place.
  • Watch for: US New Home Sales and Japanese CPI

Gold – Near term outlook is increasingly uncertain

  • A dovish Fed and negative real interest rates should be supportive for gold, but the bulls just cannot get the traction. Technically the chart is increasingly messy however the bear divergences in the momentum reflect the loss of upside impetus in the rally. Support at $1224 is now key, with resistance of the post-Fed high at $1271 also an important level.
  • Watch for: US New Home Sales

Oil – Bulls trend and Doha meeting continue to pull the recovery higher

  • The OPEC/Non-POEC meeting is now in the diary for 17th April and this carrot on a stick should help to maintain the bull momentum built up in recent months. The concern remains that no action has been taken yet and the price rising in front of the meeting could unfortunately induce a lack of action on production which remains vastly oversupplied.
  • Technically the outlook remains strong as both WTI and Brent Crude are holding above $40 again. WTI support is now strong around $39 for a target of $43.50, whilst Brent Crude is looking to hold above $39.50/$40.50.
  • Watch for: EIA oil inventories

Indices – Is the rally beginning to look a touch stale?   

  • S&P 500 – With a lack of significant volume and limited gains the upside on the S&P 500 is still being seen, albeit at a gradual pace. There is a breakout support around 2000/2010.
  • DAX Xetra – The uptrend is coming to meet the consolidation around the 61.8% Fib level at 9897 which has become a key crossroads in the recovery. Support c. 9750 and 9600.
  • FTSE 100 – This is the index that concerns me from the bull perspective as a loss of momentum and resistance in the 6200/6235 range is telling on the bull run. Key support at 6036.



Tuesday 22nd March

  • US – Richmond Fed manufacturing index

Wednesday 23rd March

  • US – New Home Sales
  • US – Crude Oil inventories

Thursday 24th March

  • UK – Retail Sales
  • US – Durable Goods  
  • US – Weekly Jobless Claims
  • Japan – CPI

Friday 25th March

  • US – GDP (Q4 final)



Monday 28th March

  • US – Personal Consumption Expenditure
  • US – Pending Home Sales

Tuesday 29th March

  • US – CB Consumer Confidence

Wednesday 30th March

  • US – ADP Employment Change
  • US – Crude Oil inventories

Thursday 31st March

  • UK – GDP (final GDP)
  • Eurozone – CPI (flash)
  • US – Weekly Jobless Claims

Friday 1st April

  • China – Manufacturing PMI
  • Eurozone – Manufacturing PMI
  • UK – Manufacturing PMI
  • US – Non-farm Payrolls
  • US – Unemployment and Average Hourly Earnings
  • US – ISM Manufacturing PMI
  • US – Michigan Sentiment (final)


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