Forex Trading Library

Markets Not Worried Anymore: US Dollar Spikes

Searching for a Diplomatic Solution for North Korea

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A few days ago, fears were across the board; tensions were rising (and still rising) between the US and North Korea and so far, there is no sign of de-escalation.

Yet, all of a sudden and after a notable decline in global equities and the US Dollar, side by side with rising safe haven assets, including Gold, Silver, Japanese Yen, and the Swiss Franc, everything has changed.

The US Dollar spiked higher, while Safe Haven assets tumbled since the beginning of the week, as if the US and North Korea signed a peace accord!

The main reason behind this notable move comes on the back of minor remarks by some officials in the US, saying that they are not expecting a nuclear war anytime soon. That simple!

On the other hand, the US president keeps on threatening on Twitter, while North Korea said that the president just received his military plan to strike the US Air Base in Guam Island.

What Do We Know So Far?

Media wise, some reports keep on excluding the possibility of a nuclear war, which might be logically true.

However, the possibility of war is still there, whether if its Nuclear war or not. It is still war, and if it happens, this might be the worst since World War II.

At the same time, we have never seen such open threats like this before. Also, North Korea is threatening to strike Guam this month, in August. Since when a country would give a time for its attack? I have never heard such thing before. But we are in 2017; it seems that this is the new normal.

Markets Overreacting

Global equities have been rising for the past two days, recovering some of its last week’s declines. Safe Haven assets also lost more than 1% on an average since the beginning of the week.

This is probably an overreaction, and it you follow the VIX indices, you can notice how they are declining sharply since the beginning of the week. This is alarming for me when everyone takes one side, I would start questioning if the current move is just a short term play or a trap.

Therefore, traders should not overreact to the current moves, as any new threats would change things upside down.

USD Normal Retracement

The US Dollar rally is considered as a part of a short term retracement, the one that we discussed over the past few days.

The US Dollar Index is now trading above 93.50, while the current retracement is likely to continue for some time, but its is also likely to remain limited below 95.50 and/or 96.0.

Unless the US economic releases keep on disappointing, if so, the current retracement is unlikely to last long, it might be only for few days, before the downside trend resumes.

If so, the first immediate support remains at 93.0 followed by 92.50’s which represents its 200 WEEK MA and finally the most important support at 91.80, which should be watched very carefully, as a break through that support for one week, this would change the medium-term outlook to strongly bearish.

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