Geopolitical Risks And Safe Haven Flows
We are in a period of economic uncertainty and instability and with the US elections coming up amid other uncertainties in interest rates, many investors refrain from participating in new investments and seek to defend their portfolio in the event of an untimely recession. We are now seeing the return of the risk premium and safe haven flows following last week’s wider escalation in the Middle East war. Gold, U.S. dollar, Swiss Franc and the Yen benefited slightly from the safe haven appeal. We will keep a close eye on geopolitical risks while economic data will probably take a backseat.
From a technical view, renewed geopolitical risk and a strong U.S. NFP report gave the U.S. dollar a boost and thus, we saw significant pullbacks in both EUR/USD and GBP/USD. Markets have priced out a 50bp Federal Reserve rate cut in November and now see a 97 percent chance of an only 25bp cut next month.
EUR/USD
Looking at the weekly chart we see the greenback’s strong rebound, bringing the 1.0850-support area back in focus. If the new week closes below 1.0970, we expect further bearish momentum with a dip towards at least 1.0880. Above 1.10, the outlook tends to be in favor of the bulls.
GBP/USD
The recent uptrend is still intact even if the cable fell back towards a test of its support around 1.3130. Below 1.3040, we may see a further correction towards the lower trendline at around 1.2930.
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