Risk Aversion Spreads After Latest Missile Test

Latest North Korea Provocation Triggers Safe Haven Flows

Financial markets are back in risk aversion mode on Monday after the latest nuclear test from North Korea on Sunday triggered the usual safe haven rush.

Gold touched new 10-month highs earlier in the session before finding resistance around last November’s peak. The yellow metal is currently around 0.7% higher on the day and continues to hold around the day’s high which suggests safe haven appetite has not waned as the Asian session has progressed.

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Often these knee jerk reactions to such provocation don’t last too long but with these tests happening more frequently and the US responding with threats of aggression, these “risk off” periods may last a little longer. Gold has benefited greatly from this heightened geopolitical risk over the last month or two, breaking out of the $1,200-$1,300 range it had spent most of the year trading within in the process. It last traded around these highs throughout the second half of last year and found a lot of technical resistance between here and $1,375, which we may well see again.

Oil Recovers as U.S. Refining Takes of it’s Waterwings

With markets in risk off mode, equities are expected to struggle at the open, with futures pointing to losses between a quarter and a half of one percent. The yen and the Swiss franc are also getting their usual safe haven boost to complete the set.

The bank holiday’s in the US and Canada today will likely result in a much quieter session on Monday, particularly given the lack of economic events that typically accompanies them. There are a few pieces of data from around Europe being released this morning including the UK construction PMI, Spanish unemployment and eurozone investor confidence but after that it goes very quiet.

ECB Stages Another Mini Intervention Ahead of Thursday’s Decision

The rest of the week will be anything but quiet though, with numerous central banks scheduled to meet. The most notable of these will be the ECB, which meets on Thursday. This week’s meeting was widely believed to be the one at which the central bank will announce further tapering of its QE program but with policy makers becoming increasingly uncomfortable with the euro exchange rate, they may now hold off on the announcement until later in the year.

The timing of Friday’s comments from an ECB “source” alluding to a delay in a tapering decision seems far more than a coincidence, coming minutes after the jobs report release which weighed on the dollar and appeared on course to push EURUSD through 1.20 once again. With these mini interventions from the ECB becoming a bit of a habit, it will be interesting to see if traders start to become nervous around these levels or decide to test the central bank’s resolve.

North Korea Thermonuclear Ambitions Rock Markets

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This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.