Relief Rally Seen After North Korea Celebrations

Traders Welcome No Fresh Provocation Over the Weekend

It’s been a bright start to trading in Asia and Europe on Monday and the US is currently on course to follow suit, with all three major indices seen opening more than half a percentage point higher.

Investors understandably adopted a far more cautious approach last week, with tension having already been ramped up by North Korea’s hydrogen bomb test the weekend before and speculation that another test could follow on Saturday, the anniversary of its founding day. Fortunately, this never materialized, with Kim Jong Un instead using the celebration to recognise the previous weekend’s achievements, allowing investors the opportunity to unwind some of the safe haven trades from the days before.

Irma Gusts Topple Oil as Gold Flakes

Indices, which have been in consolidation over the last month or so, are now expected to enjoy a mini relief rally although we should get interesting insight into just how much investors perceive the threat of an escalation to have subsided. The S&P 500 is still expected to open around 20 points or so from its highs and should it overcome them in the coming days, it would suggest optimism is returning.

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Of course this is aided by other events having either played out better than expected or not deteriorated further. With Hurricane Irma now downgraded to category one, there is hope that the devastation that has already been caused will not end up as bad as feared, potentially bringing down the eventual bill. The debt ceiling can being kicked down the road a few months is also providing temporary relief but as always with this kind of thing, the problem has only been delayed rather than resolved. All these issues have also taken the spotlight off Donald Trump, following what was a rough couple of weeks for the President and a period that was a concern for investors.

Gold Safe Haven Moves See Some Unwinding

All of this has seen safe haven assets come off their highs, with Gold having previously rallied to a level not seen since August last year. While the yellow metal did actually end lower on Friday after having rallied well earlier in the session and has opened lower today, it remains at elevated levels which is perhaps representative of the lingering unease and expectation that confidence could evaporate quite quickly once again.

Difficult FX Trading Conditions

Focus on UK This Week but US Inflation Also Eyed

While Monday is looking quiet as far as scheduled economic events is concerned, there is a scattering of notable economic data throughout the week, with particular focus on the UK as we get inflation and jobs numbers as well as the Bank of England monetary policy decision. We’ll also get August inflation data for the US on Thursday, which comes as Federal Reserve policy makers become increasingly concerned about its lack of movement towards target.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.