India-Pakistan tensions weigh on risk appetite

Safe-haven currencies were bid overnight as the border clash intensified between Pakistan and India.  Air strikes between both nations over the past couple of days elevated tensions to the highest level since 2001, when both sides moved ballistic missiles to their respective borders.  This historic conflict has been going on for several decades and a quick de-escalation should not be expected.

Today will also highlight another day of testimony from Fed Chair Powell, but more interestingly US Trade Representative Robert Lighthizer will be questioned on the US-China trade war.  Trump’s former lawyer, Michael Cohen will also testify to Congress and is expected to accuse the President of being a con man and a cheat.  President Donald Trump and North Korea’s Kim Jong Un will also attempt to make further progress at their second summit.  The bar is very low for any meaningful progress on denuclearization to take place.

The headlines will be plentiful for geopolitics, but the key focus remains on whether equities will finally see a pullback from its v-shaped recovery.

GBP – Cable rises on May’s offer of a Brexit delay

OIL- Saudis ignore Trump’s power move

GOLD- Remains stuck despite Powell and war concerns

STOCKS – Is the economic cycle already over?

GBP

The British pound continues to climb higher as the threat of a Brexit no-deal appears off the table.  The influx of uncertainty however on the timing of Brexit, the question of what type of trade deals will be reached, and how the UK economy will hold up following Brexit, will reach a peak level possibly in a month and it will be difficult for the British pound to continue to steadily climb higher.

Oil

President Trump’s request for OPEC to take it easy is likely to be ignored. Saudi Arabia decided to stand up against the President and expects the production cuts to continue until year end.  Rising US stockpiles may keep oil gains capped, but any short-term draws with inventories could see oil prices keep the rally going.

GOLD

The precious metal has not reacted normally to recent risk events and central bank stances.  We live in an accommodative world and the risk-on and risk-off moves that stemmed from the trade war, global growth concerns, and possible war between India and Pakistan, have not delivered traditional moves for gold.  The yellow metal may need the dollar to finally weaken for bullish momentum to reassert itself.

STOCKS

US equities were little changed after a wrath of earnings results delivered a fairly number of risers and losers.  Yesterday, Fed Chair Powell confirmed the dovish pivot they announced last month and it appears that for the stock market to continue to rise they will require the Fed to signal that the next move will be a cut.  Range trading may remain until we see the fourth quarter GDP reading.  A bad miss my signal that a rate cut could occur by the end of the year.

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.

Ed Moya

Ed Moya

Senior Market Analyst at OANDA
With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏
Ed Moya