Escalating tension drive fear trade
The dollar benefited in early trade against it European counterparts, but the yen bucked the trend, increasing in value as the fear trade griped the market on the heels of escalating tensions in Syria. Germany continued outperform with better than expected economic data, that failed to lift the Euro.
The capital markets traded on the defensive as tensions appear to be escalating in Syria. US Secretary of State John Kerry said there is undeniable evidence that the regime of Bashar Assad is using chemical weapons against his own citizens. The comments put military action on the table which has driven investors into safe haven products which include the Yen, the dollar, gold, oil and cash. It is unclear whether the UN will be the route taken to handle this situation as Russia has yet to signal that it will shift its current stance on Syria. Iran has also jumped into the fray with its Foreign Ministry warning against any military action against Syria.
In economic news, the German August IFO sentiment came in better than expected. The business climate portion of the survey increased to 107.5, which is a 16-month high. The positive results were largely priced in so there was little reaction by the euro.
Despite stronger than expected European economic data, the Euro was unable to gain strength and slipped as investors scrambled to safe haven currencies. The EURUSD slipped after testing short term resistance near 1.34, but held the 10-day moving average near 1.3330. Momentum has slowed with the MACD (moving average convergence divergence) index printing near the zero index level. The stochastic generated a crossover sell signal, as the fast stochastic slipped through the slow stochastic reflecting negative future price action for the currency pair.
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