The foreign exchange markets saw extreme swings as geopolitical tensions and economic indicators influenced trader sentiment this week. In particular, the USD/JPY pair held onto its positive grip in the mid-144.00s to offer bulls a chance to buy for a second straight day. This bullish trend order even as the safe-haven Japanese Yen is softening due to a generally positive risk tone in markets.
Rising geopolitical tensions, particularly between Israel and Iran, are influencing the mood in this highly volatile market. This period of mayhem has greatly increased global demand for the US Dollar. Consequently, the USD has attracted more safe haven demand, making waves in other currency pairs, including USD/JPY. Futures markets too are heavily stacked as traders position themselves in advance of a possible widening of the BoJ’s policy band out on Tuesday.
Just as much, if not more, USD/JPY dynamics have been reshuffled due to repositioning trades leading up to the BoJ announcement. The prospect of monetary policy changes from the BoJ would only add to the potential for explosive market activity in the days ahead. Analysts are understandably concerned with this situation, as major policy shifts could result in more hair-raising volatility.
The AUD/USD pair is still under pressure, trading within familiar ranges, below the 0.6500 figure. Scattered news from China has played a role in this stagnation, not giving the Australian Dollar enough positive news to buoy it. Despite some positive indicators in Chinese activity data for May, the overall mixed results have not lifted the AUD, keeping it subdued in the current trading environment.
For one they might look to the Middle East, where escalated geopolitical tensions still have a heavy hand on currency markets. Positive haven demand for the US Dollar makes for a strong headwind for the USD/JPY pair. It does that on other currency pairs too, as investors flock to safety in times of uncertainty. The Japanese Yen, long considered a classic safe-haven currency, is in trouble if that’s true.