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Forex today: Dollar and Yen attract safe haven flows, Wall Street down 2% as political and economic risks mount

  • The last full trading week of the year ended with both the dollar and the yen on the front foot.
  • Investors wind down for the Christmas break unwilling to leave risk on the table considering the number of political and economic risks that look set to escalate throughout the next few trading sessions and first weeks of 2019. 

The market is facing the U.S indictments of Chinese on cybercrimes which dim the outlook for the trade tariffs truce that ends March 1, lingering concerns about Italy’s economy and a global slowdown along with Brexit and a partial US federal government shutdown all playing their hand in a risk-off close to the week. In fact, it was the worst week for the Dow Jones Industrial Average and Nasdaq since 2008 and the worst for the S&P 500 since August 2011. 

Currency action

The high betas were hit hard by a 25 fall on Wall Street, and the commodity complex suffered a flight to the greenback that sent the Aussie and Kiwi down by around 1%. AUD/USD has now busted the 76.4% Fib of the Oct-Dec lift leaving a bear engulfing candle. The price looks set to test the Nov low of 0.7020 with spot ending the week at 0.7036. The kiwi closed at 0.6709 with some mileage to go until the Now low of 0.6634. China/US relations will continue to play a significant role in the antipodean's trajectory over the holiday season and into the New Year.  A compelling offer in AUD/JPY played out with the market's barometer now well below the monthly Oct 78.56 low. USD/JPY was ending the week lower by 2.5%, supported by the 200-D SMA into the close of 111.22. The next stops below there are likely to be accumulated around the 38.2% and 76.4% Fibos at 110.73/90. Cable was bid around the London fix but succumbed to safe haven flows into the dollar, closing the day at 1.2635. EUR/USD was weighted by a break in EUR/JPY on risk off flows tracking the equities. EUR/JPY dropped below October's low and took EUR/USD along for the ride from a high of 1.1474, (rejected again near 1.15 and 100-DMA), to 1.1356 the low), closing at 1.1363 for a bearish end to the week. 

Key notes from US session

  • Wall Street slumps to 2018 lows, Nasdaq erases 3%

Day ahead:

  • It is the Emperor's birthday in Tokyo today and Chrismas Eve in most major financial centres.

Markets will now be in holiday mode, meaning that liquidity will be thin with the majority of the market and major FX centres, (bar Shanghai and Tokyo) off celebrating Christmas day while the New Year will be extremely thin with the global market centres and exchanges all closed for New Year's day. However, that is not to say there will not be political news flowing considering the ongoing trade dispute between the US and China and the various US related in-house and geopolitical tensions mounting up. On the data front, markets will look towards the December US job report released Friday, Jan 4th, which will likely be impacted by the partial shutdown of the US government which will amount to hundreds of thousands of Federal job losses, or at least that will be put on temporary leave. 

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