18 Jul 2014
Malaysian story enough for sharp risk off moves? - Westpac
FXStreet (Bali) - Sean Callow, FX Strategist at Westpac, thinks that the yen will likely stay in demand amid risk aversion.
Key Quotes
Many will question whether the loss of the Malaysian aircraft is enough to shift markets into a sharp risk off move. However, the confirmation by US officials that the flight was shot down and strong language by western officials means that relations between the US and Russia will deteriorate sharply - they were clearly already under pressure in recent sessions after fresh sanctions were implemented.
So as far as currencies are concerned, the yen will likely stay in demand. USD/JPY has dropped below the important 101.25/50 level and looks vulnerable. Yen crosses look fragile and note that our technical analyst Dave Coloretti was already highlighting that the break of EUR/JPY 137.80/90 would be a major bearish event.
For the moment, FX vol has not jumped that much. Markets have shown a lot of resilience in the face of recent geopolitical events of late. However, these events certainly mark a new low in Ukraine and emphasise how far and quickly the situation can deteriorate. Even if the loss of the plane turns out to not be intentional (note separatists have been firing at Ukrainian planes in recent days), the missile may turn out to be supplied by Russia.
We expect to see equity markets in Asia to come under pressure today and for this to extend through into European trading. The Malaysian ringgit will of course be in close focus, with 1mth USD/MYR NDFs bouncing from 3.1810 to 3.2050 in NY. Spot could be less volatile however, with a strong case for the central bank to step in to calm nerves.
Even if evidence emerges that MH17 was not intentionally downed, there will still be great political tension over Russia’s role in supplying weapons. Overall, we expect FX markets should extend the NY moves, with AUD/USD in danger of closing below the technically significant 0.9320 level.
Key Quotes
Many will question whether the loss of the Malaysian aircraft is enough to shift markets into a sharp risk off move. However, the confirmation by US officials that the flight was shot down and strong language by western officials means that relations between the US and Russia will deteriorate sharply - they were clearly already under pressure in recent sessions after fresh sanctions were implemented.
So as far as currencies are concerned, the yen will likely stay in demand. USD/JPY has dropped below the important 101.25/50 level and looks vulnerable. Yen crosses look fragile and note that our technical analyst Dave Coloretti was already highlighting that the break of EUR/JPY 137.80/90 would be a major bearish event.
For the moment, FX vol has not jumped that much. Markets have shown a lot of resilience in the face of recent geopolitical events of late. However, these events certainly mark a new low in Ukraine and emphasise how far and quickly the situation can deteriorate. Even if the loss of the plane turns out to not be intentional (note separatists have been firing at Ukrainian planes in recent days), the missile may turn out to be supplied by Russia.
We expect to see equity markets in Asia to come under pressure today and for this to extend through into European trading. The Malaysian ringgit will of course be in close focus, with 1mth USD/MYR NDFs bouncing from 3.1810 to 3.2050 in NY. Spot could be less volatile however, with a strong case for the central bank to step in to calm nerves.
Even if evidence emerges that MH17 was not intentionally downed, there will still be great political tension over Russia’s role in supplying weapons. Overall, we expect FX markets should extend the NY moves, with AUD/USD in danger of closing below the technically significant 0.9320 level.