A gap lower
Markets had been positioned defensively moving into the end of last week. This undoubtedly opened the door to a degree of short-covering moving into the Friday close. In order to sustain such a risk-rally markets certainly would have required more convincing headlines from events taking place over the weekend. Not least amongst those, markets were focused upon talks following a fragile ceasefire agreement between Iran and US/Israeli forces.
In order to find out everything you might need to know about the outcome of such talks you need not look much further than the opening prices of key FX pairs. EURUSD, for example, within moments of the open yesterday had dropped circa 0.5%. This reflected markets initial angst at the lack of progress coming from the weekend’s talks.
The key development coming from the weekend’s talks was the United States’ declared blockage of Iranian ports. This appeared to be an escalation in the conflict rather than the de-escalation that the talks had been intended to produce. There was some criticism of the White House’s communication regarding this imminent measure which may have exacerbated the risk-off move. As we progressed into the US session, the prospect of second round talks restored optimism of a resolution reversing earlier gains in the Dollar and sending high beta currencies higher.
Discussion and Analysis by Charles Porter
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