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Research Market strategy
by Swissquote Analysts
Daily Market Brief

Japanese yen to keep rising on North Korean threats, Time to buy gold

USD/JPY slides amid risk-off move

By Arnaud Masset

The Japanese yen has been trading on a firmer footing since the beginning of the week as the tensions between North Korea and the United States keep escalating. The Japanese currency, which is fulfilling completely its safe haven role, surged as much as 1.70% against the greenback since Monday, sending USD/JPY down to 108.91 as of Friday morning. The currency pair is currently testing a key support area that lies at around 108/109 (multi lows and 50% Fibonacci on June- December 2016 rally). A break to the downside will open the road towards 106.52 as a first step (61.8% Fibo), then the key psychological support at 100.

From a technical standpoint, USD/JPY already failed to break the 108.84 support twice, there is therefore chances that the pair bounces back towards the 110. From a fundamental standpoint, the risk-off move is gaining traction across the globe, suggesting that the flight to safe haven is not done yet. Asian equities are down around 1.60% in average, while European ones are set to join the move. Volatility is surging with the VIX up to 16.21% and the VSTOXX hit 20.61% this morning. Therefore it would be a wise idea to wait out the storm before betting on a relief rally.

Gold gains momentum as investors take shelter

By Yann Quelenn

As we mentioned several times, geopolitical tensions were very calm this summer and investors were dropping gold which was very close to $1200 an ounce. Anyway, mounting tensions between North Korea and the US has shifted the short-term outlook for the precious metal which is now monitoring its 2017 high slightly below $1300.

Against this backdrop, there are also concerns that the Fed won’t likely deliver new rate hikes before year-end. On top of that the Trump’s inability to deliver its key reforms has send the dollar way lower. We believe that the dollar weakness is set to continue and will boost gold prices way higher.

Investors’ sentiment is now shifting towards risk-off. The VIX index, which indicates how investors value market risks has jumped towards 16 after hitting its all-time low below 10 last week. The equity markets seems vulnerable and gold is ready for a bullish breakout. Time is good to stash up a bit more of the yellow metal.

 
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