North American Summary and Highlights 2 Mar
Overview - The USD has advanced on the escalation of conflict in the Middle East, with UST yields firmer and equities recovering well after a weak open.
European and North American sessions
The USD was generally firmer, USD/JPY rising a big figure to 157.30 and EUR slipping below 1.17 from near 1.18. Despite the heightened political risk, EUR/CHF was firmer near .9120 from .9060 and EUR/GBP weaker at .8720 from .8770. Both GBP and AUD were relatively stable versus the USD. USD/CAD found sellers above 1.37 after advancing from near 1.3650. Equities recovered well from a weak start and UST yields were firmer with oil prices. While focus was on the Middle East a stronger than expected ISM manufacturing index of 52.4 from 52.6 with a surge in prices to 70.5 from 59.0 was consistent with the market movement.
The mood remains risk off, but this is being curtailed by the modest rise in oil prices. Though the USD remains firm, traders are looking beyond the initial knee jerk reaction. Most expect a short war of 1-2 weeks followed by a sizeable decline in oil prices, which could switch the risk off mood back to risk on. This is curtailing the scale of USD buying at the moment. However, this war is fluid, as Iran is trying to close the Straits of Hormuz and maximize the damage for Trump on the cost of living agenda. Reports suggest Iran is also using cheap weapons to reduce stockpiles of defensive weapons and keeping better missiles for later this week. Thus oil prices could still be volatile and some traders feel this could trigger a 2nd round of risk off trading that helps the USD.