Market participants abandon risk. The main trend is leaning towards craving of protective assets and currencies. The main currency is the Japanese yen, which has risen in price to 105.04 per dollar, hinting at breaking through another barrier in the form of the 104th figure. The Swiss franc shows protective functions, while gold rushed to new heights, having risen in price by 7.2%. Eurocurrency also received support, although to a lesser extent. Italian political problems again began to exert pressure on its value.
The main reasons for the risk aversion are the growing tension around the riots in Hong Kong and the unexpected victory of the opposition at the preliminary stage of the elections in Argentina. The already negative picture is supplemented by fears of abandoning market reforms and the possible extension of default on the country’s debts.
According to Hong Kong’s weary leader Carrie Lam, the Asian financial center is in danger of slipping into the abyss. Protests forced the authorities to close the airport and led to a fall in shares on Monday, then the decline continued on Tuesday. Market participants are trying to understand how seriously protests will affect the economy.
It is worth noting that the extremely difficult situation in Hong Kong strengthens the US position in the upcoming trade negotiations in September, which, according to Donald Trump, may not take place. These statements are the main reason for the growth of the Japanese yen. The American leader fell in one swoop that crossed out the possibility of signing a deal in the foreseeable future. It will soon become clear how real are the threats of the US president. Perhaps, he just shakes the air with his comments.
The 105 mark offers as the extreme value for the USD / JPY rate. In this area, the pair briefly failed in March last year with a strong weakening of the dollar as the reason. Now, it craves for defensive assets. The Bank of Japan was very dissatisfied with the growth of the national currency at that time. It is possible that this time, the rhetoric of the Central Bank or the government regarding the yen will change. On the other hand, the 105 mark is an intermediate stage. Japanese authorities are likely to demonstrate stiff resistance to the yen growth no earlier than on the way to 100. This is a psychologically important level, where the USD/JPY pair has been unfolding since 2014.
Where will Italy lead Europe?
Experts’ fears are beginning to come true: a political crisis erupted in Italy. The fragile coalition government of the country seems ready to collapse. Two party leaders continue to attack each other and it was suggested on Monday that Matteo Salvini “betrayed” the Italian people.
Now the question of a no confidence vote in the government is being decided. Meanwhile, the third-largest economy in the eurozone is going through hard times. Poverty levels are rising, public debt has reached tremendous proportions, and the authorities are busy building up social obligations instead of budget savings, as Brussels requires. Italy follows the scenario of potential default.
The euro has so far been quite resilient to such fears, but this could change quickly if things get worse.
Another European-British risk is Brexit. The British pound risks an uncontrolled fall below 1.20 in the case of new careless formulations of officials. From the point of view of technical analysis, the pound is oversold, which makes it attractive to long-term investors. Here you need to show dexterity -quickly connect to shopping on the realization that the worst case scenario is already in the quotes.