Syria headlines to continue to drive FX markets
Geopolitical tensions related to Syria are likely to dominate markets. Crude oil futures, JPY and CHF have backed off from their highs (and Middle-east linked currencies ILS and TRY off their lows) this morning. However, these moves are likely only retracements, with headline-risk likely to remain high in the days ahead. News wires report that the US, France and UK are now moving closer to retaliatory military action against Syria, laying out justification, putting forces into place and rounding up regional allies. At present, UN inspectors are conducting a second visit to ascertain whether chemical weapons were used and so long as they are on site, any retaliation is seen as unlikely. Our working assumption is that in the absence of more drastic scenarios (e.g. US troops on the ground), the USD may start to take its cue more from US data as we move into more liquid trading conditions over the fall months. Our economists expect today’s US pending home sales to reveal a decline for the month of July. Elsewhere, we have closed two BNP Paribas STEER recommendations this morning; long EURGBP for a 0.80% gain and long USDJPY for a 0.62% loss. The latest STEER update show EURGBP is now fairly valued, while USDJPY slightly overvalued (STEER at 95.74).
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