Upside risks to JPY and CHF to persist as Syria tensions continue
FX markets remain focused on geopolitical tensions related to Syria. With the general escalation of rhetoric following yesterday’s comments from US Secretary of State Kerry, markets have shifted into risk-off mode. Fears of a US-led military response have pushed up oil prices (Brent nearing $115/bbl), while adding to the selling pressure on EM, where currencies with current account deficits (INR, IDR) and/or exposure to the Middle East region (TRY, ILS) have seen further declines. Within the G10, the growing likelihood is that in this context, the JPY and CHF will continue to remain the strongest performers at the expense of AUD and NZD; our long USDJPY recommendation (with a stop loss at 96.50) appears vulnerable. Assuming that the more drastic scenarios (e.g. US troops on the ground) do not materialize, we expect the FX impact from Syria to be temporary, though the USD may increasingly start to take its cues from the oil price (see chart). We expect the market’s high sensitivity to US data to be restored as we move into more liquid trading conditions over the fall months. On the news front, our economists expect today’s US pending home sales to reveal a decline for the month of July.
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BNP Paribas