Forex Market Review (European session) – Dollar climbs as war tensions calm; euro drifts lower after poor industrial performance

Forex Market Review (European session) – Dollar climbs as war tensions calm; euro drifts lower after poor industrial performance

During European trading hours, the dollar managed to reverse partially from losses made on Friday, after comments by two US civil officials and the South Korean president on Monday eased war tensions between the US and North Korea. Meanwhile, the euro weakened as data out of the eurozone showed that industrial output in the area missed expectations.

Following Trump’s comments on Friday, who warned that the US army was “locked and loaded” if North Korea acted unwisely, the South Korean president, Moon Jae-in, said on Monday in a meeting with aides and advisers, that conflicts between the two countries must be resolved “peacefully”. The risks of a nuclear war have also diminished following the remarks by the US National security adviser H. R. McMaster and the US Central Intelligence Agency Director Mike Pompeo on Sunday. The former expressed that the country is “not close to a war than a week ago”, while the latter supported that the situation was exaggerated and that a potential war would not take place even if the North Korean president continued with missile tests.

The dollar gained against its rivals, with the dollar index rising from 92.96 at the end of the Asian session to 93.18 during afternoon European trading hours.

Demand for safe-haven assets also slowed down amid fewer concerns of a possible nuclear war. Dollar/franc posted the greatest gain in approximately three-weeks, climbing to 0.9687, while dollar/yen was in an uptrend during the day despite upbeat Japanese GDP data released early on Monday.

In other news, eurozone industrial production contracted by 0.6% month-on-month in June after posting the highest growth – specifcally, 1.2% –  seen in 2017 during May (downwardly revised from 1.3%). Expectations were for a milder reduction by 0.5%. However, year-on-year, the figure was positive at 2.6%, below the forecasted 2.8% and May’s six-year high of 3.9%.

As a response to the data, the euro retreated against the greenback, falling from $1.1806 prior the data release to $1.1788.

Sterling lost ground versus its US counterpart, declining to $1.2969 after UK ministers Phillip Hammond and Liam Fox held on Sunday a joint position that the transition period after Brexit should be limited in duration and should not be used to prevent Brexit.

The aussie and the kiwi continued their downtrend as a consequence of the disappointing Chinese data published during Asian trading and which involved industrial production, retail sales, and fixed capital investment. The aussie traded lower at $0.7862 and the kiwi was down to $0.7287.

The loonie weakened versus the dollar, with dollar/loonie climbing to 1.2707.

Regarding commodity markets, oil prices rebounded from intra-day losses. WTI crude and Brent both last traded up on the day at $49.00 and $52.25 per barrel, up 0.4% and 0.2% on the day respectively. Gold recovered moderately to $1283.14 per ounce after touching a session low of $1278.48.

Source: Trade Forex with XM.

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