The EURUSD rate reacted to geopolitics for a moment. The euro weakened by about 0.7 percent compared to the dollar. A larger reaction could be noticed on the German DAX, which continues to show a negative pattern, suggesting that we are likely to see a larger correction.
The market received two pieces of news yesterday. Firstly, the world was shocked by reports that Ukraine used ATACMS missiles against Russia, shortly after the US approved their use in such a manner. The second piece of news, potentially having a stronger impact on the markets, was the announcement of changes to the nuclear doctrine by Vladimir Putin. This largely triggered an increase in risk aversion, particularly in the European market.
However, these concerns did not cause a collapse in the market. A weak NFP report in the middle of the holiday period caused much greater concerns. Now, we simply had one of the more negative trading sessions. Perhaps the market realised that yet another threat from Russia is merely a bluff and in reality, it would be difficult for Russia to take such a drastic step. There were “leaks” in the market that Western intelligence services have no information about Russia preparing for such an operation. This is probably what caused further depreciation of European assets to stop and we observed a reaction to the morning movement.
Currently, the market is more focused on geopolitical events than on macro data. The development of events between Russia and the rest of the world will be closely watched at all times. Additionally, attention will be given to the nomination for the position of the US Treasury Secretary – the most important position in the new presidential administration. There has been much discussion about the possible candidacy of Wall Street veteran Scott Bessett. However, rumours emerged last week that Howard Lutnick expressed a real interest in this position. Bessett is considered a Wall Street favourite. However, Trump’s team reportedly began to have doubts about how he would support the introduction of planned import fees. Eventually, Lutnick will be the head of the Commerce Department, and now there is strong talk about Marc Rowan (also from Wall Street), who currently has real chances of taking over the position.
Markets will assess to what extent they can expect unconventional economic policies under the rule of the new Treasury Secretary. Surprises cannot be ruled out, on the contrary, we should expect the unexpected. This state of tension will cause increased volatility in the markets.
Author: Łukasz Zembik, Oanda TMS Brokers
Source: https://ceo.com.pl/eurusd-i-dax-reaguja-na-napiecia-geopolityczne-oraz-zmiany-w-polityce-usa-78147
