We, at ParityFX Plc, would like to extend our heartfelt condolences to any and all who lost loved ones in the heinous tragedy in Paris this weekend. No doubt there were other events, if not similar in scale, but no less tragic and our sympathies are with any affected, but this one was so unexpected, so close to home, it forces upon us all a new perspective.
I was asked over the weekend whether the events in Paris would have an impact on the currency markets, and to be honest, that’s a difficult question to answer. The euro is a vastly traded currency, and at any given time it is bought and sold for a myriad of reasons, while I’m sure some transactions will occur which are a direct consequence of Friday’s tragedy, it is likely to be overwhelmed within the larger context.
Elsewhere in the world, the data was both good and bad. Michigan Consumer Sentiment was published on Friday afternoon, and clearly the US consumer is in fine fettle. The picture was not so positive in Japan, which appears to be slipping back into recession. So much for Abenomics. Interestingly, this is all about capital expenditure, the Japanese consumer is spending away happily like there is no multi-trillion dollar debt mountain. Some other generation’s problem I guess! Later this morning we get Eurozone inflation data, and in the afternoon Empire Manufacturing data from the US.
I suspect that we are approaching the end of the period of consolidation following the recent dollar rally. The next move should be further dollar strengthening. Looking at emerging currencies and their current weakness, it is likely that the next dollar move could be quite a significant and broad one. The million dollar question will be what sort of impact strong dollar appreciation will have on risky assets? Clearly the US equity markets will have a tough time of it, but this will be primarily due to stocks with non-US or commodities exposure, no doubt this is a great time to own domestic/ consumer focussed enterprises in the United States. The picture could be more grim for emerging market equities. Something to look out for, as this could feedback into emerging market currencies.
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