3 reasons why USD is beaten by EUR and JPY

Are we  in crisis mode all over again? That’s the story that the price of oil tells us, but this is just the result of 3 different worries that engulf global markets and  us busy in a month that is  vacation time for many people.

Needless to say, many things are different, and one of them is the composition of safe haven currencies. Here are the 3  worries and the reactions:

1. Greek uncertainty: The country that is only 2% of the euro-zone  returns to the limelight sooner than expected with fresh elections and fresh uncertainty, just as the so-called bailout began rolling. The euro-zone is not really riding higher in any case. This major region is in new trouble. More:  Greek elections – what’s going on, impact on EUR and what’s next
2. Chinese slowdown: The world’s No. 2 economy is experiencing its “landing” or “re-balancing”. But this landing does not seem soft anymore, but rather quite hard if to judge from market reaction. The devaluation was joined by weak data and is causing reverberations in stocks and commodities.
3. US hesitance: The world’s No. 1 economy was seemingly leading the way out and is on the verge of a historic rate hike. Or so it seemed up to Wednesday. The Fed  minutes revealed a  clear lack of confidence about raising the rates. This move may come soon, but how soon is now? Not so soon. If the global locomotive is out of steam, so are the rest.

So, we have a straightforward risk off sentiment in stock markets: a sell off. But what about currencies?

USD/JPY

The yen has been the steady safe haven of choice for quite some time, and it doesn’t disappoint. The  always low interest rates in Japan and its status as a creditor  country made it a clear funding currency. And now, money is coming back.

USD/JPY is down below 122.50.

EUR/USD

More:  Buying EUR/USD at these levels? Think again – Credit Agricole

And the move extends:  EUR/USD capped at high resistance – levels to watch

The euro was a “risk currency” until this year. The negative deposit rate announced in 2014 and the QE program that began this year made the euro a funding currency and a safe haven. Yes, even if the haven is the port of Piraeus.

Trouble in Greece means trouble in the euro-zone which in turn means global trouble and this results in safe haven buying: euro buying. Seems weird? It is, but it’s not the first time.

EUR/USD is reaching new highs above resistance at 1.1320.

 

In our latest podcast we collect the crashes: commodities, Fed hike and later Greece

Follow us on Stitcher.