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  • Escalating geopolitical tensions in Middle East weigh on market sentiment.
  • 10-year US Treasury bond yield erases more than 4% on Friday.
  • US Dollar Index rises above 97 ahead of ISM PMI data and FOMC minutes.

The USD/JPY pair tried to stage a recovery toward the 109 handle on Thursday supported by the broad-based USD strength but ended up reversing its direction on Friday with the JPY finding demand amid rising geopolitical tensions in the Middle East. As of writing, the pair was trading at its lowest level since early November at 108.03, losing 0.5% on a daily basis.

Iran’s most powerful military commander, General Qasem Soleimani, has been killed in a drone strike at Baghdad International Airport that was ordered by US President Trump on Friday. Heightened risks of Iran retaliating against this attack to further escalate the conflict in the area forces investors to flee to safe-havens such as gold and the JPY.

Reflecting the intense flight-to-safety, the 10-year US Treasury bond yield is down more than 4% on the day and major European equity indexes are suffering losses between 0.5% and 1.75%.

US Dollar Index extends recovery

On the other hand, the greenback also capitalized on the risk-off flows as a safer alternative, especially against its European counterparts, and helped the pair stabilize ahead of the key macroeconomic events. At the moment, the US Dollar Index is up 0.3% on the day at 97.08.

Later in the day, the Institue for Supply Management (ISM) will publish the Manufacturing PMI data, which is expected to improve to 49 in December from 48.1 in November. More importantly, the Federal Open Market Committee (FOMC) will publish the minutes of its December meeting at 19 GMT. 

Technical levels to watch for