Risk-on scenario intensifies as global geopolitical tensions arise
Today's session began again in a mood of higher risk aversion due to the Chinese response to the United States with the closure of the consulate in the Chengdu city.
This fact has caused Chinese stock markets to experience steep losses with the HongKong50 index losing more than 2% on the day.
This rise in the degree of risk aversion in the market has been transferred to the rest of the global stock markets that have started the day in the red, highlighting the fall of more than 1% of TECH100 in the futures market, before the opening of the session in the United States.
As we indicated in previous analyzes, this type of specific event of geopolitical tension will continue over time, causing reactions such as the current ones that at the moment can only be considered as technical corrections within a bull market.
The Japanese Yen
The Japanese Yen is the strongest today, becoming the main safe-haven currency, as has been its traditional behavior. The US Dollar seems to be losing that status as treasury yields plummet with five years at historic lows at 0.26%.
USD/JPY is approaching the central support zone around 106.00, a level below which it would be heading for more significant losses, at least up to the zone of 104.00, from a technical perspective.
PMI economic figures in Europe have beaten all expectations and show a more positive economic recovery scenario than initially expected.
The statement from the Markit agency, responsible for preparing this economic study, indicates that "Business activity across the Eurozone rose for the first time since February, according to provisional PMI survey data, growing at the sharpest rate for just over two years as economies continued to reopen after lockdowns implemented to prevent the spread of the coronavirus disease 2019 (COVID19) "
Together with the European Commission's stimulus plan, these figures lead market analysts to anticipate higher growth figures in Europe than in the United States for the first time in many years.
This fact substantially increases the interest of financial investors in the single currency. The issuance of a considerable size of European bonds for the first time in its history will attract the attention of significant investment funds and pension funds from all over the world, finding it possible to diversify their risk.
There is already talk in the market that the Euro can become a new safe-haven asset and, in different research pieces published by several of the leading investment banks, point to a valuation of EUR/USD, as a fair value under current conditions, around 1.2000.
At the moment, EUR/USD is making a consolidation movement, after its latest gains, around 1.1600. From a technical perspective, a weekly close above this level would push it towards higher targets in the 1.1800 zone.
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