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Markets Are In The Grip of Geopolitics

It didn't take too long. North Korea reacted to military exercises of the US and South Korea by conducting its test of a ballistic missile. The trajectory of the missile was over Japan, which raised concerns on the islands, then comments on possible joint military exercises with the US followed. On the whole, today's geopolitics has been prevailing and also one of the major drivers.


Naturally, the main trend in the financial markets yesterday and today has been risk aversion. Gold is on the rise. The asset reached the target at 1300-1350, which we discussed earlier. Today's high was at $1325 per troy ounce. From a technical perspective, gold has hit resistance, which may lead to a throwback. However, in general it has been a bullish trend, and the factor involving North Korea is still topical. The military exercises are going to end at the end of the month.


The yen has been performing similarly to gold. Technically, the USD/JPY currency pair has been traded at the 108.70 support level area. This level was tested earlier and it wasn't broken. Now, a new attempt is taking place. If it turns out to be successful, then prices will go down to 107. Prior to the 107 level there is no significant support for this currency pair.


The EUR/USD currency pair keeps rising. Currently, it has gone beyond the 1.204 level. The target is still at the 1.22 area, however a correction may start shortly. A similar situation has been developing for the USD/CHF currency pair. The US dollar has been actively decreasing.


The pound/dollar pair today broke the 50-day moving average at the 1.292 area. Now, there is a shift in favour of the pound bulls, but it's still early to start sniffing for roses. We still have to wait for a confirmation of the 1.303 target to talk about a continuation of the uptrend, but it is where the currency pair is headed to.


In the light of geopolitical factors, the US currency set a new abysmal record. The US Dollar Index went down below 92, and it has been falling for six consecutive months.

The oil and petroleum product market is still being affected by Hurricane Harvey. On Monday, gasoline futures rose by 2.7%, and prices went up to $1.7799 per gallon, which is a more than two-year high since July 2015. Gasoline has increased in its price by 1.6%, and considering weather conditions an uptrend is likely to maintain in the nearest future. Following the storm, US oil-refining capacity dropped by 10%, and it's difficult to say how much time it's going to take to get back to normal. It's worth noting that the consequences of the hurricane should be already affecting gasoline reserves.


The ruble yesterday showed a rise, but today's picture has changed drastically. The ruble lost its support in the form of oil, and the RGBI has been decreasing, i.e. there are local sales in the market. Nevertheless, the situation hasn't changed on a global scale, and a technical corridor at 58-60 is still at play.


Ivan Kapustyanskiy, equity analyst at Forex Optimum

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