Originally published by AxiTrader
Welcome to the Forex Today column.
In it, I'll be trying to add a bit more colour and a lot more charts than I do in my broader overnight Market Wrap I do first thing every morning to set myself and my trading up for each day and each week.
RECAP
North Korean leader Kim Jong-un has ratcheted up the pressure on Japan and the US to respond with his latest missile test, which over flew the Japanese island of Hokkaido this morning.
The yen, Swiss franc, and gold have all strengthened as a result of this action while risk currencies like the Aussie and to a lesser extent the kiwi have come under selling pressure.
Stock futures in the US are down, Nikkei futures sharply so, and gold is now up $30 from this time yesterday. Uncertainty is the most available emotion for traders right now - and it will likely remain so until we see what - if any - the response is from president Trump or Secretaries Tillerson and Mattis.
HERE'S A DEEPER DIVE - IN A LITTLE MORE DETAIL AND WITH A FEW CHARTS
For a discussion on why the US dollar is and will likely remain under pressure - especially from the euro - please see the forex section of the first piece I did this morning, my Markets Wrap.
Since that piece was published at 7am this morning much has happened however to rock forex markets.
I've covered the potential impact on the Australian dollar in my usual daily column which you can find here.
But it is also worth grabbing something I wrote about the general impact of the North Korean missile launch in that column for those who aren't necessarily interested in the Aussie.
What's important about the DPRK actions is that it ratchets up the pressure on President Trump, and Japan, to respond and may put them squarely in a face off with China should they respond militarily. It's a high stakes game Kim Jong-un is playing as the ABC in Australia says this is the first time the DPRK has shot a missile across Japan since the late 1990's.
I don't want to over-egg it but recall back on August 9 President Trump made his "fire and fury" comments about North Korea if it threatens the US or its allies.
Anyway, as counter-intuitive as it may be, the yen has been the big mover in forex markets this morning with a 0.55% gain which sees USD/JPY sitting at 108.65. That's off a low so far for the day of 108.35 - or thereabouts.
This move puts USD/JPY squarely at the bottom of the 2017 range - the coloured lines I've had on my charts for some time now.
Key here is that we've had the initial reaction to the missile launch. We'd likely need to see a further escalation to break
But then the question is whether forex traders really want to buy Yen when Japan is right in the middle of any mess that ensues.
Likewise, the Swiss franc is now off it's lows as traders await something from the US administration. USD/CHF is at 0.9528 as I write. 0.9430 is low from the recent run and the level to watch.
Prior to the missile short term traders and investors are still selling the US dollar. Before the North Korea news the euro was sitting around 1.1976 a gain of 0.44% from Saturday morning’s close. It's back at 1.1963 at present.
While we'll see how events unfold. But the break of the little flag from the 1.1909 high last Friday and then the break of that high at 1.1909 was an important sign of momentum that has continued today.
Elsewhere the US dollar selling is aiding the recovery in the pound which has risen to 1.2925. It needs to break 1.2970/1.3000 for me to get excited however.
The NZD/USD was up 0.23% at 0.7256 before the missile launch but its now at 0.7244, while the CAD is at 1.2512 up around 20 points from its pre-launch level.
Closing Thoughts
This could all be a giant head fake of course.
And in many respects, you'd have to argue that forex traders - and the moves we've seen so far this morning - are betting that tensions subside again. Whether it is USD/JPY holding the bottom of the range, the Aussie and kiwi respecting recent support, or just the manner in which trade has quietened down that's the sense I take at the moment.
But Alex Lockie at Business Insider argues that the DPRK's test might have been a trial run for a shot at Guam. If that's a question he's asking then it's a question the US military and the Administration might be asking too.
So we all await a response from the US.
Have a great day's trading.