Sell-off Across Equities and Currency Markets Today
Equities markets and risk currencies drastically traded lower in today’s Asian session. The Nikkei 225 incurred a 181.1 point or 0.76% loss while the Hang Seng Index is down around 80 points or 0.27% at 28,466.5. Meanwhile, AUDUSD has been dropping as soon as it opened at 0.6990. It is currently trading at 0.6953. The same is true for NZDUSD which is down close to 40 pips at 0.6658. USDJPY also did not find any support on the 108.00 psychological handle. It current exchange rate is at 107.93.
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Rising Tensions Between Iraq and the US
What’s behind the aggressive sell-off in the Asian session? Risk aversion dominated trading as geopolitical concerns between Iran and the US mount. Earlier this morning, the US confirmed that it was responsible for the attack in Baghdad airport which consequently killed Iranian General Soleimani. He was a key military figure in the Middle East who is said to have approved the protestors’ attack on the US embassy in Baghdad last week.
Consequently, the headlines led to a general sense of panic among investors especially after Iran warned against retaliation. Higher-yielding markets like the Nikkei 225, Hang Seng Index, and commodity currencies suffered the biggest blow while demand for safe haven assets increased.
On the daily time frame of USDJPY, we can see that support at the rising trend line (from connecting the lows of November 1, November 21, and December 9) did not hold. The currency pair is now currently testing support at the 100 SMA. Now, if there are enough bids at this price (just above the 108.00 psychological handle), we could see USDJPY pare some of its losses. We can eye the previous trend line for resistance. It falls around 108.80 which also coincides with the 50% Fib level (when you draw the Fibonacci retracement tool from the high of December 26 to this morning’s low). On top of that, this area also seems to coincide with the 200 SMA. Reversal candles around this level could mean that the sell-off on USDJPY would continue. On the other hand, a strong bullish close to the 109.00 may mean that buyers are looking to push prices back up to resistance at 109.60.
It is also possible that if risk aversion overwhelms today’s market sentiment, we may not even see a pullback on USDJPY anymore. A strong bearish close below the 100 SMA could mean that the currency pair is headed to its October 2019 lows at 106.65.