Is risk back on? | FOMC meeting is this week

There might be some indications from the Asian opening this morning, which occurs at midnight GMT, that Forex market participants could be coming to a view that the geopolitical tensions in the Ukraine have peaked and, in the absence of any dramatic reaction from the West and Ukraine proper to the outcome of the referendum in Crimea, things will slowly but surely get back to normal in the markets. We certainly hope so.

In that event we can expect the US dollar to strengthen, particularly against such as the Yen, the Aussie and gold. The Euro seems to have taken on a life of its own, increasing in value even in the face of the crisis in Ukraine, which has at least the potential to disrupt supplies of natural gas to the EU, much of which comes from Russia. And let us not forget that Germany, the locomotive of Euro zone recovery and itself a big user of Russian gas, has turned its face against nuclear power, as a matter of state policy.

Outside of the fears relating to energy supply that the tensions in Ukraine give rise to, oil futures remain bearish, what with the perception of a reduction in Chinese economic growth placed alongside high global oil inventory. Lower oil prices always tend to coincide with a strengthening US dollar.

FOMC this week

In the event that Ukraine does fade into the background of realpolitik, we can expect focus to readjust onto this week’s meeting of the Federal Open Market Committee (FOMC) in the US, which will be the first to be taken by Janet Yellen, as incoming chair.

There is little doubt now that the tapering of Quantitative Easing (QE) is a done deal. There will possibly even be some discussion by the members of the committee around the risk of inflation in the US, which in turn will bring up the topic of when interest rates might start to rise.

These matters feed directly into the aforementioned strengthening bias of the US dollar.