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.
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