Syrian Worry Saps Risk Trades

The sound of the beating of the drums of war was a signal to find safety in markets. The traditional flight to the yen was evident in FX while the high yielding kiwi suffered. The Asia-Pacific calendar is light but trading could be busy with market on edge.

Reuters reported that Syrian opposition leaders have been told to prepare for a Western attack as early as the next few days. The UK also recalled parliament to vote on taking action in Syria.

With geopolitical risks markets seek safety and analyse later. That was certainly the case Tuesday as stocks in Europe and the US were routed, bonds rallied and the USD/JPY dropped to 97.00 from 98.50 a day earlier.

In general, moves on geopolitical risk tend to fade but at the moment there are many unanswered questions about the length and severity of any US involvement as well as Russian backing of the Syrian regime.

At the same time, the picture of the global economy remains murky. French joblessness hit an all-time high for the 27th month in a row. US numbers were slightly better with the Richmond Fed at +14 compared to a flat reading expected. The consumer confidence report also hit 81.5 from 79.0 expected. A 3% rise in oil prices, however, could crimp consumer spending.

In the immediate term, the market is focused on 96.90 in USD/JPY, which was the August 20 low. A break could open a path to re-test the summer lows in the pair.

One surprising move in the risk-off scenario is the resilience of the euro. After a fall to 1.3323 in European trading it sharply rebounded to 1.3399. The gains didn't come on any particular headline and underscore this year's theme of euro resilience.