Iranian Revolutionary Guard launches retaliatory missiles! "January 8 Highlights and Event Schedule"
Yesterday was a wait-and-see situation due to no additional headlines about Middle East risk.
Regarding the Tokyo market to Europe, risk-off selling was met with a corrective buy-back.
However, the risk-off trend seems to continue, with selling of Oceania currencies and buying of the dollar/yen observed.
Today, while we might have expected another day of similar moves as yesterday, headlines that the Iranian Revolutionary Guards launched missiles appeared during the thin pre-market hours before the Tokyo market opens, sending cross-yen sharply lower.
After the Tokyo market opens, we are watching for further headlines and how quickly they are digested.
◎ Today’s Points of Focus
1) Middle East Risk
Yesterday there were no new developments on Middle East risk, so markets were in a wait-and-see mode, but just now headlines that several dozen missiles were fired by the Iranian Revolutionary Guards have shifted sentiment back toward risk-off.
With the funeral of the killed general having concluded in Iran, this may be the start of retaliation.
The focus now is on whether the United States military (President Trump) will retaliate and what form that retaliation might take.
Attention is also on how neighboring countries will respond, especially NATO members and the movements of China and Russia.
There are reports that there is real demand to buy dollars/yen below 108 yen.
The 108 yen level briefly breached after the New Year and then was pushed back up.
To break decisively below this level, more impactful news is needed; if U.S. retaliation emerges, we may see a breakout.
The trajectory of Middle East tensions will determine whether risk-off accelerates.
2) ADP Employment Report
Yesterday's ISM Non-Manufacturing Index came in slightly above expectations, U.S. yields rose slightly, and although Middle East risk kept the upside constrained, USD/JPY moved above 108.50.
One of this week’s key indicators, the Pre-Release ADP Employment Report, if it shows weak results, could, combined with risk-off, accelerate USD/JPY falls, so worth watching.
3) UK Parliament
With attention on Middle East risk, the UK Parliament appears to be discussing Middle East risk as well, and there are reports that the British military is deployed in the Strait of Hormuz to defend its own tankers.
Despite discussions on Middle East matters, the Brexit-related bill is also moving forward without much time, with simultaneous debate and voting ongoing.
The pound surged yesterday and then faltered, resulting in a see-saw pattern.
A single headline can move prices significantly, so pay attention particularly during European and New York hours.
◎ Today’s Economic Event Schedule
Wednesday, January 8
UK House of Commons begins deliberations on Brexit-related bills (through the 9th)
09:30 AUD Building Permits
17:30 GBP Halifax House Price Index
17:30 SEK Swedish Retail Sales
19:00 EUR Eurozone Consumer Confidence Index
22:00 EUR DeGinto ECB Vice President
22:15 USD ADP Employment Report
00:00 USD Brainerd Fed Governor speech
00:30 USD Crude Oil Inventories
03:00 USD 10-Year Bond Auction
05:00 USD Consumer Credit
