1st May - Interventions & Safe Havens

Forex

Yesterday saw wild swings in both the JPY and the CHF, along with a weakening USD. The main geopolitical news was from the USA, where reports emerged that Trump had been briefed on new military options for action in Iran, putting an already fragile ceasefire at risk. Interestingly, even with this news, oil fell on the day. There does not seem to be one clear factor causing this, but the consensus seems to be that geopolitical risk is already priced in and the market is now paying attention to the reduced demand inflated oil prices create. Paradoxically, in the short term at least, increased oil prices may have been a market driver for lower oil prices.

The Yen saw an intense period of support yesterday, on the back of the BoJ giving a 'final warning' to markets in the hope of avoiding having to intervene to support the Yen. This caused the entire Yen basket to rocket lower, before pulling back some of these gains later in the day. Unfortunately for the BoJ, the fundamental headwinds of low interest rates in Japan and high oil prices mean this verbal intervention seems unlikely to be a long-term solution, so we could well see a move back up to the 160.000 level and a physical intervention in the near future. There could be an interesting possible trade opportunity here, using the dip caused by the BoJ to buy the USD/JPY and follow the fundamentals back up to 160.000, but we would need to be very careful to ensure we are not overexposed should a physical BoJ intervention take place down the line.

The CHF also saw a strong bid yesterday, although the causes of this seemed a little less obvious. It could have been caused by the news from the US and a run to safe-haven currencies, but in theory, this would have also put downward pressure on risk-on currencies like the AUD and benefited the USD. Neither of these things happened to a significant degree, which makes me question why just the CHF? It may be because the CHF was the only currency not to have competing factors affecting it. The USD being the cause of the uncertainty may have dampened demand and meant safe-haven capital was diverted, while the excellent Mag7 results will have boosted risk-on currencies and canceled out the effect of the news from the White House. Yesterday was another example of how forex markets are far more than just one currency versus another; they are a culmination of hundreds of different influences, pushing and pulling at the same time and with different effects. It is one of the things that makes the markets so fascinating.

Indices

All three of the major US indices finished higher after positive earnings, further proof that at the end of the day the stock market is driven by earnings more than anything else. We are also seeing a continuation of the AI optimism trade, ignoring any concerning geopolitical news for the time being. This is only further backed up by positive earnings from Apple overnight, giving further backing to tech stocks that are currently dominating the market.

I am still concerned that these markets are overextended, and still worry that unexpected news could burst a bubble in the US. I do not think we will see a fall like we saw with the Dot Com bubble in the 2000s, but we could very well see a pullback of the gains we have seen over the past month or so. It is worth looking out for this and positioning ourselves long once the market has calmed a little.

Precious Metals

Gold and Silver saw some support yesterday, coincidentally around the key levels we had spoken of previously ($4500 for Gold and $70 for Silver). It will be very interesting to see how they react over the next few days. Gold is still stuck between safe-haven demand due to the uncertainty in the Middle East and the dampening effects that possible interest rate hikes have on a non-yielding asset. These markets could be at risk of continuing lower if there are further escalations in Iran and further rises in oil prices, but again, these are fascinating markets to watch as we progress through spring.

Today's Market Drivers

• Iran - This is and will be one of the main drivers in the market while the uncertainty continues. If we see both sides embed into their positions and no escalation or de-escalation news is spread, the effect of this could reduce in the long term, but for now, the markets remain keenly focused on geopolitics.

• Apple's Earnings after-effects - The strong beat by Apple pushed its stock up overnight. It will be interesting to see if this holds or falls back as we move into the weekend.