{"id":59076,"date":"2022-02-21T19:25:55","date_gmt":"2022-02-22T03:25:55","guid":{"rendered":"https:\/\/drduru.com\/onetwentytwo\/?p=59076"},"modified":"2022-02-22T00:25:18","modified_gmt":"2022-02-22T08:25:18","slug":"watch-currencies-not-stocks-as-geo-political-tensions-continue-to-rise","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2022\/02\/21\/watch-currencies-not-stocks-as-geo-political-tensions-continue-to-rise\/","title":{"rendered":"Watch Currencies, Not Stocks, As Geo-Political Tensions Continue to Rise"},"content":{"rendered":"\n

The news headlines rang out today that Russia’s leader Vladimir Putin gave the orders to send “peacekeeping” troops into two breakaway regions of Ukraine<\/a>. Stock market futures reacted instantly. Yahoo had a particularly dramatic headline declaring that futures “tanked.” Reflexively, I checked CNBC<\/a> to review the preliminary damage: S&P futures down 1.8% and the NASDAQ futures down 2.5% at the time of writing. These declines hardly register in the “tank” category, but they are losses nonetheless. However, when geo-political drama appears to impact stocks, I strongly prefer to watch currencies as a more accurate reflection of sentiment. The story in currency markets is much different…so far.<\/p>\n\n\n\n

\"News:<\/figure><\/div>\n\n\n\n

In fact, according to the currency markets, nothing dramatically new has happened yet. The Australian dollar versus the Japanese yen (AUD\/JPY) dipped slightly and then rebounded higher<\/strong><\/em> than its price at the time of the news. The euro traded ever so slightly lower against the dollar. EUR\/USD continues to cling to the 1.13 level and is not even trading below its intraday low from last week.<\/p>\n\n\n\n

\"The<\/a>
The Australian dollar versus the Japanese yen<\/a> (AUD\/JPY) is so far barely reacting to the news of the invasion of Ukraine.<\/em><\/strong><\/figcaption><\/figure><\/div>\n\n\n\n
\"The<\/a>
The euro versus the U.S. dollar<\/a> (EUR\/USD) is sliding ever so slowly but still sits higher than last week’s intraday low.<\/em><\/strong><\/em><\/strong><\/figcaption><\/figure><\/div>\n\n\n\n

Watch Currencies<\/strong><\/h2>\n\n\n\n

So why watch currencies over stocks in this scenario? First of all, stock futures are not liquid and are thus subject to over-reaction to the news of the moment. More importantly, currency markets reflect global opinion much better than the U.S. stock market which is dominated by U.S.-based traders. Currency markets are highly liquid during almost all hours of the day for the major currencies. If something happens that will impact global financial markets, currencies will immediately reflect trader’s short-term opinions.<\/p>\n\n\n\n

I write often about why AUD\/JPY matters to traders.<\/a> AUD\/JPY tends to reflect short-term risk sentiment. The current message from AUD\/JPY: hold steady everyone. AUD\/JPY remains mired in the churn that has dominated almost two weeks of trading. EUR\/USD is a supplementary measure in the case of the tensions over Ukraine. The euro zone, and Europe in general, will feel the most direct impact of fallout from war in its eastern reaches. Both the yen and the U.S. dollar should serve as havens for flight to “safety” trades. The current message from EUR\/USD: hold steady everyone.<\/p>\n\n\n\n