Wed, Oct 05, 2022 @ 16:21 GMT
HomeContributorsFundamental AnalysisGeopolitics Reignites Risk Off Mode | Hurricane Harvey Impacting Oil And Dollar

Geopolitics Reignites Risk Off Mode | Hurricane Harvey Impacting Oil And Dollar

Oil And Dollar To Gain From Harvey
More Bullish Move Still On Cards

Stock markets have rattled over in Asia and things are looking ugly over in Europe as well. It is a risk off mode and safe havens such as gold and the Japanese Yen extended their gains due to the recent escalation of tensions over in Asia. Investors have panicked after the North Korean missiles have flown over Japan and the president of Japan has called the action reckless. The Asian markets have felt the pain of this event and we are expecting this pain to become even starker as the counter-reaction from the US would make investors only more nervous. Statements such as "fire and fury" are the most worrying.

US futures are trading sharply lower because investors are either staying on the side lines for this dust to settle or are booking their gains.

Oil And Dollar To Gain From Harvey

The effects of Hurricane Harvey are still going to remain prominent as the flooding process continues over in the US. Less and less refineries can work and this is pushing the price of the refined products higher. Both Brent and crude oil are still holding on to their gains and we still do expect them to score more gains.

In currencies, the dollar weakness continues and the aftermath of the Jackson Hole meeting is still very much influencing the price of the dollar index. The index is more likely to continue its journey to the 91 mark and the Euro-dollar pair could touch the likes of 1.25 by the end of the third quarter.

Hurricane Harvey is going to have some serious economic impact and just how large that would be is still unclear. However, the upcoming jobs reports are likely to show one element which is that more people would be filing for unemployment benefits. If history serves us correctly, it is that in the past when a similar catastrophe occurred, the initial jobless claims spiked in the following weeks. We need to have a strong number when it comes to the labour market as that would continue to support the dollar but in the absence of such, it simply means more weakness for the dollar index.

More Bullish Move Still On Cards

The yellow metal has rallied to the highest point this year due to the geopolitical tensions and the dollar weakness. We have witnessed the highest intraday price level of 1322.41 which had not been seen since Nov 9. The price could easily touch the level of 1350 because the worst is still to come, which would be a reaction from the US. If North Korea decides to retaliate further to that reaction, it would only add fuel to the fire.

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