Risk aversion increasing in the global markets - BTMU

By FXstreet.com | Updated July 30, 2014 AAA

FXStreet (Barcelona) - Derek Halpenny, European Head of Currency Strategy at the Bank of Tokyo Mitsubishi UFJ, remarks sentiment around safe havens are building up.

Key Quotes

"Financial markets have been unsettled by the upturn in geopolitical risks after the downing of a civilian airplane over Eastern Ukraine and after Israel began a ground-offensive operation in Gaza. The VIX index jumped a huge 32% to close at 14.54, crude oil was up 2% while the price of gold increased 1.5%."

"With the EU and US sanctions being digested by the markets yesterday, USD/RUB jumped 2.2%. However, outside of the rouble move, the foreign exchange market remains remarkably stable."

"One-month USD/JPY implied volatility is currently at 4.89%, up from 4.45% on Wednesday, which was another record low. Volatility in EUR/USD and other major currency pairs remains subdued as well."

"In part we think this is explained by the latest downturn in UST bond yields in the US – the 10-year yield fell to 2.44% yesterday, matching the low from May, a level not seen since May last year. The 10-year yield is down 20bps since early July."

"Higher yields in the US is going to be the key catalyst for increased volatility in the foreign exchange market as investors eye greater divergence with other major economies and general risk appetite conditions become less favourable. These latest developments, it is believed, make it more likely that all central banks will remain on the same page for longer, thus limiting the risk of any major change in financial market developments."

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