Currency Markets in the Paris Attack Aftermath
November 16, 2015
Dennis Gartman has been directly involved in the capital markets since 1974 and has been publishing his daily commentary, The Gartman Letter, since 1987. Mr. Gartman is a strategic partner with the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN) and lends his institutional insight to educate advisors and investors about trading gold in different currency terms.
The forex market is confused following the events in Paris Friday evening, and effectively the dollar is steady, rising relative to some currencies and falling relative to others, but not moving dramatically in either direction save for the material weakness of the Brazilian Real, which has fallen several percentage points relative to the dollar. Otherwise the movements thus far in Asian dealings have been mixed and modest.
Somewhat to our surprise the EUR is actually trading a bit better than where it went out late on Friday in North American dealing. In strange late trading as the news was initially leaking out of the terrorist attack in Paris, the EUR actually went “bid,” rising from 1.0735 to 1.0770 to close the week’s trading. Why the EUR went bid given the news then evolving is quite beyond us, and why it has held firmly thus far this morning is even further beyond our ken. However, the fact of the matter is that the EUR is holding firm and this we find surprising.
Perhaps we are seeing evidence of central bank operations to keep the EUR firm and to stem speculative attacks upon the currency. Or perhaps we are seeing covering by the “specs” who’ve been net short and are using this terrorist attack as an opportunity to get those short positions back in light of the “reversal” that took place on Thursday of last week when the EUR fell to 1.0660 and then finished the trading session in North American just above 1.0800. Perhaps we are seeing corporate buying of the EUR to hedge trade they’ve done, or perhaps we are witnessing something else entirely. All we know is that this strength surprises us at this point.
Turning to the gold, as one would expect, gold is stronger this morning, but it is not as strong as some might have expected or hoped for. Indeed, in the past, if gold had been even just steady going into the Paris circumstance we might have seen gold trading $25-$30/oz. higher. Instead, because of the material damage wrought upon the gold market in the course of the past two weeks following Dr. Yellen’s comment that it was far more likely that the o/n fed funds rate would be taken higher at the December FOMC meeting gold has been under duress. That “duress” still weighs heavily upon the psyche of the market, and so instead of a sharp $25-$40/oz., rally we are seeing one that is far more tepid in nature.