Escalation in Yemen prompts WTI Oil, Gold and JPY demand

Volatility in the financial markets has resumed once again following the overnight news that a Saudi Arabian led coalition launched airstrikes against rebels in Yemen. This announcement has so far prompted increased demand in WTI Oil, Gold and the JPY, with the gains in WTI Oil being what has caught the attention of most people. The mention of airstrikes provided the WTI bulls with the platform to continue its recent charge up the charts, and resulted in WTI Oil jumping to a two-week high at $52.46 earlier in the European session.

To be honest, the advance in WTI is an interesting one because Yemen is not an oil producer of great significance. In fact, it was previously only seen as the 39th largest producer of oil. The major reason for the sudden intrigue from investors is because Yemen’s geographic location is extremely close to Saudi Arabia and this nation, among others, getting involved in the escalating conflict has encouraged suspicions that oil production in the Middle East region might be disrupted. Disrupted oil production would probably need to be seen for the price of WTI to continue progressing, however the situation with Yemen is currently being used as the reason for the sudden gains.

As mentioned above, WTI Oil has not been the only advancer, with the JPY and Gold both strengthening to a monthly high against the USD. The reason for the gains in the JPY has basically been correlated to stocks suffering losses and this conflict would probably need to continue escalating further while also encouraging additional stock declines, for the USDJPY to continue pulling back. There’s also the possibility that the USD might become attractive as a safe-haven asset at some stage, which is why I am slightly reluctant to believe the USDJPY will continue to decline. Saying that, and if the JPY was to continue strengthening against the USD, the USDJPY extending below the 118.250 support level would probably inspire a move towards 117.450.

Elsewhere, the EURUSD has approached 1.10 for the third successive day with resistance around the 1.1050 continuing to act as a wall for the EURUSD bulls. The outlook for this pair remains bearish and the major reason for the upside rally has been the recent USD correction. The USD correction in itself only appeared because the bulls got too excited in anticipating an earlier interest rate increase from the US Federal Reserve, which meant the USD was heavily overbought. As the FOMC pushed back interest expectations last week, the Euro has managed to recover after suffering dramatic losses against the USD over the past couple of months.

The EU economic data is starting to improve, although concerns around low inflation and stagnant economic growth remain and are unlikely to ease anytime soon. It can also be suggested that the recently improved economic data is not a result of the European Central Bank’s (ECB) stretch of stimulus measures actually having the desired impact, but the decline in the price of oil easing budgets. The easing of budgets could also be the reason why business activity expanded to its fastest rate in over three years last week. If you were looking for an economy to praise right now, then it can be said that Germany has regained its status as the star performer in Europe. Data from Germany is continuing to accelerate, which is providing consistent indications that the economy has recovered from the unexpected period of turbulence suffered during the second half of last year.

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About the Author
Jameel Ahmad is the Chief Market Analyst at Forex Time (FXTM). He holds a BA (Hons)degree in Business Studies with Accountancy & Finance from the University of the West of England, Bristol, UK. In his early career, Jameel worked on a variety of projects in the Middle East, Europe and United States, which allowed him to develop a detailed understanding of banking, international finance and asset management. Later on he worked as a strategic research analyst for an international brokerage firm, where he gained invaluable experience in writing FX commentaries and fundamental analysis on distinguished financial websites.

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