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Geopolitical jitters look to remain a key driver - BTMU

FXStreet (Barcelona) - Lee Hardman, FX Analyst at the Bank of Tokyo Mitsubishi UFJ, observes that geopolitical issues would be critical ahead in the week.

Key Quotes

"geopolitical risks remain in focus in the near-term The yen has weakened modestly in the Asian trading session partially reversing safe haven gains from last week which were driven by heightened investor concerns over rising geopolitical risks. Israel and Palestinian factions accepted on Sunday an Egyptian proposal for a new three-day ceasefire in the Gaza Strip."

"The unrest in the Middle East has not yet triggered a move higher in the price of crude oil providing some comfort for global investors. The price of Brent crude oil has actually fallen by around 9% since the recent peak from June which will provide support for global growth."

"Safe haven demand is also helping to dampen global yields providing a more supportive environment for global growth. The 10-year German government bond yields has fallen to almost 1.00%."

"The JPMorgan/Markit global composite PMI survey also increased modestly by 0.1 point to 55.5 in July signalling that global growth is likely still strengthening. At the current juncture, we continue to believe that the recent deterioration in global investor risk sentiment and accompanying yen strength are likely to prove only temporary."

"The main domestic event risk in the week ahead from Japan will be the release of the Q2 GDP. The report is expected to reveal that the Japanese economy contracted sharply by annualized rate of around 7.0% in Q2 after the implementation of the sales tax hike in April."

"Economic growth has been very volatile in the first half of this year expanding robustly by as demand was brought forward ahead of the sales tax hike by an annualized rate of 6.7% in Q1. If the report serves to undermine investor confidence in Abenomics, it would encourage a stronger yen in the near-term as the BoJ still appears reluctant to ease monetary policy further."

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