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James Hyerczyk

The Dollar/Yen is trading slightly better shortly ahead of the U.S. opening. The Forex pair has erased all of its earlier losses, producing tremendous whip-saw action. The catalysts behind the volatile, two-sided price action are escalating tensions between the United States and Iran, and indications of calm.

Earlier in the session, the Dollar/Yen plunged on safe-haven selling after Iran launched missiles against an Iraqi air base that housed U.S. troops. The initial reaction suggests investors were preparing for the worst – a counter-attack by the U.S. and perhaps the start of a war. However, cooler heads prevailed, the selling stopped and the Forex pair eventually recovered from the steep loss to turn higher for the session.

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At 10:57 GMT, the USD/JPY is trading 108.709, up 0.221 or +0.20%. The session low is 107.651.

The selling stopped after a pair of tweets from Iran and the United States.

Iranian Foreign Minister Mohamad Javad Zarif said via Twitter that “we do not seek escalation or war, but will defend ourselves against any aggression.”

U.S. President Donald Trump tweeted, “All is well!” He also added that an assessment of casualties was taking place.

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The financial markets are reversing their earlier moves in a big way, suggesting the worst may be over and perhaps we can move on. U.S. equities have erased their losses, crude oil has given up most of its earlier gains, and the safe-haven Treasuries, gold and Japanese Yen have also retreated from their intraday highs.

CNBC writes that “The reassuring tone of Trump’s tweet marked an unexpected shift away from the harsh rhetoric the president has used in recent days to characterize tensions with Iran, which escalated following a U.S. strike that killed Iranian General Qasem Soleimani.

Trump is scheduled to address the nation at about 14:00 GMT. This speech could set the tone in the markets for the rest of the session.

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