Volatility Returns to Forex Markets Due to Heightened Geopolitical Risks

The EUR/USD was under pressure on Monday as traders flocked to the safety of the U.S. Dollar due to heightened geopolitical events caused by the attack in Paris. Additional selling pressure is coming from increased confidence in a December rate cut by the Fed and from expectations the European Central Bank will step up monetary easing next month, possibly cutting interest rates further into negative levels and buying more assets under its quantitative easing program.

In other news, Euro Zone final year over year consumer inflation came in at 0.1%, higher than the 0.0% forecast. Final Core CPI also beat the 1.0% estimate with at 1.1% reading. The U.S. Empire State Manufacturing Index posted a -10.7 reading, worse than the -5.3 estimate.

Tomorrow, investors will get the opportunity to react to the latest German ZEW Economic sentiment and the Euro Zone Economic Sentiment.

Sellers also pressured the GBP/USD. Technical factors contributed to the pressure after the market reached a key 50% level at 1.5259 last Friday. Aversion to risk also led to selling pressure as investors moved more money into the U.S. Dollar for protection.

December Comex Gold posted a volatile to reaction to the news out of Paris. The market surged initially as investors sought to protect their assets with gold. A sharply lower stock market on the opening also encouraged investors to park money in gold.

Cooler heads prevailed and the stock market rallied, leading earlier hedgers to sell their gold positions, driving the market from its highs. The air of uncertainty due to the geopolitical tension could help gold build a support base. But a sharply higher U.S. Dollar due to increasing odds of a Fed rate hike may put pressure renewed pressure on the precious metal.

January Crude Oil futures were under pressure on Monday due to concerns about the economic impact of the deadly attack on Paris on the Euro Zone. Additionally, traders continue to assess the impact of the global supply glut on prices. There is some speculation that the international community may take action to stem the smuggling of oil out of oil producing facilities under Islamic State control in Syria and Iraq. Some believe this may underpin prices, but others believe it will have no impact because OPEC would likely move to prevent any shortages.