EUR/USD slides below 1.1500 as Iran warns against potential US ground attacks

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The EUR/USD pair extends its losing streak for the fifth trading day on Monday, trading 0.15% lower to near 1.1490 during the early Asian trading session.

EUR/USD falls further to near 1.1490 as dismal market sentiment weakens risky currencies.
Iran’s stark warning against a potential US ground attack dampens market mood.
Investors await the flash German HICP data for fresh cues on the ECB’s monetary policy outlook.

The EUR/USD pair extends its losing streak for the fifth trading day on Monday, trading 0.15% lower to near 1.1490 during the early Asian trading session. The major currency pair is under pressure as the market sentiment turns risk-averse due to fiery warnings from Iran’s Brigadier General Ebrahim Zolfaqari, on the Iranian state TV, that United States (US) ground troops will be “good food for the sharks of the Persian Gulf”.

At the press time, S&P 500 futures trade 0.5% lower, indicating a weak risk appetite of investors towards risky assets. Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.15% higher to near 100.35.

Late Thursday, a report from the Wall Street Journal (WSJ) showed that the US Pentagon is planning to send an additional 10,000 troops to Iran despite President Donald Trump’s claims of negotiation talks with Tehran.

On the macro front, investors await the preliminary German Harmonized Index of Consumer Prices (HICP) data for March, which will be published at 12:00 GMT. Investors will pay close attention to the inflation data as it will influence market expectations for the European Central Bank’s (ECB) monetary policy outlook. The impact of the inflation data will be significant on the Eurozone’s interest rate expectations, as it will reflect the impact of higher energy prices due to Middle East conflicts.

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

What are the key assets to track to understand risk sentiment dynamics?

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

Which currencies strengthen when sentiment is "risk-on"?

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

Which currencies strengthen when sentiment is "risk-off"?

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.