According to Bloomberg, Iraq says there are no casualties among its forces in the missile strikes on the US airbase It's a similar outcome for the US forces, so the attack was sufficiently broadcasted by Iran before the "preserves ones honor" exercise and possibly timid enough to avoid the US military fury. The next 24-48 hours will tell the tale if this is the case or not.
But let the escalation remind everyone there is no free lunch and indeed never a one-way street when it comes to risk. Stocks tanked, yields plummeted, Gold rallied shortly afterward
In the meantime, European traders are being ushered in by “it could have been worse" market bounce back, not exactly the most risk reassuring greeting.
G-10
G10 FX had a frantic session in Asia, but most currencies are trading back within ten pips from the opening levels after a massive selloff in risk. USD/JPY traded down to 107.65 from 108.30, which virtually all the yen crosses followed suit. Iran later said it had no intention of starting a war, and risk rallied back as S&P E-minis have bounce 1.5% from the lows, erasing nearly all of the earlier losses.
Lots of weak or freshly minted USD/JPY longs bailed this morning, and even though another test of the downside is possible in Europe, I don't see the value on buying oil importer currency as a hedge. So subject to the market "prove me wrong" on the break of 107, I like to buy the dip through the day.
As for the dollar in general, if you can convince me that US Treasures are not the go-to haven if war breaks out, then I will surely sell the dollar.
CNH
USD/CNH has been choppy following broad risk market sentiment I expect this choppiness to remain as Middle East uncertainties dominate headlines into the January 15 trade deal date. Still looking for a test of 6.90 should that deal get signed, but in the meantime, 6.93-97 could be the well-worn range.
THB
The THB vs. Gold correlation snapped today. Despite soaring gold prices, the THB weakened to ~30.3, possibly due to Thailand’s position as an oil-importing country.
Two significant areas to keep an eye would be the near-term direction for oil prices critical to GDP, the recovery on tourism, especially as the industry nears peak Chinese holiday season around the Lunar new year.
Earlier today Thailand Commerce Ministry did express some concern about being added to the US Treasury currency manipulator watch list suggesting a possible line in the sand for intervention is the USD/THB 30 level.
Given all this I expect USD/THB to test the last high around 30.40
Gold
Escalating geopolitical risk lifted Gold to $1,600, and a further escalation is likely to attract more safe-haven flows. Still, with the near-term position builds hovering around 12-month highs, it increases the risks of a large-scale meltdown if tensions suddenly ease. Even more so if we then turn focus to the more pedestrian issues around the trade deal signing on January 15
While Gold's sensitivity to geopolitical risks appears higher than any other defensive assets at the moment, it's worth noting that surges in geopolitical risk can, by their nature, be short-lived and volatile. Still, it's tough not to get encapsulated by the heat of the moment when it comes to the fog of war.