ForexLive Asia-Pacific FX news wrap: Middle East escalation and a surging US dollar

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There
was a significant escalation of hostilities in the Middle East,
centring on Iran firing missiles into Iraq, with consequent
fatalities. Reports said that at least one missile impacted very
close to the US Consulate in Erbil. Apart from this prodding of the
US it seems unlikely that Iran firing missiles into a neighbouring
country will not be met with a response.
</p><p>News
also crossed that members of the Islamic Revolutionary Guard Corps
(IRGC), a branch of the Iranian Armed Forces, have been based
alongside Houthi terrorists in Yemen to assist in murdering sailors
plying their trade on merchant ships in the Red Sea.</p><p>As
Asia liquidity entered markets the result was an up move for the USD.
EUR, AUD, NZD, CAD, CHF, GBP, JPY, all lost ground. Curiously, US
yields remained supported.
</p><p>The
‘flight to safety/liquidity’ also saw regional equities under the
hammer. Japan’s Nikkei fell around 0.6%, admittedly after its
stupendous rise to 30+ year highs in past days. Chinese equities were
slammed, the Shanghai Composite is down around 0.6% also, while Hong
Kong’s Hang Seng is off nearly 2%. Of course, a slam lower for
Chinese equities is not news. Information crossed that Chinese authorities
have asked institutional investors to refrain from selling, and also
that China's sovereign wealth fund says it will help with market
stabilization.</p><p>On
the data front, Japan’s December PPI surprised by coming in higher
than expected. While on Japan, the country’s largest business
lobby, Keidanren, is calling on members to raise wages to support the
end of deflation. The yen weakened on the day, regardless.
</p><p>In
US politics, former President Trump cruised to victory in the Iowa
caucus. As I post projections have him taking 20 delegates, with
Desantis taking 8, Haley 7, Ramaswamy 2 (he has just announced he is
pulling out of the contest, having read the writing on the wall), and
3 hapless delegates yet to be allocated.</p><p>USD index, DXY hourly candles</p>

This article was written by Eamonn Sheridan at www.forexlive.com.