Syrian Conflict and The U.S. Dollar
If we search for “Syrian conflict and EUR/USD” or such search terms, we will find a lot of news items and predictions. Most of those would indicate a rise in dollar strength because it is considered to be a safe haven currency. Would you like to sell buy dollars against other currencies e.g. sell EUR/USD because of this reason?
EUR/USD – Unaffected of Syria
Well, I would not do that. If we really see the recent price action and today’s weakness in EUR/USD we can easily see that the drop is not really significant. From price action and psychological perspective the pair has been finding resistance below the psychological level of 1.3500 and that is quite natural. This psychological resistance is also finding strength from the 50% retracement level of the fall from 1.4940 to 1.2042, which is at 1.3491.
History of American attacks and the U.S. dollar strength
Let’s check on the previous two wars i.e. Afghanistan and Iraq to analyze how the dollar was affected during the time of first attacks.
After the 9/11 terrorist attack in the U.S., the attack on Afghanistan by the name of Operation Enduring Freedom was launched on 7 October 2001. The U.S. dollar, which was falling against the euro prior to the strike, gained immediate strength. The EUR/USD fell strongly with the start of the war.
Rise of USD with the start of Afghan attack
Invasion of Iraq
Now let’s see how the U.S. dollar moved at the time of Iraq strike.
EUR/USD during the start of Iraq war
Invasion of Iraq started on March 20th, 2003. The following chart shows the EUR/USD price action from the beginning of March 2003 to June 2003.
It is clear that the U.S. dollar sell strongly with the strike on the Iraq and that was completely against the safe haven theories of USD.
EUR/USD outlook with Syrian conflict
I would not recommend a buy or sell decision based solely on the safe haven characteristics with the Syrian conflict. The above two historical examples also make it clear. At the time of Afghanistan attacks a lot of sentiments were pro American strike after a terrible terrorist attack. The attack brought a confidence back in the U.S. dollar and USD started rising. Exactly opposite was the case with the attack on Iraq. There was a lot of opposition against the actions of America. The current situation is not very different from the attack on Iraq. General sentiments are not pro America and there is quite a lot opposition against any upcoming strikes. There are good chances that USD may fail to move as a safe haven currency and fall against the euro.
GBP has a very strong correlation with the euro and hence GBP/USD would be expected in the same direction as EUR/USD.
Being a commodity currency the Aussie suffers with any negative sentiments on international level. Considering the ongoing weakness, further weakness may be expected.
Please do leave your comments in the comment box below to discuss this further.