Recent series of terror attacks in Paris had casted effect to forex and commodity market. Learning from previous similar incidents, immediate change of price movement normally wouldn't last long. What about the current case?

Recent series of terror attacks in Paris had killed at least 129 people, triggered international reaction, and influenced forex and commodity market. Considering previous similar incidents, immediate change of price movement normally wouldn't last long. In fact, it tended to revert back to its regular trend after panic subsided. Then, what about the recent events?

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The Impact Of Terror Attacks On Global Market

Although the Paris incidents last weekend managed to spark demand increase on safe havens like Gold and Japanese Yen, but there was no vital change to US and European equity market. Asian stock market is the only one influenced by the terror attacks. That didn't come as a surprise, considering how Asian market was also dealing with increased risks stemmed from slowing growth.

In light of forex market, EUR/USD and some other pairs appeared to receive the short end of investors' risk avoidance measures. Yet, analysts believe that market is mainly shadowed by the divergence between Fed and other central banks' policies at the moment. In this kind of circumstances, foreign exchange market will be soon relieved from the aftershock of Paris tragedy.

Looking back from previous terror attacks, market reaction related to the incidents was only momentary. Kathy Lien from BK Asset Management noted that the biggest and longest effect of a terror incident on western financial market came from 9/11 attack in New York. The aftereffect lasted for 8 days straight at that time. In comparison, Madrid bombing incident in 2004 merely left a 3-day impact on financial market. The influence of London bombing (2005) on FTSE and Sterling, as well as Charlie Hebdo's impact on Eurozone stocks earlier this year, managed to last only for 2 days. Those brief reactions proved that terror attacks only affected market in short term, probably caused by investors and people's certain resistance to terror.
 

No Big Change On Fundamental

In particular, France incident gave more confidence to analysts who predicted Euro parity against USD (EUR/USD = 1). France is the second largest economy in Eurozone, and terror attacks would disrupt economic, trade, and tourism activities. In the last few months, PMI data reflected sluggish Germany but emerging France; still, latest terror incidents had the potential to bring more pressures. In a situation where the two largest economies are in trouble again, additional stimulus by ECB can be more than just an expectation.

On the other side, commodity market is still gloomy even though Gold and Oil rebounded earlier this week. It appears that Gold price is still overshadowed by Fed rate possibility. Furthermore, oil investors are still dealing with supply glut and demand slump. Even though the increasing tension in Middle East tends to support oil price, but there is also a rising chance of demand reduction from countries in Europe and Asia which suffer economy slowdown.

On the whole, terror attacks in western countries, including those happened in Paris last Saturday didn't present any significant impact on financial market. It is indeed a tragic incident, but as long as there is no substantial effect to fundamental landscape, then market players' perspective in financial sector will return to its previous trend. Among the many issues that take part in current fundamental landscape, the most critical one is Fed rate projection, ECB plan to widen QE next December, and the continuation of global economy slowdown