The world was shocked by two major earthquakes that occurred on two different continents in a short period of time today. This disaster involved Venezuela (a major oil producer in South America) and Japan (a giant Asian economic powerhouse).
In Venezuela: Two powerful earthquakes measuring 7.2 and 7.5 magnitudes shook the coastal region of Morón with an interval of just 39 seconds! Several buildings in the capital, Caracas, were reported to have collapsed and gas supplies had to be immediately shut off to prevent fires. Early tsunami warnings were also issued for Puerto Rico and the Virgin Islands.
In Japan: The Land of the Rising Sun was hit by a powerful earthquake measuring 6.9 magnitude at 7:30 this morning local time off the coast of Iwate. Strong tremors were felt as far as Tokyo and briefly halted Shinkansen high-speed train services. However, no tsunami threat was detected and their nuclear plants were reported to be safe.
Impact Analysis on Forex (FX) & Commodity Markets
As traders, this combination of disasters involving an industrial country (Japan) and a commodity-rich country (Venezuela) must be closely monitored because it gives different reactions in the global financial market:
1. JPY Soars in the Short Term as a ‘Safe Haven’
The Japanese Yen (JPY) is indeed known as a safe haven asset during panic markets.
Market Reaction: As soon as the news of this earthquake spread, forex traders immediately took reflexive steps by closing risky positions and switching to buying JPY.
Current Status: Because the infrastructure situation in Japan was confirmed to be still under control without major damage, the Yen surge (especially in the USD/JPY pair) seemed to be quite limited and the market quickly stabilized in this morning's session.
2. Crude Oil Risk Rising
Although the Venezuelan currency (Bolivar) is not popular in the forex market, you have to remember that Venezuela is among the countries with the largest crude oil reserves in the world.
Oil Price Impact: News of the destruction of buildings in Caracas has sparked market concerns about the status of their oil production and export facilities. If any oil infrastructure is affected, global crude oil prices (Brent and WTI) could skyrocket!
FX Impact: This surge in oil prices will directly provide a tonic for commodity currencies (Petrodollars) such as the Canadian Dollar (CAD).
3. Markets Ready to Enter ‘Risk Off’ Mode
Given the scale of the earthquake in Venezuela, global markets are expected to enter ‘Risk Off’ mode ahead of the opening of the European and US sessions this afternoon.
Risk-sensitive currencies such as AUD and NZD are expected to face short-term selling pressure.
Investors will most likely shift their capital towards USD and CHF (Swiss Franc) as additional protection.
Conclusion for Traders: Our main focus today is not only on the stability of the Yen, but also how quickly the Venezuelan oil sector is affected by this earthquake. If oil prices start to skyrocket, you already know which currencies to Buy or Sell.
Anyone with CAD or crude oil positions, please place your Stop Loss (SL) ready and monitor the development of this news throughout the day. Do you think oil could break above $80 because of this issue?
