28.02.202009:15 Forex Analysis & Reviews: On the threshold of a new war: defensive assets are back in trend

Over the past week, the Japanese currency paired with the dollar has strengthened by almost 400 points. Such a large-scale increase in the yen is caused not only by the weakness of the American currency or the factor of coronavirus. Yesterday, another hotbed of geopolitical tension rose, which could develop into a full-scale war between Turkey and Syria.

However, this conflict was smoldering for a long time. Ankara has recently gradually strengthened military support for the Syrian rebels, who tried to regain the strategically important cities in Idlib. Then the Turks switched to the language of ultimatums as they demanded that Damascus withdraw forces from Turkish observation posts located in this province by the end of February. Otherwise, Ankara promised to force them back. The situation hung for some time in the air, but yesterday Assad's troops in Idlib province launched an airstrike against a column of Turkish troops. This attack killed at least 33 Turkish troops.

Such a deadly incident a priori could not be ignored by Ankara and during the world press, it was said that Erdogan could declare martial law and declare war on Syria. Against the backdrop of such assumptions, the yen paired with the dollar collapsed into the area of the 108th figure, showing a strong downside impulse. News from the Middle East has strengthened the anti-risk sentiment that has dominated the market for the past weeks amid the spread of coronavirus in the world.

It is worth recalling that Turkey is a member of NATO, that is, it can hypothetically insist on the intervention of the Alliance forces, according to the fifth article of the Charter of the organization (which provides for the general mobilization of forces in case of attack). The last time this rule was applied was after the September 11 attacks. But, according to some experts, such an option is now unlikely since the 9/11 attack was launched on the United States under the territory of the United States whereas the Turkish soldiers were in Syria. NATO Secretary-General has already condemned Syria for the air raid, but apparently, the use of the 5th article is out of the question.

Nevertheless, it should be noted that Ankara provides military support to the Syrian opposition, while the military forces of the Russian Federation actively support the Assad government forces. There is a Russian military contingent in the country, and Russian fighter jets are flying combat missions, providing assistance to Syrian aviation. Now we shift our focus to another question - will the deadly incident in Idlib escalate into a confrontation between Turkey and the Russian Federation? Yesterday, the Russian Ministry of Defense already accused Turkey of violating the de-escalation agreement. According to the head of the Center for the Reconciliation of the warring parties, Ankara "continues to actively support the actions of illegal armed groups by artillery fire and the use of reconnaissance and strike unmanned aircraft." Russian Foreign Minister Sergei Lavrov voiced similar accusations. According to him, Turkey does not fulfill several "key obligations" to solve the problems particularly that of around Idlib and Ankara did not separate the "opposition from the terrorists".

However, these statements were made before the airstrike, so it is impossible to project them on recent events. Now some Russian media write that the attack on the Turkish military column was an initiative solely by Assad's forces, while the Turkish military, who came under fire from Syrian troops, were among the advancing militants.

Whether Turkey agrees with this version is an open question. Today, Ankara will begin consultations with NATO - according to a spokesman for the ruling Justice and Development Party, his state sees the attack by the Syrian army as "an attack on the entire international community." In turn, the vice-president of Turkey Fuat Oktay said that the Assad regime "will pay a high price for the death of Turkish soldiers." He stated that Ankara was ready to retaliate against targets of its supporters.

Thus, the growth of anti-risk sentiment in the foreign exchange market is justified. The yen is growing even despite the negative macroeconomic statistics that came from Japan today. Also, Tokyo's consumer price index, which is considered a leading indicator for price dynamics across the country, continued the negative trend. Inflation in the capital has been declining for the third month in a row, signaling a slowdown in general inflation indicators. Moreover, the unemployment rate in Tokyo rose to 2.4%, reflecting the negative trend.

But the Japanese currency ignored these data. This suggests that the dynamics of the USD / JPY pair is completely dependent on the external fundamental background. If yesterday's incident in Idlib turns into a full-scale war, the yen will significantly strengthen its position throughout the market. Even hints of this scenario will put downward pressure on pair. The closest and most powerful support level is 107.70 - this is the lower border of the Kumo cloud, which coincides with the lower line of the Bollinger Bands indicator on the weekly chart.