Middle Eastern tensions influence fresh wave of risk aversion while trade deal optimism helps contain loss.
Summary: The global market finally saw major indices and key equities take backfoot post recent holiday season price rally. However, today’s dovish price action was the result of new geopolitical tensions escalating while one issue seems like it will settle down.
Following the attack on the US embassy in Iraq, the USA retaliated via an airstrike, which hit Baghdad international airport in which the top Iranian commander was killed. This retaliated was caused due to USA’s claims that recent attacks on the US embassy and Saudi Arabia were actions of Iran/Iran backed militia which has caused Iran to threaten with retaliation.
As tensions rise in the Middle East creating a possibility for attacks on global crude oil supply from the gulf region, major global indices and risk assets took a nosedive in the last trading session of the week. In the Forex market, USD firmed up following rebound in the previous session, which when combined with today’s risk aversion, caused major global currencies to trade with a dovish note.
Precious Metals: As tensions spiked on escalating tensions in the Middle East following US attack on Baghdad airport, safe-haven assets saw a sharp spike in demand today. While all major rare metals traded on a positive note, Gold prices scaled a fresh four-month high and remained near intraday highs across European session.
Crude Oil: The price of liquid gold also saw a sharp surge today similar to the yellow metal. Escalating middle eastern tensions posed a problem for crude oil supply coming from straits of Hormuz, which along with current OPEC supply cut agreement and trade deal optimism, helped push the price of crude oil futures up by nearly $3 scaling fresh multi-month highs in trading session today.
AUD/USD: The pair fell to fresh weekly lows today as broad-based risk off mood over escalating Middle Eastern tensions weighed down AUD bulls. Further, firm USD in the global market also added pressure to the Chinese proxy, while trade deal optimism helped curb steep declines during the last trading session of the week.
On The Lookout: All eyes continue to focus on Middle Eastern tensions. Following the US attack on Baghdad airport which saw the death of Iranian Major-General Qassem Soleimani and Iraqi militia commander Abu Mahdi al-Muhandis, global investors are afraid of tensions in the Middle East erupting into war or possible attacks on global crude oil shipments in straits of Hormuz. This caused a huge wave of risk aversion in the global market. Even if the war between the US and Iran occurs in proxy in Iraq, it could still affect global crude oil output, given the fact that Iraq is the second-largest supplier of crude oil in the global market.
However, signs of progress in the trade deal between China and the USA continue to provide market bulls with some level of fundamental support preventing major global risk assets from seeing sharp meltdown on fresh waves of risk-averse market mood. In North American market hours today, traders await the release of US ISM Manufacturing PMI/Prices/Employment and EIA weekly crude oil inventory data while the Canadian calendar sees speech from BOC Gov Council Member Wilkins.
Trading Perspective: Firm USD and broad-based risk aversion on escalating Middle Eastern tensions are expected to keep major forex pairs trading with a dovish bias on the last trading session of the week. Wall Street futures trading in the international market also declines ahead of US market hours on escalating middle eastern tensions, which along with cues from Asian and European markets, suggests that Wall Street is set to see sharp declines during today’s trading session.
EUR/USD: The pair was already trading around mid-1.11 in early Asian session over firm USD. The pair declined further and fell below the 1.1140 handle as tensions in the Middle East escalated over US airstrike in Baghdad airport, and German data saw a mixed outcome. Traders now await US data for short term profit opportunities.
GBP/USD: The pair is trading with a clear dovish bias for the third consecutive trading session today. Firm USD and escalating risk aversion in the global market added initial pressure to GBP bulls, which were further compounded over disappointing UK construction data causing pair to finally move below 1.31 handle. Traders now await US data for short term profit opportunities.
USD/CAD: The pair is trading directionless today as neither side managed to gain the upper hand. On one side, escalating middle eastern tensions fueled crude oil price underpinning commodity-linked currency Canadian Loonie. On the other hand, the global market saw risk-averse activity over the same issue, which also underpinned USD given its status as Pseduo safe-haven currency. As both sides tried to gain a leg up over the other the price was mostly moving in a zig-zag fashion. Traders now await US data and BOC Wilkins speech for short term profit opportunities.
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