Middle East tensions escalated. And they could come mightily close to taking the lift.
Earlier in the session, Twitter streams were jammed of reports of missiles being fired at US airbases from multiple unverified ‘sources’. Not that it needed to be verified, as gold was already beginning to rally with crude oil, whilst US futures turned lower and the Swiss franc and Japanese yen assumed their usual role of safe-haven currencies. However, once the initial tweets were verified by official sources – it became a case of buy the rumour, buy the fact.
At their daily extremes, markets reacted as so:
- Gold: 7-year high
- Silver: 17-week high
- WTI: 9-month high
- USD/JPY: 3-month low
- AUD/JPY: 6-week low
One of the official sources was the Pentagon, who are now considered as a terrorist organisation by Iran’s parliament. The notes below are taken from Reuters.
- Iran launched more than a dozen ballistic missiles against U.S. military and coalition forces in Iraq
- It is clear that these missiles were launched from Iran
- Pentagon says "we are working on initial battle damage assessments"
- Pentagon says "we will take all necessary measures to protect and defend U.S. personnel, partners, and allies in the region"
Now the last sentence is worth focussing on, as it mentions “personnel, partners and allies” and not buildings or equipment. At time of writing, there have been no confirmed casualties from the initial attacks, so a logical assumption could be that the retaliation may not be enough to provoke another attack from the US. That said, Trump is yet to tweet. And that can certainly wreak havoc on markets, regardless of whether it proves to be reactionary bluster or the shape of things to come.
So for now, markets are essentially in a holding pattern waiting to see if tensions will escalate, subside, or take the lift one way of another.
WTI: Technically, WTI remain in a bullish channel on the four-hour chart. And it should be noted that the trend began before US fired missiles in Iraq. It should also be noted that, if things are to really escalate and go into a war, technical analysis has its limitations and support and resistance levels can easily be obliterated. But on a very basic level, if the oil supply comes under threat, it generally supports prices. Yet if tensions are somehow soothed (unlikely at this stage) then it could see oil par gains. In which case, we can refer back to the original these, which saw oil prices supported anyway.
Gold: 1600 is clearly a pivotal area whilst markets remain in a holding pattern. A bearish pinbar closed just beneath this key level and prices are now consolidating around this level as we await fresh headlines. With prices reaching a 7-year high, gold is clearly a go-to safe haven for investors around this theme. Yet it is also vulnerable to paring gains if US stand pat. That said, in similar vein to oil prices, that’s not to say they can’t go higher in line with their trend for other reasons further out.
S&P500 E-Mini: Currently within its most bearish session since October, the October trendline has been challenged. A break of which warns of a much deeper correction. We suggest keeping a close eye on how prices react around this trendline, alongside how gold reacts around 1600. If the trendline holds and markets rebound, it adds weight to the potential for gold to move back below 1600. As to how much is anyone’s guess at this stage, as it’s likely all down to Trump’s reaction and if it is confirmed by official sources.
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