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Morning wrap

6:29 AM January 8, 2020
  • Iran launched missile attacks on US targets in Iraq. Reports say that around 15-20 ballistic missiles were launched from the Iranian territory. Iran claims that 80 “US terrorists” were killed in the attack

  • Donald Trump tweeted after the attack that “all is well” and that he will be making a statement on the issue today. No US reports on casualties have surface yet

  • Iran said that attacks are retaliation for the killing of top Iranian general and that they conclude Iran’s action against the United States unless the country retaliates.

  • Boeing jet heading to Kiev from Teheran crashed shortly after take-off. All on board were killed. Reports on the number of casualties range from 165 to 180. Technical issues are cited as a reason behind the crash

  • Safe haven assets jumped following Iranian missile attacks. However, much of this gain was erased after Iran said that it is not seeking a war with the United States

  • Lacklustre moods can be spotted on the Asian stock exchanges as investors fear that a war may be looming. Nikkei closed 1.57% lower while S&P/ASX finished 0.13% lower. Most of the Chinese indices decline around 1%

  • Oil surged in the aftermath of the attack. Brent jumped to $71 handle but much of this gain was erased already

  • Australian building approvals for November jumped 11.8% MoM (expected 2% MoM)

  • API said that crude oil stockpiles declined 5.95 million barrels last week

Brent (OIL) surged as Iranian missile attacks as investors fear that a war may be looming. OIL launched today’s trading near $71 handle that coincides with the 78.6% Fibo level of the downward move started in April 2019. However, as fears started to abate, crude started to erase gains. Source: xStation5

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Gold hits $1610 as Iran responses

6:51 AM January 8, 2020

A fresh turmoil has been seen on the markets today as investors have been rattled by Iran’s rocket attack on the US military base in Iraq in response to the killing of the Iranian commander. Indices plunged while oil and gold rallied. Gold crossed the $1600 barrier for the first time since 2013 and although markets have calmed down a bit the gold rally looks very well supported. The key support is at $1557 while there’s no obvious resistance in sight.

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Economic calendar: Middle East tensions in the spotlight

7:12 AM January 8, 2020
  • Donald Trump to deliver a statement on Iranian missile attacks

  • ADP employment report to be released in the early afternoon

Economic calendar on Wednesday is light but the day is likely to be interesting. Markets will be focused on the Middle East tensions following Iranian missile attacks on the US targets in Iraq. The US President, Donald Trump, said he will deliver a statement on the issue today. Such a statement is expected before or around the US stock market open. Apart from that, traders should follow news flow in an attempt to assess whether the conflict will escalte further or not.

Macro readings to watch today

8:30 am GMT – Sweden, retail sales for November. Expected: 0.2% MoM. Previous: 0.2% MoM

1:15 pm GMT – US, ADP employment change for December. Expected: 160k. Previous: 67k

3:30 pm GMT – DOE report on oil stockpiles. Expected: -4.1 mb. Previous: -11.66 mb

Central bankers’ speeches

  • 8:00 am GMT – ECB’s Knot

  • 10:00 am GMT – BoE’s Haldane

  • 1:00 pm GMT – ECB Vice President Guindos

  • 3:00 pm GMT – Fed’s Brainard

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Markets recover after being roiled by Geopolitical tensions

Summary:
  • Clear risk-off moves after Iran retaliates

  • Initial moves pared however

  • Boeing to drop after Tehran crash 

 

There were some wild swings in the markets overnight after Iran carried out its retaliation for the US attacks last week. More than a dozen ballistic missiles were aimed at US forces in Iraq in the first military move against Washington since the killing of Qassem Soleimani. Oil prices jumped with brent crude moving above its recent peak to trade close to the $71 handle while Gold prices surged above the $1600/oz mark to hit levels not seen since Q1 2013. US stock futures tumbled by more than 1.5% as a clear risk-off mood gripped the markets. 

 

However, these moves were subsequently pared and this has become a recurring theme in recent sessions as the initial knee jerk reaction faded back. The rationale for this seems to be that despite the clear escalation in US-Iranian tensions over the past week traders are still of the belief that things won’t get as bad as many have feared. Defence minister, Amir Hatami, has said that the response will be proportional and it is perhaps telling that the attacks seem to have been directed as to not cause maximum damage. We still await a detailed response from Trump, but his initial reaction on Twitter with a post that began with “All is well” suggests that the retaliation may not have further angered the US president. 

 

While the markets remain on tenterhooks, fearful of any further escalation, there is a growing feeling that the latest events could have signalled a high-water mark in tensions between Tehran and Washington and hopefully the situation will not flare up any further. 

Risk off moves were seen in USDJPY (Green/Red candles) and the TNOTE (Blue/Transparent candles) as Iran launched the retaliatory attacks. However, both these markets have since pared the moves to trade back near where the were before the news broke. Source: xStation 

USDJPY is forming a large bullish hammer on D1 as the market looks to recover after being rocked by the latest tensions in the Middle East. Source: xStation 

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Special report: Gold gains on Middle East tensions

Gold price has been on the rise for a long time. Gold gained over the past year in spite of upbeat moods on the global financial markets. Investors are aware that central banks are getting more and more involved in stimulating the economy and they try to diversify their portfolios with precious metals. Precious metal has become even more active as tensions in the Middle East began to rise. What does it mean for gold?

Investors still consider gold as a safe haven

Killing of Qasem Soleimani in Iraq by US forces increased tensions in the region and created risk of a bigger military conflict. Moreover, the assassination crushed hopes for signing of a new nuclear deal and made Iran withdraw from its current uranium enrichment commitments. Iran also vowed to retaliate against the US for killing of one of its top military officials. We did not have to wait long for this response as it came less than a week after Soleimani killing. Iran launched a missile attack on the US targets in Iraq and claimed to have killed 80 US soldiers. However, US have not confirmed news on the number of casualties. Nevertheless, gold benefits on the situation and has risen over 5% since the beginning of the conflict. Precious metal even broke above the $1600 handle for a brief moment. What’s next?

Comparison of gold price performance over the first 60 days of various Middle East military conflicts. Source: Bloomberg, XTB Research

Let’s take a look at how gold price performed during previous military conflicts in the Middle East. Current price performance looks similar to two other periods: aftermath of the WTC attacks (black line) and the First Gulf War (red line). What one may find interesting is that gold price performance was completely opposite during the Second Gulf War. This can be explained by the fact that a start to the conflict was expected back then. Nevertheless, gold price began to rise later on. It should be noted that price gain in 3 of the mentioned conflicts ranged from 7% to 12%. However, one should keep in mind that market’s reaction to uncertainty weakens over time and fundamental factors start to play a major role.

Gold is supported by strong fundamentals

Gold price has been on the rise for some time already. ETF holdings of gold grew significantly in the past two years, what reflects rising interest of gold investments. Concerns over global slowdown combined with concerns over the impact of prolonged period of quantitative easing made central banks buyers of gold once again. Polish, Chinese, Russian, Turkish and Indian central banks made biggest purchases of gold in the previous year. Prevailing economic uncertainty, rising inflation as well as declining interest rates could support investment demand for gold going forward. Central banks purchases and investment demand accounted for over 50% of the global demand for gold in the Q3 2019. 4-quarter moving average for those two factors has been rising for some time. Moreover, should the US dollar start to decline, Asian jewellery demand could pick-up as well.

4-quarter moving average for the share of investments and central bank purchases in the global gold demand. Strong rebound can spotted over the past two years. Taking a look at current macroeconomic and geopolitical trends, importance of those two factors may continue to increase. Source: Bloomberg, XTB Research

Share of investment demand and central bank purchases in the global gold demand has been on the rise in recent quarters. Simultaneously, jewellery demand remains muted due to strong US dollar. Weakening of the US currency could change the situation. Moreover, it should also support investment demand and central bank purchases. It should be noted that at the turn of the previous decade share of investments was even greater than today. Source: Bloomberg, XTB Research

Beware of market being overbought!

Gold has a very strong fundamental support. Apart from that, geopolitical uncertainty additionally boosts speculative demand. However, this means that the market is strongly overbought and short-term traders could start to book profits once the situation calms. Positioning data confirms that the market is overbought. However, in case fundamentals remain supportive, long-term investors could take advantage of this profit taking.

Long, short and net speculative positioning sits at extreme levels. It shows that the gold market is overbought and vulnerable to a pullback in case situation in the Middle East calms. Such a situation could be an opportunity for investors with longer investment horizon. Source: Bloomberg

Potential correction looks support from a technical point of view. Market realize the range of a break out of the triangle pattern and we can observe a supply-side reaction to the 61.8% Fibo level of the 2011-2015 downward move. Easing of tensions in the Middle East could be a trigger for a correction. Strong support can be found near the upward trendline slightly above $1400 handle. On the other hand, should gold continue to rally, bulls could aim for the $1700-1740 area. Source: xStation5

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Technical alert: AUDUSD

  • Key support: 0.6850
  • Key resistance: 0.6930

Looking at the AUDUSD chart, one can see that the price reached the key support at 0.6850 where demand-side reaction occurred. Zone marked with green colour results from the lower limit of Overbalance structure and 50% Fibonacci retracement of the whole upward impulse. As long as the price sits above it, the pair could recover from recent falls. The nearest resistance to watch can be found at 0.6930. 

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Breaking: Trump de-escalates Iranian tensions

An eagerly anticipated speech from Donald Trump has caused a clear market reaction with the US president choosing to avoid any further escalation between Washington and Iran. The statement was in keeping with his tweet in response to the retaliatory attacks carried out by Iran overnight and for now investors can breathe a big sigh of relief. It may be a little presumptuous to assume this is the end of the matter, with tensions no doubt set to linger but the avoidance of any hints at further military action have calmed the market’s nerves. Wall Street is now closing back in on record highs with S&P futures trading up by 0.5% on the day after falling more than 1.5% during the Asian session. Gold has tumbled as investors sell-out of the safe haven asset while yields on US government bonds have rallied as the markets move back into risk-on mode.    

The US500 has responded positively to the speech with the market moving up to its highest level of the day, some 80 points off the lows, and now trades within striking distance of its all-time high of 3263.

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Morning wrap

  • Donald Trump decided to steer away from deeper military conflict with Iran after Iranian missile attacks turned out to be harmless. However, US President vowed to impose more sanctions on Iran

  • United States said that they are ready to engage in negotiations with Teheran to de-escalate tensions in the region

  • Markets are delighted to see war being avoided. US indices closed higher yesterday with Nasdaq leading the way (+0.67%). Gains are even bigger in Asia, where Nikkei added 2.31% and Hang Seng is trading 1.4% higher. Australian S&P/ASX 200 closed 0.83% higher.

  • Safe haven assets are pulling back with JPY and CHF being the worst performing currencies in the G10 group. Gold moved back to the $1550 area. GBP and AUD are the strongest majors today.

  • Oil posts a small gain in the morning after taking a steep dive yesterday. WTI trades near $60 while Brent approaches $66

  • China’s CPI remained at 4.5% YoY in December in spite of an expected acceleration to 4.7% YoY. PPI jumped from -1.4% YoY to -0.5% YoY (expected -0.4%).

  • EC President, Ursula von der Leyen, said it would be impossible to meet Johnson’s deadline and get full EU-UK deal before year’s end

Chinese index (CHNComp) retested the price zone ranging above the 11000 pts handle after a succesful break. The index seems to be readying for another upward impulse. Traders should watch recent peak at 11450 pts and 2019 highs at 11850 pts. 

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BREAKING: DE30 hits the highest level in 2 years

Market sentiment turned from panic to euphoria in less than 24 hours yesterday and we are looking at a continuation of buying spree today. DE30 was below 13000 just yesterday morning but has added more than 500 points (!) since then and is trading at the highest level since January 2018, less than 1% off the all-time highs. Trades looked past the fundamental data from Germany where industrial output was slightly better than expected but exports collapsed.  

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Breaking: Pound slides on dovish Carney

There’s been a move lower in the pound in recent trade after Mark Carney delivered a fairly dovish address in London. The outgoing BoE Governor warned that the rebound projected in the bank’s forecasts for this year was not assured and stated that the pace of economic growth in the Uk has slowed below its potential. Arguably the most dovish line was that the “MPC are debating the merits of near term stimulus” and the pound has responded in kind, dropping to its lowest level of the year against the US dollar and trading in the low $1.30s.  While this shouldn’t come as a huge surprise given that there has been a couple of MPC dissenters calling for lower rates at the past two policy meetings, it is the strongest hint yet for a rate cut in the not too distant future.

GBPUSD has dropped to its lowest level of the year in recent trade, breaching the $1.3050 handle after comments from BOE Governor Carney

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Technical alert: USDCAD

  • Key support: 1.2955
  • Key resistance: 1.3060

Looking at the USDCAD chart, one can see that the price reached the key resistance area at 1.3060. Zone marked with pink colour results from the upper limit of Overbalance structure and price reactions from October 2019. As long as the price sits below it, there is a chance for a resumption of a downward move. The nearest support to watch can be found at 1.2955, where recent lows are located. However, a break above the 1.3060 handle could trigger a bigger upward impulse.

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Wall St. set for record open

  • New ATHs for US500 and US100

  • US30 testing prior peak

  • Initial jobless claims beat forecasts

 

Stock markets are back in a bullish mood as the de-escalation of tensions between the US and Iran means that despite some volatility in the past week, indices are once more pushing higher. Trump’s press conference yesterday was seen as pivotal and the decision to not adopt a more aggressive stance suggests that despite the hyperbole in recent days, the situation remains under control. Both the US500 and US100 have surged to their highest ever level and they are also set to have their highest ever open when the cash session starts at the bottom of the hour.

The US100 printed a large bullish hammer yesterday and the market remains in a bullish mood, chalking up a new all-time high ahead of the cash open. The RSI is in between 70 and 80 to suggest moderately overbought conditions and there’s also some negative divergence seen in this indicator. However, in the absence of any reversal signals the path of least resistance remains higher. Source: xStation

The US30 is lagging behind the other two large-cap US benchmarks but is now probing its previous record peak around 28890. A clean break above here could see this market join in the breakout rally seen in the US500 and US100. Source: xStation 

 

  • On the economic calendar today there’s not too much of importance with the weekly jobless claims the biggest release. A print of 214k was better than the 220k estimate while the prior was revised down by 1k to now stand at 222k for good measure. Similar to yesterday’s ADP this is a solid reading and raises expectations ahead of tomorrow’s NFP report. 
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Daily summary: new records, stronger dollar

  • US indices at fresh all-time highs as market falls into complacency again
  • US dollar gains, investors hope for a strong NFP report
  • Oil crashes for the second day

After a massive recovery yesterday, markets fell into complacency today, clearly assuming that all geopolitical tensions were over. Indeed there was no major escalation in the Middle East and while one cannot be sure what’s next as relations are tense, investors just moved on. However, judging by the moves it looks nearly as if all what’s happened was risk positive with key indices higher than before the Soleimani death. Adding to this sentiment were rumors that the Phase One deal will be signed next week in Washington. However, the Chinese delegation will be led by vice-prime minister and president Xi will not sign the document itself. Does that decrease the significance? It’s hard to tell now, investors clearly are not concerned. All the major US indices (US500, US100, US30) have soared to their all-time highs today.

Regardless of what people think about this practice, Donald Trump leaves little doubt about his election strategy in terms of markets. Source: twitter

While the German DE30 lagged the US in December, it has entered the party mode too. The index is over 500 points higher from yesterday’s open. The data from Germany did not stand in the way even though it showed annual decline in orders, output and exports (with the trade data being especially gloomy). DE30 is less than 1% shy off it’s all time high from January 2018.

Meanwhile, the US dollar has gained for the second day as traders brace for a strong NFP report (due tomorrow, 1:30pm GMT).  This will be the biggest release this week and it could be a make-or-break for the greenback as the EURUSD is back at 1.11.

Strong risk sentiment traditionally lifts oil but it’s not the case now as worries about Middle East escalation fade. OIL and OIL.WTI are literally crashing for the second day. Gold and silver are down as well although gold is trying to consolidate around $1550.

A perception of Middle East de-escalation has really been a massive hit for OIL.WTI. Bulls are now trying to at least defend the $59 support zone. 

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Morning wrap

  • US indices finished yesterday’s session significantly higher. Nasdaq surged 0.81%, Dow Jones added 0.74% and S&P 500 moved 0.67% higher. Moods in Asia are mixed. Nikkei closed 0.38% higher and S&P/ASX 200 added 0.80% but Chinese indices trade lower.

  • Most of the major currencies trade in narrow ranges. Australian dollar is an exception as better than expected retail sales data for November caused the currency to strengthen. Market odds for a RBA rate cut in February slipped below 50%

  • Another currency that trades noticeably higher today is the British pound. GBP gains after the House of Commons passed Boris Johnson’s Withdrawal Agreement. Now the Lords will have they say but it is likely that the bill will be approved quickly

  • Donald Trump said that “Phase One” trade agreement will be signed on January 15 or “shortly after”

  • Democrats in the House of Representatives voted to limit the President’s authority to strike Iran. The move is mostly symbolic and is unlikely to be supported by Republican-controlled Senate

  • Prime Ministers from UK, Australia and Canada said intelligence data hints that Boeing jet in Iran was unintentionally brought down by a missile strike. Iran invited involved countries as well as Boeing for an investigation

  • Japanese household spending dropped 2% YoY in November, marking an improvement against -5.1% in October. Decline in spending is a result of sales tax hike that took place at the beginning of Q3 2019

Australian dollar caught a bid following better than expected retail sales data. AUDUSD is bouncing off the support zone that coincides with an intersection of 50- and 200-session moving averages. 0.6925 handle is the first near-term resistance to watch

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Morning wrap

  • US stocks finished Friday’s session lower following a mixed NFP report for December. Dow Jones slipped 0.46%, S&P 500 dropped 0.29% and Nasdaq finished 0.27% lower. NFP report showed robust jobs growth and deceleration in wage growth

  • Asian indices are trading mixed at the beginning of a new week. Chinese investors remain optimistic about the planned signing of “Phase One” trade deal this week and in turn we can observe Chinese indices trading higher. On the other hand, Australian S&P/ASX 200 finished 0.37% lower. Japanese stock market was shut for holiday

  • Optimism can be also spotted on the commodities markets with crude posting a small gain and copper advancing

  • British pound is the worst performing G10 currency on Monday morning. Sterling declines after BoE’s Vlieghe said that he will vote for a rate cut in case the economy does not improve. Similar comments were delivered on Friday by another BoE member, Silvana Tenreyro.

  • Major protests were launched in Iran over the weekend after the country’s authorities admitted to downing Boeing jet. Protesters demand resignation of top Iranian politicians, including Supreme Leader Ali Khamenei.

  • Tsai Ing-wen won presidential elections in Taiwan, which were held over the weekend. Tsai Ing-wen vowed to defend Taiwan’s sovereignty and is viewed as being sceptical towards China. Outcome of elections showed that Xi Jinping continues to lose grip over Taiwan

  • Steven Mnuchin, US Treasury Secretary, said that Boeing struggles may erase around half a percentage point from the US GDP growth in 2020. However, Mnuchin said that he still expected US growth to come in at around 2.5% in 2020

  • North Korea said it will not trade its nuclear weapons for lifting of sanctions

Korean index (KOSP200) continues to recover after a 2-year downward move. The index attempts to break above the psychological 300 pts handle today, that also acted as a upper limit of the short-term consolidation range in late-August 2018. KOSP200 is trading at a 3-month high. 

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Technical Alert – EURUSD

Following a weaker than expected NFP report on Friday the EURUSD managed to defend the 1.11 barrier and bulls attempt to take advantage of it today. Although a longer trend on the pair still lacks momentum, one may see that local lows and highs move regularly higher. The direct resistance now would be 1.1175 followed by a recent high of 1.1239.  

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Technical alert: USDJPY

USDJPY is trading at the highest level since May 2019. As long as  the price sits above 10965 handle, the upward move looks more probable. The nearest resistance to watch can be found at 110.70, where the 78.6% Fibonacci retracement and previous price reactions are located.

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Morning wrap

  • Risk-off moods can be spotted on the global financial markets as China-US tensions are set to remain after signing of ‘Phase One’ trade agreement. US that it will not cut more tariffs until after November elections. Steven Mnuchin added that there is no timeline for ‘Phase Two’ trade talks

  • Signing of ‘Phase One’ trade agreement is scheduled for 4:30 pm GMT. Mnuchin said that trade deal documents will be released today

  • US indices finished yesterday’s session lower with S&P 500 dropping 0.15% and Nasdaq closing 0.24% lower. Dow Jones managed to post 0.11% gain, thanks to solid earnings from JP Morgan

  • Stocks in Asia also trade mixed with Chinese indices losing ground and Nikkei closing 0.52% lower. On the other hand, Australian S&P/ASX 200 added 0.47%

  • Moves on the market are limited with GBP being top gainer and AUD being top laggard. US dollar index trades 0.05% lower

  • Trading on commodity markets is mixed but risk-off tones can be spotted there as well. Precious metals push higher while base metals trade lower. Crude is making a small pullback. Wheat is the best performing agricultural commodity

  • PBOC announced it will boost liquidity by injecting 300 billion yuan through medium term lending

  • According to Reuters report, US Commerce Department drafted a rule that would allow to block exports to Huawei if US components make up more than 10% of product value

  • Preliminary data from Japan for December showed machine tool orders dropping 33.6% YoY

Gold gains today as markets remain concerned about China-US relations. Note that the precious metal painted a pin bar yesterday at the price zone marked by 38.2% Fibo level and previous price reactions. Should the commodity continue moving higher, the recent peak at $1575 could be in play once again. 

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BREAKING: GBPUSD deepens decline after inflation miss

The UK CPI inflation data for December was released at 9:30 am GMT. The reading showed price growth slowing from 1.5% YoY to 1.3% YoY while markets expected price growth to remain unchanged. Prices remained unchanged on a monthly basis (0% MoM). The release can be considered a disappointment and market acts in-line with it. GBPUSD extends drop and continues to trade within the  support zone.

GBPUSD dips further into the support zone after CPI inflation data came in weaker than expected. 

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Technical alert: Gold

Looking at the gold chart, the price of this precious metal rebounded today from the resistance at $1557. The level is marked with the upper limit of the Overbalance structure. As long as the price sits below it, one could expect a decline towards recent lows at $1535. On the other hand, a break higher could see upward move accelerate and move towards the next resistance at 1580$.

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