Market Insights 14 January 2020

Market Overview

The big item for today was a quick run of fear from last night that, largely, has been priced-out of markets. Upon news that Iran had sent a series of missiles towards a military base in Iraq, the initial response was one of fear with US equity futures tumbling as Gold and Oil prices spiked. Those moves proved to be temporary, however, as a tweet from Iran’s Foreign Minister indicated that the missile strike was a ‘one and done’ in response to the US drone strike that killed Qassem Soleimani. S&P 500 equity futures are already back above yesterday’s close, Gold prices have given back most of that spike and Oil prices have taken all of those gains out, and then some.

Forex Calendar

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EUR/USD is currently trading at 1.1135, representing marginal gains on the day, having hit a low of 1.1085 on Monday. On the daily chart, the pair is stuck in a falling channel which formed from December 31 last year. The pair is trading within a striking distance from the channel resistance at 1.1145. A convincing move through that level would imply an end of the pullback from recent highs near 1.1240 and will likely bring in a re-test of that level. On the other hand, a rejection at the falling channel resistance may end up inviting stronger selling pressure, leading to a drop below 1.1085, the lowest from last week.

It was a bad day for Pound. Weekend comments from BOE’s Vlieghe, indicating that he will vote in favour of a looser monetary policy, triggered a bearish gap in GBP/USD at the weekly opening. The gap remains unfilled, as UK data released during London trading hours missed the market’s expectations further weighing on Sterling and sending the pair as low as 1.2960. Industrial Production fell by 1.6% YoY in November, worse than the -1.4% expected, while Manufacturing Production declined in the same period by 2.0%. GBP/USD ran into offers on Monday as expected and fell below 1.30, validating the sign of buyer exhaustion on the weekly chart. The pair now looks set to test the head and shoulders support at 1.2960.

USD/JPY soared to its highest since May 2019, taking out a couple of key psychological barriers. The first is a falling trend line from November. The second is composed of highs from the last two months of 2019. This makes for a horizontal range between 108.40 to 109.70. A further upside confirmatory breakout close opens the door to extending the dominant uptrend from August as prices eye 110.67, the previous high from last May.

AUD/USD extends losses below a break of 0.6900, as the sentiment around the Aussie dollar is hit by the expectations of weaker Australian Retail Trade data, in the wake of a significant negative impact from the Australian bushfire crisis. Eyes on China Trade data and phase one deal signing. The support level is near 0.6850. And the resistance level is at 0.6930.

XAU/USD is moving in a consolidation range, between $1540 and $1560. It dropped to the mentioned area after hitting multi-year highs above $1600 last week. The retreat could continue if gold breaks under $1540. The next strong support area might be seen at $1515 - $1525. The dominant trend still points to the upside, but it has lost momentum over the last sessions. A firm recovery in XAU/USD above $1563 could signal more gains ahead. The next resistance is seen at $1575.

West Texas Intermediate crude oil is currently trading at $58.20 having travelled between a low of $57.90 and $59.25, well below the $65.64 post Iranian missile strikes on Iraqi targets. The daily chart shows that the recent sell-off has seen oil fall through its supportive trend started off the October 3 low just around $51.0. This trend line will now act as resistance until crude oil breaks and closes above.