Markets make a roller-coaster ride on war games

Forex Signals US Session Brief, Jan 8 – Volatility Increases on US-Iran Tensions

Posted Wednesday, January 8, 2020 by
Skerdian Meta • 4 min read

The end of last year was pretty quiet, following the UK elections and the Phase One deal between US and China. We saw a surge in risk assets that day, but the volatility was reduced and traders came back with feet on the ground, after the initial optimism following those two events. Markets remained quiet until the new year, apart from some broad USD selling in the last few days of 2019, due to year-end cash flow. But, last Friday the situation reversed and risk assets tumbled, while safe havens surged higher after the US killed the top Iranian military leader.

The situation calmed down earlier this week, but last night Iran attacked some US bases in Iraq, where they claim to have killed around 80 personnel. The US denied any casualties and said that Iran shot to miss. Traders ran away from risk assets again during the attack in the Asian session, but after the US didn’t appear too bothered to respond, things calmed down and the sentiment improved. All global actors joined in, demanding de-escalation. Markets got back to where they were before the attack and now traders are waiting to see how this will evolve from here.

The European Session

  • German Factory Orders – Factory orders have been very volatile in Germany for the past 2 years and in October they posted a 0.4% decline. Although, that was revised higher to 0.2% today, which was a good thing, but November’s orders posted a big decline of 1.3% against a 0.2% increase expected. Factory orders WDA -6.5% vs -4.7% y/y expected. Prior  stood at-5.5% but was revised lower to -5.6%.
  • The Iran/Iraq Side of the Conflict – Iraq’s militia leader commented earlier this morning saying that the first Iranian response has happened, now is time for the first Iraqi response. Just be reminded that the US airstrike also killed one of Iraq’s top military generals, Abu Mahdi al-Muhandis. Iranian defence minister, Amir Hatami added that Iranian response to any US retaliation will be proportional to what the US will do. Trump has turned US administration into a “terrorist government”, according to him.

  • Eurozone Final Consumer Confidence – The final reading of consumer confidence for December came at -8.1 points as the first reading, down from -7.2 points in November. Below are the details
    • Prior -7.2
    • Economic confidence 101.5 vs 101.4 expected
    • Business climate indicator -0.25 vs -0.18 expected
    • Industrial confidence -9.3 vs -9.0 expected
    • Services confidence 11.4 vs 9.5 expected
  • Not Enough Time for An EU-US Trade Deal – European Commission president, Ursula von der Leyen commented a while ago on the Brexit issue, saying that there is not enough time for a full UK-EU deal by the end of 2020. So EU and UK will have to prioritise what they want agreed by the end of 2020 if there is no extension to the transition period.

The US Session

  • US ADP Non-Farm Employment Report – US ADP non-farm employment change report was released and it looks pretty good. December ADP employment increased by +202K against +160K expected. Below are the details:
    • November was +67K (revised to +124K)
    • Small business +69K vs +11K prior
    • Midsized business +88K vs +29K prior
    • Large business +45K vs +27K prior
    • Goods producing +29K vs -18K prior
    • Service providing +173K vs +85K prior
  • ECB’s Lagarde Fearing A trade War With US – Christine Lagarde is the new president of the European Central Bank,if you have missed it, after taking over mario Draghi and coming from the IMF, so talk abouit the recycling of top jobs within few elites. Anyway, she made some comments just now, saying that the biggest threat to economy is downturn in trade. EU will recover from Brexit but will need to bolster its efforts to compensate.

Trades in Sight

Bullish GOLD

  • The trend has been bullish for a long time
  • The upside has picked up pace
  • Fundamentals are bullish
  • The retrace down is complete
  • The 20 SMA is providing support
The 20 SMA seems to be providing support on the H4 chart

The global economy has weakened a lot in the last two years and continues to be in a difficult spot. As a result, safe havens have been in demand during the last year, particularly Gold. The geopolitical tensions have added fuel to the bullish trend in Gold and the recent tensions between US and Iran have sent Gold surging higher. Gold surged around $90 higher after the top Iranian military leader Soleimani was killed last Friday and today is surged $60 higher again after Iran retaliated, attacking US bases in Iraq. Fears of another war in the Middle East increased, which might turn into a nuclear war, as Russia pointed out.

But, the US has taken the missile attacks easy. They said that there were no casualties and Iran shot to miss. Well, we surely hope it was like that. So, Gold has retraced lower, but it has been finding support at the 20 SMA for the past few hours on the H4 chart. Now the pullback is complete for Gold and this looks like a good opportunity to go long from here. Tensions still continue and the global economy is not going to boom anytime soon, quite the opposite, so Gold will likely remain bullish for quite some time.

In Conclusion

Markets went through a roller-coaster ride today. Safe havens surged when Iran war missiling US military bass in Iraq, but after the US refrained from retaliating or sending strong signals, the fears of another war faded and the sentiment improved. Right now, traders are waiting on the sidelines to see where this will be going from here on.

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