FX Commentary – Middle East Tensions Intensified

Market Talk

  • Tensions elevated last Friday and continued into the new week after Iran’s top military commander, Qassem Soleimani, was killed in a U.S. air strike in Baghdad. This raise concerns of retaliation from Iranian forces in Middle East as Iran vowed revenge for the killing of head of its elite Quds Force.
  • The Yen and gold extended a flight to safety that began on Friday with Gold jumping as much as 1.8%, or $28 per ounce, in early Asian trade to an almost seven-year high of $1,579.55 while the Yen matched a three-month high in the wake of the fallout.
  • Oil prices surged 3% on Friday on worries that a potential conflict between the U.S. and Iran could disrupt energy production in the region helping the Canadian dollar gained against the US dollar.
  • The United States said it detected a heightened state of alert by Iran’s missile forces and President Donald Trump warned of a “major retaliation” if Tehran retaliates. Iran said it would no longer abide by any limits on its enrichment of uranium increasing tensions in the Middle East.
  • Data from the Institute for Supply Management showed a bigger-than-expected contraction in U.S. factory activity in December, which declined by the most in more than a decade, raising concerns of slowing U.S. economic growth.

Chart Focus EUR/JPY
Key Points
1. Sell EUR/JPY recommendation
2. Sell EUR/JPY at 120.95. Stop at 121.35 and target at 120.15
3. Middle East tensions and poor Euro zone PMI data are likely to benefit safe haven JPY
4. A Double Top chart pattern with bearish MACD is a hint of further price decline

Fundamental Comments
1. Middle East tensions are likely to benefit safe haven yen.
2. Poor Euro zone PMI data is likely to weigh on the Euro dollar

Technical Comments
1. A breakout of a Double Top chart pattern is a hint of a further decline for price
2. MACD is bearish and is likely to move lower again after a correction

Key Levels

Support 120.40120.15119.95
Resistance 120.75121.00121.40

Technical Overview

USD/JPY – Last Friday, we had warned of a test of 107.75 and today price has reached this target. Both Stochastic and MACD are showing bullish divergence warning but in view of the current Middle East tensions, we think a reversal is unlikely. Rather a pullback or consolidation is more likely. Look to sell pullback to 108.30.

Support 107.75107.35106.95
Resistance 108.00108.30108.65

USD/CNH – Price is currently in a rectangle chart formation and could be testing the upper boundary at 6.9745. A breakout of this high is likely to see a price test of 7.00. Stochastic is rising but is already in the overbought zone. MACD is bullish and rising and there could be more upside potential. The first target if price breaks above 6.9745 is 6.9845.

Support 6.97106.96706.9635
Resistance 6.97506.98106.9850

GBP/USD – Price was supported by the Fibonacci 62% of the rally from 1.2905 to 1.3286 at 1.3050 but the rally looks weak. As long as price stays above 1.3050, it is likely to test 1.3150 as Stochastic is turning up. MACD is also turning up from a bearish zone. If price is unable to move above 20EMA resistance at 1.3115, it is likely to break 1.3050 for a test of 1.2970.

Support 1.30501.30101.2965
Resistance 1.30901.31201.3160

XAU/USD – Price gapped above the previous high of 1556 this morning to a high of 1586. Stochastic is showing a divergence warning and MACD, while still bullish may have hit a peak. We see a pullback for today to 1556-1560 to fill the gap. This could also be an opportunity to accumulate as the bullish trend has resumed.

Support 1566.301556.851546.10
Resistance 1579.701592.401611.10

USD/CAD – Our sell recommendation on this pair was filled 4 minutes before NY closing on Friday. Price has declined as a result of a surge in crude oil price. We would recommend bringing stop loss lower to 1.3010 while keeping profit objective unchanged at 1.2950. Stochastic and MACD are both declining. 20EMA is also bearish.

Support 1.29501.29151.2880
Resistance 1.29801.30101.3045

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