Trading Tuesdays: Waiting for a USD rebound

West Texas Intermediate opened the week on Monday with a massive gap of over 5%, accelerating its upside to break through the critical $72 mark. The tremendous buying pressure around the US oil is solely attributed to the escalating geopolitical conflict between the United States and Iran, actively supported by Israel.

Gold is on fire at the start of the week, a widely expected move, as investors seek harbor in the traditional store of value, following the continued US and Israel attacks on Iran. The bright metal opened with a bullish gap of about $17 and rallied toward the $5,400 level as Asian traders hit their desks and reacted negatively to the weekend news of the Middle East conflict, rushing for cover in Gold.

AUD/USD has opened with a 1% bearish opening gap, heading toward 0.7000 in a dramatic start to a new week. Risk-aversion remains at full steam after the US and Israel attacked Iran in a coordinated move over the weekend and Tehran retaliated to the attack with force. The higher-yielding Australian Dollar is heavily sold off in Asia.

Markets are likely to open the week with risk-off, with declines led by airlines, cyclicals and trade-exposed names, while energy, defense and “strategic” sectors may be relatively steadier.

A primer on how markets will open on Monday, and why geopolitical risk may not be easily absorbed by financial markets this time around. Geopolitics and events between Iran, the US and the wider Middle East will dominate financial markets on Monday. The situation has continued to escalate as we move through Sunday. 

We expect the February employment report to show that January’s robust pace of job growth overstated underlying momentum in the labor market. We look for nonfarm payrolls to rise 45K in February, moderating from its current three-month average pace of 73K (Figure 1).