A sense of calm prevailed heading into early Europe after markets witnessed a significant turnaround in the risk sentiment on restrained US response to Iran’s missile attacks on US airbases in Iraq. Iran retaliated to the US killing of Quds Force leader Soleimani last Friday. Further, calls for de-escalation from both sides and US President Trump’s confirming of negligible damage/ casualties helped the risk recovery.
In a knee-jerk reaction to Iran’s retaliatory action in early Asia, oil rallied hard to 8.5 months highs above $65.50, USD/JPY hit three-month lows at 107.64 while gold prices topped $1600 mark amid risk-off at full steam. The US dollar index gapped lower and reached lows at 96.82, as US 10-year Treasury yields dropped 10 bps alongside heavy selling in the Asian stocks and Wall Street futures. Meanwhile, the Canadian dollar picked up bids and knocked-off USD/CAD to 1.2978 lows on the oil price surge.
However, amid a likely thaw in the US-Iran geopolitical risks, in light of de-escalation hopes, a major relief was across the financial markets in Asia. USD/JPY recovered to 108.50, oil and gold prices pulled back from multi-month highs while Asian equities and S&P 500 futures clawed back losses. The risk currencies, namely, the Antipodeans turned positive, with the Aussie headed back towards the 0.69 handle.
The European currencies, on the other hand, traded flat after a brief stint to the upside. EUR/USD tested highs near 1.1170 before caving back below 1.1150 while the cable faced rejection below 1.3150 but held above the 1.31 handle. Another safe-haven in the Swiss franc jumped to five-day highs 0.9665 vs. its American rival before reversing to around 0.97 handle.
Main Topics in Asia
Risk-off as Iran retaliates, US forces in Iraq are under “missile attack from Iran”
Trump briefed on reports of attacks on Iraq air base - White House - Reuters
Iran’s missiles have hit American base near Erbil airport in Iraq’s Kurdistan – Reuters citing Fars
Iran: Will stop attacking if there is no response from the US, risk-recovery underway
US Defense Official: Iran fired a total of 15 ballistic missiles – ABC News
US Pres. Trump: Will make a statement tomorrow (Wednesday) morning on Iran
US House Speaker Pelosi: America and world cannot afford a war
Iran's Zarif: Iran does not seek escalation or war
UAE OilMin hopes for de-escalation, says oil market well supplied
Bank Indonesia conducts triple intervention to maintain market stability, Rupiah off lows
USD/INR retraces from four-month top to 72.00 amid geopolitical plays
Key Focus Ahead
In the face of looming US-Iran geopolitical risks, the economic releases are unlikely to have major impact on the markets, as the risk sentiment will be mainly driven by fresh developments surrounding the Mid-East tensions.
However, the EUR, GBP traders could find some impetus from the German Factory Orders, due on the cards at 0700 GMT, which are likely to rebound 0.3% MoM in November. Next of note remains a string of Eurozone Confidence gauges, dropping in at 1000 GMT. The UK docket is data-empty but the meeting scheduled between the UK PM Johnson and European Commission President von der Leyen will grab some attention among other Brexit-related headlines.
In the NA session, the US ADP Employment Change data at 1315 GMT will be closely eyed ahead of Fed’s Brainard speech and Energy Information Administration (EIA) Crude Oil Stocks Change data due at 1500 GMT and 1530 GMT respectively.
When are the German Factory Orders and how could they affect EUR/USD?
The German data is expected to show Factory Orders rose by 0.3% MoM in November. A positive figure will likely strengthen the narrative that the German economy has bottomed out and could help EUR/USD re-test resistance at 1.1206.
GBP/USD steady above 1.3100 ahead of UK PM Johnson-EU Chief meet
GBP/USD stays well within its recent trading range above 1.3100 ahead of the London open on Wednesday. The pair showed a cold response to the early-day market action backed by the US-Iran war fears, as traders await details of the UK-EU leaders’ meet.
We could start to see the forward buys exert more influence on gold spot prices as the deterioration in the US -Iran relationship intensifies.
US ADP Employment Change Preview: Labor market expansion is steady
US Private payrolls expected to revert to trend in December. Two weak months, September and November have not carried through to NFP.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD edges lower toward 1.0700 post-US PCE
EUR/USD stays under modest bearish pressure but manages to hold above 1.0700 in the American session on Friday. The US Dollar (USD) gathers strength against its rivals after the stronger-than-forecast PCE inflation data, not allowing the pair to gain traction.
GBP/USD retreats to 1.2500 on renewed USD strength
GBP/USD lost its traction and turned negative on the day near 1.2500. Following the stronger-than-expected PCE inflation readings from the US, the USD stays resilient and makes it difficult for the pair to gather recovery momentum.
Gold struggles to hold above $2,350 following US inflation
Gold turned south and declined toward $2,340, erasing a large portion of its daily gains, as the USD benefited from PCE inflation data. The benchmark 10-year US yield, however, stays in negative territory and helps XAU/USD limit its losses.
Bitcoin Weekly Forecast: BTC’s next breakout could propel it to $80,000 Premium
Bitcoin’s recent price consolidation could be nearing its end as technical indicators and on-chain metrics suggest a potential upward breakout. However, this move would not be straightforward and could punish impatient investors.
Week ahead – Hawkish risk as Fed and NFP on tap, Eurozone data eyed too
Fed meets on Wednesday as US inflation stays elevated. Will Friday’s jobs report bring relief or more angst for the markets? Eurozone flash GDP and CPI numbers in focus for the Euro.