Welcome to Tuesday. Once again, it’s US and Iran tensions that the markets will focus on as traders try to position for any escalation in the current stand-off. The Asian session saw a brief pullback in JPY crosses following yesterday’s rally. There was also a dip in XAU towards $1,555 but lurking demand quickly put pay to further losses. And as Europe got going, USD strength became the order of the day as GBP gave back all its earlier gains, dropping from 1.3212 to 1.3142 and EUR following suit, slipping from 1.1197 to 1.1165. AUD, NZD and CAD all weakened against the USD as the ‘risk-off’ theme gathered pace. The only exception would be equities. The Nikkei and the DAX are both showing strong gains before the US day begins.
So what would the US day bring? In short, more USD strength. EUR dropped to 1.1134, GBP to 1.3095 and USDJPY would rally to 108.62, this despite the DJ dropping over 100 points by midday NY. XAU, having fallen earlier in the trading day would rally back to $1,573. Despite the US being at the center of the ongoing spat with Iran, traders can often turn to the USD as a safe haven. Of course at this time, with no new meaningful headlines it is just a case of the broader market trying to find the best way to position should the situation deteriorate. By the time stocks close in the US, all 3 major indices are lower, the DJ down 119 points. But the USD has lost some of its shine with EUR back to 1.1150, GBP to 1.3130 and USDJPY down to 108.45. Not massive moves, but indicated that the market is struggling a little for direction in the absence of fresh headlines. Maybe Friday’s US NFP data will start to come into focus and give us some direction.
So where do we start the year when looking at technicals? Well XAU would be a logical choice since it’s had one of the biggest moves over the festive period and on Monday made a new 6 year high. We would have to go back to April of 2013 to see the last time we traded at $1,575. Now obviously we know that a fundamental reason (US / Iran) has caused this technical break higher and is therefore subjective to any developments there. However, an immediate positive we can see is that the $30+ pullback we had from the high around $1,588 failed to see us close below last October’s high around $1,556.95. On the negative side, we can see the RSI has us at extremely overbought levels and warns of a retracement. A nervous market will make for more volatile trading but for now, watch $1,555 to the downside and $1,616 to the topside (Apr. 2013 high).
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