Middle East tensions have eased

Headlines

• Oil slumps 5% as Israel limits Iran strike to military targets
• Japan’s Ishiba vows to restore stability after losing majority
• Yen weakens on Japanese vote result

Oil prices dropped over 5% at the week’s start after Israeli airstrikes targeted military sites in Iran without hitting crude oil facilities. Brent crude fell below $73 a barrel, while West Texas Intermediate approached $68.

The attacks, carried out on Saturday in retaliation for a prior missile barrage, were more restrained than expected and avoided key oil and nuclear infrastructure, following a request from U.S. President Joe Biden’s administration. As a result, Citigroup Inc. lowered its Brent price forecasts, citing reduced risks in the Middle East conflict.

Tehran did not immediately threaten retaliation, and Iranian state media reported that oil industry operations were normal.

Japan faces political turmoil

Japan is facing political instability after the ruling coalition failed to secure a majority in parliament for the first time since 2009, prompting competition among two main blocs to form a new government.

Prime Minister Shigeru Ishiba’s early election gamble backfired as the Liberal Democratic Party (LDP) faced backlash for not disclosing donations from supporters.

The LDP and its coalition partner Komeito hold 215 seats, short of the 233 needed for a majority, while the opposition Constitutional Democratic Party of Japan has secured 148 seats.

As a result, the Yen fell to a three-month low, declining about 1% against the dollar, while Japanese stocks rose on expectations of a significant spending plan from a potential coalition government. This weakened Yen might also lead to faster policy tightening by the Bank of Japan.

Gold dips on Monday

Gold prices fell slightly from near record highs after Israeli airstrikes on Iran proved more restrained than expected. On Monday, the bullion traded around $2,739 an ounce, with strikes targeting military sites while avoiding oil and nuclear facilities. Tehran did not immediately promise a response, potentially reducing safe-haven demand.

Traders are also focusing on upcoming U.S. economic data. Inflation and payroll figures will likely impact the pace of Federal Reserve interest rate cuts this year, as recent strong economic readings led to reduced expectations for aggressive reductions. Lower interest rates generally benefit Gold since it does not yield interest.

Gold has surged over 30% this year, reaching an all-time high of $2,758.49 last week. This rally has intensified in recent months due to geopolitical tensions in the Middle East, as traders assess the risks associated with the upcoming U.S. presidential election.
Money managers have also contributed, with hedge funds increasing their net-long positions in Gold and investors growing their exchange-traded fund holdings.

DXY remains above 104.0

Despite revealing some minor signs of reversal at the end of last week’s trading, the US Dollar Index continued to rise as this week began. The Index is now trading above 104.50, marking its highest level since the end of July. This increase comes as expectations for an aggressive rate cut by the Federal Reserve continue to diminish.

Currently, the price range between 104.50 and 105.00 is recognized as a significant area of resistance that should be monitored closely. Technical indicators are showing signs of being heavily overbought, suggesting that a reversal may be imminent. This could likely push the index back below 104.00 in the coming days or weeks. Additionally, the competitive nature of the upcoming US elections is expected to maintain high volatility in the market.

EURUSD below 1.08

EURUSD declined at the end of last week after stabilizing well above 1.0780. The technical indicators remain heavily oversold across most timeframes, suggesting a higher probability of a bounce in the coming days or weeks. This oversold condition may lead to a potential reversal.

For a bullish outlook to strengthen, a stabilization above 1.08 is necessary. This may lead to a retest of the moving average at approximately 1.0868. A breakthrough of that resistance could pave the way for further gains toward 1.0900.

Silver breakout confirmed

After silver prices surged two weeks ago to $34.88, they have since retreated to around $33.50 in Asia. However, the key factor traders should monitor is that Silver closed above $32.50 for two consecutive weeks, reaching a new high not seen since 2011. This indicates a confirmed breakout, and the recent decline could be a short-term retracement to retest that breakout zone before the upward trend resumes. The next target could be $35.

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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