Geopolitical Tension Spurs Commodity Price

• Middle East conflicts spur commodity prices.

• Wall Street retraced on heightened geopolitical tensions.

• The dollar extended its gain as a safe-haven currency amid uncertainty.

Market Summary

Middle East tensions took centre stage in the global financial markets during the last session as Iran fired missiles at Israel, with further retaliation expected, heightening geopolitical risks. This event fueled demand for safe-haven assets, leading gold to surge by over 1%, approaching its peak. Similarly, oil prices spiked by more than 3%, with geopolitical conflicts often stimulating demand for crude oil, commonly referred to as "black gold."

In contrast, Wall Street faced losses as risk assets were negatively impacted by the increasing uncertainty. The narrowing interest rate differential between Japan and other major economies is also expected to gradually unwind concerns surrounding the yen carry trade, potentially affecting Wall Street further.

In the forex market, the U.S. dollar strengthened due to its safe-haven status amid the geopolitical instability, and it received an additional boost from stronger-than-expected JOLTs job openings data, reinforcing the dollar's upward momentum. On the other hand, the euro struggled due to poor CPI readings, which raised expectations of further ECB rate cuts, hammering the currency lower.

In the crypto market, Bitcoin (BTC) experienced its biggest daily loss in weeks as investors retreated to safer assets during this period of uncertainty.

Current rate hike bets on 7th November Fed interest rate decision:

Source: CME Fedwatch Tool

-50 bps (32%) VS -25 bps (68%)

Market Movements

DOLLAR_INDX, H4

The Dollar Index is currently consolidating its position on a positive trajectory, supported by a combination of hawkish commentary from Federal Reserve Chair Jerome Powell and escalating tensions in the Middle East. The demand for the safe-haven dollar has increased as investors seek stability amid geopolitical uncertainty. Despite mixed economic data, the overall sentiment remains favorable for the dollar. The ISM Manufacturing PMI and Prices came in lower than expectations at 47.2 and 48.3, respectively, while the S&P Global US Manufacturing PMI and JOLTs Job Openings exceeded forecasts, indicating some resilience in the economic landscape.

The Dollar Index is trading higher following breakout above the previous resistance level. MACD has illustrated increasing bullish momentum, while RSI is at 67, suggesting the index might extend its gains since the RSI stays above the midline.

Resistance level: 101.80, 102.35

Support level: 100.95, 100.30

XAU/USD, H4

The ongoing conflict in the Middle East, particularly the recent missile strikes by Iran on Israel, has significantly heightened geopolitical tensions, driving investors toward gold as a safe-haven asset. With gold traditionally viewed as a hedge against instability, demand has surged as uncertainty in the region escalates.

Gold prices are trading higher while currently testing the resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 58, suggesting the commodity might extend its losses since the RSI retreated sharply from overbought territory.

Resistance level: 2665.00, 2700.00

Support level: 2640.00, 2620.00

CL OIL, H4

Oil markets are experiencing volatility as concerns about potential supply disruptions loom. Iran's involvement in the conflict raises the risk of reduced oil output and export capabilities, particularly if hostilities escalate further. The recent spike in oil prices, exceeding 5%, is a direct reaction to fears surrounding the conflict and potential supply disruption.

Oil prices are trading higher following the prior breakout above the previous resistance level. However, MACD has illustrated diminishing bullish momentum, while RSI is at 65, suggesting the commodity might experience technical correction since the RSI retreated sharply from overbought territory.

Resistance level: 71.90, 74.15

Support level: 70.30, 68.60