DBG Markets: Market Report for Oct 28, 2024

Market Overview

Escalation in West Asia: Implications for Global Markets and Geopolitical Stability

On October 26th, an attack occurred under the cover of night, as Israel retaliated for Iran‘s October 1st attack on Israeli soil by launching airstrikes on Iranian military sites, reportedly killing at least four soldiers. Will it end here？ Unlikely. Iran’s Supreme Leader asserts the right to defend the nation following the strikes, while Hezbollah and Hamas have condemned what they call Israeli aggression.

President Biden says he “hopes” this will end the escalation, clarifying that Israel targeted only military sites. Vice President Harris calls for de-escalation in the region, and the UK Prime Minister echoes this stance, urging both sides to show restraint and warning Iran against retaliation. Germany‘s Chancellor also cautions Iran against escalating further, while the UN Secretary-General says he is “deeply alarmed” by the conflict. Russian President Putin has called for restraint, warning against a “catastrophic scenario,” while Saudi Arabia condemned the strikes and rejects any escalation of the conflict. Iraq accuses Israel of widening the conflict in West Asia, and Jordan claims the strikes violate international law and Iran’s sovereignty.

Key Considerations for Market Impact Amid Escalating TensionsBanking Sector Adjustments: Banks are likely to prepare for an increase in insecurity within their assets, leading to a separation from risk-on assets. Dollar Strength: Contrary to some expectations, the dollar is expected to strengthen in the short term due to the U.S.s current economic stability and substantial resources. This advantage could lead to increased global reliance on the U.S., supporting its economy and boosting confidence in its capacity for defense provision, despite a shift from production to military sectors.

Growth in Metals, Particularly Gold and Silver: With rising tensions, both gold and silver are expected to see significant price increases, as they have consistently shown value during periods of uncertainty. These metals offer a more stable alternative to paper money in such times.

Safe Haven Currencies: The Swiss Franc will likely gain strength, while the Japanese Yen could follow suit. However, the Yen‘s potential remains uncertain due to Japan’s Prime Ministers reluctance to continue rate hikes. Regardless, the Franc and Yen, given their stability, are likely to experience some demand growth.

Any further attack from Iran could be even larger than previous ones, potentially triggering an unanticipated regional conflict.

GOLD - Gold has seen increased demand following last week's trading, likely spurred by sudden overnight attacks. The price has broken above 2740.844 and is expected to continue its upward momentum amid current global tensions.

SILVER - Silver is positioned for a rise from its current value and is anticipated to follow the demand trends seen in gold. While effects on silver may take longer to manifest, it should experience a notable increase in trading as global markets adjust to a potential gold shortage, leading to an expansion in silver assets.

DXY - Dollar growth is expected to continue, propelled by the implications of escalating conflicts. Current momentum aligns with both technical and fundamental indicators supporting a bullish outlook.

GBPUSD - Pound weakness is projected to persist as technical momentum is hesitant to advance. With escalating conflicts in West Asia, the EU and the UK may be pressured to respond, as failing to support Israel could signal vulnerability.

AUDUSD - Australian Dollar is likely to decline as one of the risk-on assets. Continued selling is expected in this market.

NZDUSD - Kiwi Dollar is showing further weakness with expectations of continued selling, aiming for a break below 0.59796.

EURUSD - Euro is forecasted for a downtrend as additional rate cuts remain priced in. However, this could shift if Iran retaliates against Israel, driven by concerns over oil and regional tensions.

USDJPY - Yen weakness is currently due to the Bank of Japan's indecision on rate hikes. Historically, the Yen has strengthened during economic turmoil, suggesting potential currency growth if instability persists.

USDCHF - Swiss Franc has shown a muted response, with minimal fluctuation despite fluctuations in the dollar. The Franc's movement almost mirrors the dollars demand strength, suggesting its rise against other currencies, which further pair analysis may confirm.

USDCAD - Canadian Dollar (Loonie) is expected to remain weak in the short term, although rising concerns over oil supply and a potential spike in oil prices could alter its course. Growth in the Loonie will likely be delayed until further developments with Israel‘s stance on Iran’s oil facilities unfold.