After days of heightened tensions between the US and Iran, President Trump stepped up to the White House podium yesterday to respond to the Iranian missile attack on a US airbase. Now, depending on your viewpoint, what we got from Trump was a surprisingly measured and rational response that ultimately eased fears of all-out war in the Middle-East. Trump announced that Iran would never be allowed to have a nuclear weapon while he was President of the United States, but offered a diplomatic carrot in the guise of a new nuclear deal. Also, Trump acknowledged that Iran appears to be standing down from further military action following a Tweet by the Iranian Foreign Minister that retaliation for Soleimani’s killing had concluded. Gold and oil prices fell in response, while the Yen also weakened as market sentiment improved.
Meanwhile, US domestic data suggested that the labour market entered 2020 with some decent momentum. The ADP Research Institute’s report said that US business payrolls increased by 202k in December as well as an upward revision from 67k to 124k in November. However, this doesn’t necessarily translate into an overshoot in tomorrow’s Non-Farm Payrolls figure, because ADP has hardly been a reliable predictor of the NFP figure in recent months.
Bottom line: Neither the US or Iran appears willing to go ‘all in’ which has deflated risk assets over the past day; Brent crude has comfortably retreated from the $70 per barrel level and is approaching the 200-day moving average. The Dollar Index has been creeping higher in recent days, so it wouldn’t be surprising to see a broad pullback despite yesterday’s decent data.
The pair stayed range-bound in yesterday’s session with most of the price action coming from hourly fixings. On a trade-weighted basis, the Pound has been supported by its 50-daily moving average this month which could keep GBP/USD above January’s lows of 1.3050 for the remainder of the week. A recovering US Dollar Index trades just 0.3% below its 50-daily moving average which could mark significant resistance for the Greenback.
The currency-cross traded relatively flat yesterday, testing three-week highs of 1.1828 before closing the session below the 1.18 figure. This morning, the pair opened lower due to a weaker Pound, but a light data calendar for both the UK and Eurozone could make for an uneventful trading day for the pair.
The pair continued to drift lower in yesterday’s session finding support at the 1.11 figure overnight. On a trade-weighted basis, the Euro trades at the bottom of a tight two-month trading range suggesting a floor may be found for the pair in the short-run. A light data calendar for both the US and Eurozone could mean low volatility for the pair in today’s session, but it remains vulnerable to headline risk—particularly in today’s heightened geopolitical risk environment.