• The risk aversion spellbound on Friday after the Iranian general was killed.
  • Cobra move was spotted on Crude oil prices and precious metals.

Flare-up tension between the US and Iran surprised the investors at the beginning of the year 2020. Uncertainty is hovering over the financial markets after crude oil jump nearly 4.00% on Friday. The recent spike in oil prices is relatively muted compared to mid-September 15% rally when Saudi Aramco infrastructure was attacked.

The common currency set to consolidate and do not see any significant trend change the week ahead.

In the risk-off mode, JPY would outperform. Whereas after Friday’s sell-off, the JPY crosses managed to find their foot and rallied on Monday. This suggests last week’s geopolitical tensions are fading/ not escalating further.

So what should traders do?

Historically, spikes or deep cut on account of external factors such as geopolitical concerns is usually regarded as the best time to take profit or get into the oversold assets. F

For the week, we expect EURUSD to trade in the range of 1.1250-1.1040 with positive bias.

Monday was the reversal to Friday; it suggests a positive approach to EURUSD.

Moody’s Analytics reported that “As a base case, we continue to assume that the US and Iran will avoid an outright military conflict. However, the risks have markedly increased in the past few days”.

ING cited, “Higher crude could support ECB tightening expectations.” In a note analyst said, “Higher oil prices and any impact on headline inflation would add to a series of factors that are pushing the hawkish re-pricing in EUR rates.”.

Turning to data releases, we have EA inflation data print (Tue), Germany IP (Thu), and US jobs report (Fri). After last week’s weak ISM data market participants are watching closely to the US jobs, report data.

ING forecast payrolls to rise 150k versus the 160K. The range of analysts polled by Bloomberg is 125,000-210,000.  

Data review: The latest PMI data suggest that confidence about the future improved during December to its highest level since May, though remained well below par.

According to the official data, The IHS Markit Eurozone PMI Services Business Activity Index improved in December to a four-month high of 52.8, up from 51.9 in November.

TECHNICAL OVERVIEW

In the absence of US-China trade war escalation and fading the latest geopolitical risk, we expect to see an uptrend in EURUSD as 2020 proceeds. In the near term, keep an eye on the 1.1250 parallel resistance and could expect to rally further if closed over. Such a move will greenlight the C point of the A-B-C pattern at 1.1270 and 1.1300 its 20MA (monthly).

As we noted last week, the EURUSD, which is in bullish momentum, got hit by geopolitical risk. However, we feel that the halt in momentum is temporary and could see a rebound if the situation stabilized.

Technically, EURUSD is consolidating in the range of 1.1250-1.0980. The crucial support for the market is placed at Friday’s low of 1.1120, and a break below this level could take the price towards 1.1060 levels its 100MA.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

What is your Technical View?

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