Here is what you need to know on Monday, September 23rd:

  • Risk aversion took over the market Friday on escalating trade tensions, and would likely persist Monday, following news indicating that the Pentagon will deploy US forces to the Middle East, which will be “defensive in nature,” a result of the Iranian attack on Saudi Arabian oil facilities.
  • During the weekend, the Saudi Foreign Minister said that if the attack was launched from Iran, it would be considered an act of war. Meanwhile, Houthi rebels in Yemen have warned foreign diplomats that Iran is preparing a follow-up strike to the missile and drone attack on Saudi Arabian oil and gas facilities.
  • The run to safety and the lack of progress on the Irish backstop weighed on the Pound.
  • Safe-haven assets were the best performers, with gold and yen poised to extend their advances.
  • Cryptos maintain the bearish tone, could turn north on persistent risk aversion.

While speaking at Labour’s annual conference on Sunday, the UK opposition Labour Party leader Jeremy Corbyn said: “I am leading the party, I am proud to lead the party, I am proud of the democracy of the party and of course I will go along with whatever decision the party comes to.”

He said in response to the question asked whether the Labour Party would campaign to remain in the EU or to leave with a deal, BBC News reports.

The Cable witnessed a volatile Friday session, having reversed sharply from 11-week highs near 1.2580 to finish the week near the lower levels of 1.2470 amid trade pessimism-led risk sell-off, as markets ignored the upbeat comments from the European Union (EU) Chief Brexit negotiator Barnier.

  • EU's Barnier: Determined to try and reach an agreement with UK

In an interview with CNN late-Saturday, Saud Arabian Minister of State for Foreign Affairs Adel al-Jubeir, “We hold Iran responsible because the missiles and the drones that were fired at Saudi Arabia…were Iranian-built and Iranian-delivered.”

Additional Quotes:

“But to launch an attack from your territory, if that is the case, puts us in a different category… this would be considered an act of war.”

“If they continue along this path, then they risk the possibility of military action.”

“But nobody wants war. Everybody wants to resolve this peacefully and the end result has to be an end to Iran’s aggressive policies.”

“Appeasement with Iran does not work. For example, trying to set up a parallel financial payment system is appeasement. Trying to give them a line of credit is appeasement. It just emboldens them.”

“The Iranians have to know that there will be consequences to their actions.”

Meanwhile, the Wall Street Journal (WSJ) reported on Saturday that Yemeni rebels warned Iran plans another strike soon.

Oil prices could find fresh support from the weekend’s reports that could flare up Mid-East tensions and threatens oil supplies.

The Wall Street Journal (WSJ) quotes people familiar with the matter on Sunday, Houthi rebels in Yemen have warned foreign diplomats that Iran is preparing a follow-up strike to the missile and drone attack on Saudi Arabian oil and gas facilities a week ago that knocked-off 5% of the global oil supplies.

The sources confirm that the last attack was forced by Iran and are said to have passed the information to the Saudi and the US about the warnings.

Should there be another attack, it could flare-up the tensions between the US and Iran and propel oil prices through the roof once again. Both crude benchmarks settled the week nearly 6% higher, with WTI flat at the close above the 58 handle while Brent finished near 64.60 region.

China’s state news agency, Xinhua, reported on Saturday that both the US and Chinese trade teams had “constructive” discussions in Washington, as cited by Reuters.

Xinhua added that the US and China agreed to keep communicating on related issues, and discussed the details of the next round of trade talks in October. However, no details of the discussions were provided by the Chinese news outlet.

This comes despite the overnight reports that China’s agriculture delegation canceled the US farm visit to Montana and they returned to China sooner than expected.

The above headlines sent the risk sentiment tumbling in the US last session, knocking-off the stocks in tandem with the Treasury yields. USD/JPY lost nearly 40-pips to close the week near four-day lows of 107.53.

  • US Pres. Trump: Agricultural purchases will not be enough, we want a complete deal
  • EUR/USD ends the week in the lower part of its range but struggle to generate any meaningful breakdown.
  • The level to beat for bears is the 1.1000 handle.

EUR/USD daily chart

The common currency, on the daily chart, is trading in a bear trend below its main daily simple moving averages (DSMAs). The Euro ends the week stuck in a two-week trading range as investors are waiting for the next catalysts. There will be a plethora of news announcements next week, including the Gross Domestic Product in the United States. Therefore, there is potential for volatility and the current range may get broken.

EUR/USD four-hour chart

EUR/USD is trading below its primary SMAs, suggesting a bearish bias in the medium term. The Euro has been ranging for most of the week. However, bears will probably try to break the 1.1000 handle to potentially reach 1.0965 and 1.0930 support level near the 2019 low, according to the Technical Confluences Indicator.

EUR/USD 30-minute chart

Bears will try to keep the market contained below 1.1023 resistance. However, if the bulls push through it, 1.1045 can come into play, but this is likely a weak resistance which will be easily be overcome opening the way to 1.1074 resistance, according to the Technical Confluences Indicator.

Additional key levels

  • West Texas Intermediate prices were trading -0.22% lower in the Wall Street close.
  • West Texas Intermediate crude for October delivery lost by 4 cents, or 0.07%, to finish at $58.09.
  • Can Saudi production be restored?

West Texas Intermediate prices were trading -0.22% lower in the Wall Street close having edged lower from a high of $59.23 to a low of $59.97 while futures registered a sharp gain for the week, 6% higher and considerably higher on the attacks on Saudi Arabian production facilities last weekend which put into question how much spare capacity there will be left in the oil market leading to the biggest weekly gain in 3 months.

As for futures, West Texas Intermediate crude for October delivery lost by 4 cents, or 0.07%, to finish at $58.09 a barrel on the New York Mercantile Exchange. The contract logged a 5.9% weekly advance, which was the biggest for the U.S. benchmark since the week ended June 21.

Saudis revealed the extent of damages

Oil eased back from the opening highs for the week through the 63 handle on the sentiment that Saudi production would be back to full capacity by the end of this month, according to official announcements made very early on after the first report of the weekend attacks. However, Saudis then revealed the extent of damages and the market now questions how quickly production can, indeed, be restored which will make for a volatile time ahead.

"In that context, energy market participants are anxiously awaiting an announcement from the Saudis on the geographic location of the cruise missiles launches which targeted the nerve center of the Kingdom's energy complex, along with any details about Pompeo's coalition response, which they hope will be peaceful,"

analysts at TD Securities explained:

"That being said, we think crude oil is not ripe for unconditional love, and suspect that WTI prices ranging in the $58-60/bbl region seem appropriate for now. On the CTA front, trend followers are set to ramp up selling below $59.30/bbl, while in contrast, CTAs could cover shorts above $64.14/bbl."

WTI levels

The price dropped back from the 127.20% Fibonacci extension of the July swing highs to Aug swing lows and remains on the 58 handle, for the most part, rejected on attempts beyond the 59 handle. A break to the downside will open prospects for the 61.8% Fibo and Aug resistance just below the 57 handle. On a re-escalation of fundamentals, the April highs at 66.58 will be a key target.

  • The Nasdaq Composite Index lost 65.20 points to reach 8,117.67, a decline of 0.8%.
  • The Dow Jones Industrial Average lost 160.60 points, or 0.59%, at 26,934.19.
  • The S&P 500 index dropped 14.89 points, or 0.5%, to 2,991.90.

The technology sector dragged US stocks lower on Friday following the news that the Chinese delegation, visiting the US negotiators this week, cancelled plans to visit farms in Montana as a part of its negotiations with the U.S. delegation – President Trump declared he would not accept a partial trade deal.

The benchmarks closed in the red for the first weekly decline in a month and the Dow Jones Industrial Average lost 160.60 points, or 0.59%, at 26,934.19, while the S&P 500 index dropped 14.89 points, or 0.5%, to 2,991.90. The Nasdaq Composite Index lost 65.20 points to reach 8,117.67, a decline of 0.8%.

US data will also be key

Looking ahead to next week, US data will be a keen focus following the Federal reserve's announcements earlier in the week.

"The Markit PMI will offer a preliminary first look at countrywide manufacturing activity for September, with the market looking for an unchanged print at 50.3. This stands in contrast with the ISM manufacturing reading, which dipped below 50 in August. Conversely, the preliminary Markit services PMI is projected to have advanced to 51.5, up from 50.7 in August,"

analysts at TD Securities explained.

DJIA levels

The bearish dojis have weighed on the index and the DJIA had dropped back below the 4-hour 21 moving average casting a bearish outlook for next week's open. Bears can then target the 21-day moving average, the 50 and then the 200-day MA (25756). Further below lies the May and June lows on the wide in the 24700s as a double-bottom target.

  • Spot Gold was around 1% higher, travelling from a low of $1498.09 to a high of $1516.38.
  • The Gold and Silver ratio added to the mid-week bullish correction.
  • Silver prices inched higher to short term trendline resistance.

Precious metals gained on Friday following the news that Chinese and US trade talks were cut short while troubles in the Middle East continue to concern investors, and US benchmarks closed in the red, fueling a flight to safety. Spot Gold was around 1% higher, travelling from a low of $1498.09 to a high of $1516.38 while Silver prices inched higher to short term trendline resistance, walking into the Wall Street close around 0.90% higher having travelled from a low of $17.75 to a high of $17.98. The Gold and Silver ratio added to the mid-week bullish correction, moving up from a low of 83.84 to a high of 84.71, around 0.30% higher on the day.

As for futures, Gold for December delivery on Comex added $8.90, or 0.6%, to settle at $1,515.10 an ounce, after retreating 0.6% on Thursday. December Silver lost a marginal 3.5 cents, or 0.2%, lower to $17.869 an ounce. Gold futures gained 1% for the week, after 3 straight weekly declines while Silver made a weekly gain of 1.6%.

Fundamentals playing into the bull's hands again

On the fundamental front, the Federal Reserve has played their hand for now, with speculation that the rate cut was a one and done until at least 2020, depending on the economic performance of the US and how well trade talks go. However, while there had been some belief that the US and China were on the verge of a breakthrough with talks starting up again, it would appear that we are still as far away as we ever in finding a solution to the dispute.

"I do not need a US-China trade deal before the 2020 election," Trump said in a joint press conference with Australian Prime Minister Morrison. "I have an amazing relationship with China's Xi but we are having a little spat." There was also news that the Chinese cut metings short this week, and thus we are back to square one again. "Political determination from decision-making circle of the two countries is needed in order to reach a deal," Hu Xijin, the Editor in Chief for the Global Times argued.

Meanwhile, analysts at TD Securities explained that with the latest Fed cut digested by the market, "gold continues to straddle the $1,500/oz level, and now awaits the next catalyst which is likely to come in the form of economic data in the US as Fed expectations become more data-dependent going forward."

"We expect that further weakness on the economic data front will catalyze additional gains in precious metals, and we expect the Fed to cut interest rates another 25bps at the end of October. As market pricing for a cut in October remains below the 50% mark, gold and precious metals could still have some room to the upside should those probabilities converge to a cut as we expect. That being said, we expect little flow from CTAs in the complex for the time being."

Gold levels:

Bulls finally broke through the recent resistance with a higher high in the 1,500s and closing above the 4-hour 200 moving average at 1,510 which was guarding prospects to the 1,550 level which guards territories towards 1,590 as the 127.2% Fibo target area. On the flip-side, a 50% mean reversion of the late June swing lows to recent highs around 1470 guards the 19 July swing highs at 1,452.93.

Silver levels:

Technically, Silver is testing the upside resistance and breakout point converging around 18 the figure, supported by the 4-hour 200 moving average. Bulls were closing just above the 21-daily moving average and daily pivot point and will look towards the September highs of 19.64, while on the downside, bears can look to the 16.50s.

  • The Greenback rose this Friday but remains trapped within its weekly range.
  • The level to beat for bulls is the 98.55/98.68 resistance zone.
  • DXY ends the week about 45 cents higher.

DXY daily chart

DXY (US Dollar Index) is trading in a bull trend above its main daily simple moving averages (DSMAs). In the last two weeks, the Greenback has been in a trading range around the 98.40 level as investors are waiting for a catalyst.

DXY four-hour chart

DXY is trading above the 50/200 SMAs, suggesting bullish momentum. The Greenback gained some relative strength this Friday as it broke above the triangle pattern. The market is retracing down and buyers will need to defend the 98.42 and 98.20 support if they intend to lift the market towards 99.10 and 99.38 resistances. The market would need a daily close beyond 98.68 to pull away from the trading range.

DXY 30-minute chart

DXY is trading above the main SMAs, suggesting bullish momentum in the near term. Support is seen at the 98.42 and 98.20 price levels. A break below 98.20 would be seen as bearish.

Additional key levels