Friday January 3rd, 2020

Safe haven currencies surge after a US air strike killed an Iranian general in Baghdad. Safe haven currencies spiked to multi-month highs, gold jumped 1% and oil rallied $3 on the airstrike news. The heightened geopolitical tensions will unsettle markets as it awaits Iran’s response. A mixture of European and US ISM Manufacturing PMI data releases today, but expect them to be over shadowed by the geopolitical concerns. Today the markets focus on Iran’s response to the Airstrike and the US’s next steps.

Oil prices surged in response to rising ME tensions and Iran’s supreme leader vowing revenge. C$ has remained resilient compared to other major currencies, primarily supported by the spike in oil prices. At this point the phase one agreement will take a back seat to the US/Iran responses over the drone attack. Expect C$ to remain relatively stable as oil prices should support the C$ from safe haven rallies.

Euro came under significant selling pressure after the US drone attack killing the Iranian commander. The rising middle east tensions will negatively impact the Euro suggests a retest of 1.1065 next, the low in December. Trading has been generally thin due to the holidays, barring further ME escalation the Euro should consolidate and hold around 1.1065-1.1100 vs US$ area today.

GBP similar to the Euro came under strong selling pressure and investors switched to safe-haven currencies. The breach of 1.3115 levels leaves GBP open to further selling pressure towards 1.2905 vs US$ the next key support level. Weak UK PMI data has also put additionally pressure on the currency today, but we feel the move has been exaggerated due to thin holiday markets. Geopolitical and Brexit concerns will likely keep GBP under pressure for the short term.