Since the Russia/Ukraine war is already a source of economic volatility and it is difficult to determine the economic impact, I expressed my concern about the rising tension in the Middle East last Thursday in my daily note.
Besides from diverting from economic health, these kinds of occurrences make determining the path of the economy’s future more difficult.
And if the oil-producing nations are either directly or indirectly involved, it undoubtedly means negative events ahead for the world economy. About 60% of oil producers are in danger under this situation.
Since the financial market began to anticipate that oil prices would stabilise, the extended uncertainty will cause inflation to grow as commodities prices rise. Although no one can forecast how high oil will go, it is undoubtedly headed towards $100.
In short-term to medium-term period, unless calm prevail, lingering on of M/E conflict will encourage investors to buy gold that might push it towards $ 2100–$ 2200 zones, and the ongoing Middle East turmoil could push oil prices towards $ 125–$ 150 range. Though in such a scenario US Dollar is always a beneficiary, Japanese Yen & Swiss Franc could be the other beneficiaries.
However, if conditions relax sooner, prices will drop sharply.
The fact that the world economy would once more be put in discomfort because of the ongoing upheaval may alarm global Central Banks the most, negating their efforts to control inflation.
Worries are increased by the fact that the crisis between Russia and Ukraine shows no signs of ending and that an extended war in the Middle East may lead to further financial and economic instability for the global economy.
Meanwhile, the Chinese economy is beginning to rebound on the economic front, as seen by a significant rise in growth in Q3.
Although home sales in the USA dropped at their fastest rate since 2010, there are indications of uneasiness in the housing data.
The US data for next week includes new home sales, real GDP growth, personal income, and spending, but for the market players, developments in the Gulf region will still be the primary subject of discussion.
#GOLD @ $ 1980.80- Still has room to rise and test new highs following a roughly $ 150 increase in only two weeks.
The unpredictability in the Middle East is drawing liquid investors. But there is also a risk of correction. It indicates that there will likely be trade on both sides and that volatility will continue.
On the downside the crucial levels to keep an eye on are $ 1938 and $ 1902. While on the upside, gold needs to surpass $ 2004 for a test of $ 2025. Break of this level will see a move towards $ 2058.
However, traders will be searching for reasoning for a correction. The market is currently being driven by geopolitical conditions more so than economic ones. Trading conditions will be choppy.
#EURO @ 1.0593- on the upside 1.0690 will be capped. A strong USD might force Euro towards 1.0505–15. Break risks for a test of 1.0440–60 zones. Else 1.0720.
#GBP @ 1.2164 – For the test of support level of 1.2070, Pound Sterling is likely to stay capped at or below 1.2270-80. A break of support level will encourage for 1.1985. Else 1.2320.
#JPY @ 149.85- Threat of BOJ intervention looms. Only a break of 150.80 will push it further towards 151.70. However, there is still a risk that Yen could rises against USD towards 148.75. The next crucial level is 148.10.