Markets on edge as geopolitical tensions mount

• Escalating Middle East tensions rock markets

• Oil prices surge more than 5%

• Risk-off mood slams US equities and Bitcoin

• USDInd breaks above 101 while gold rebounds

Risk aversion engulfed global markets yesterday (Tuesday, 1st October) as tensions flared up in the Middle East.

Iran launched a barrage of ballistic missiles at Israel, sparking fears of a wider conflict in the region.

In response, US equities closed lower while oil, gold and the dollar jumped.

• US500: -0.9%

• NAS100: -1.4%

• Brent: 2.5%

• Crude: 2.4%

• XAUUSD: 1.0%

• USDInd: 0.4%

With Benjamin Netanyahu vowing to retaliate against Iran, markets are on high alert with investors on edge.

Geopolitical tensions may remain a key theme this week, possibly overshadowing Fed speeches and Friday’s US jobs report.

Still, this burst of volatility is likely to present fresh trading opportunities across various assets:

  1) USDInd jumps above 101.00

The risk-off mood sent investors rushing toward safe-haven destinations like the dollar.

Despite breaching 100.52 last week, the USDInd is back above 101.00 with bulls eyeing the 50-day SMA at 101.94. This target could become reality if Middle East tensions escalate further. Speeches by Fed officials and the incoming jobs data on Friday will also impact the dollar’s outlook.

• Prices may hit 101.94 if 101.00 proves to be reliable support.

• A decline back below 101.00 may re-open the doors towards 100.52.

  2) XAUUSD heading for fresh records?

Gold closed roughly 1% yesterday due to the geopolitical risk.

The precious metal has the potential to push higher if tensions escalate. Prices remain firmly bullish on the daily charts, but the Relative Strength Index (RSI) is near 70 – indicating that prices are overbought.

Bloomberg’s FX model forecasts a 72% probability that prices trade within the $2591.55 – $2720.28 range over the next one-week period.

• Prices seem to be in a range with support around $2625 and resistance at $2675.

  3) US500 technical pullback in play?

After repeatedly hitting record highs, could the US500 be preparing for a steep pullback?

Well, the risk-off mood has instilled US equity bears with fresh confidence with futures pointing to a negative open.

Nevertheless, the trend remains firmly bullish with the prospect of lower US interest rates keeping the bull party alive. But bears could take claim more territory if prices slip back under 5675.

• A breakdown below 5675 may encourage a decline towards 5600 and the 50-day SMA at 5550.

• Should 5675 prove reliable support, this could push prices back toward 5770.

   4) Bitcoin slammed by risk aversion

Bitcoin took a beating on Tuesday, closing almost 5% lower amid the risk-off mood.

Prices are hovering above $60,000 as of writing, a level where the 50 and 100-day SMA reside. If uncertainty continues to sap appetite for risk, this could drag the world’s largest cryptocurrency lower.

Note: Bitcoin may still be influenced by Fed speeches and US jobs report on Friday.

• Should $60,000 prove to be reliable support, this may encourage a move back towards the 200-day SMA at $64,000.

• A solid breakdown and daily close below $60,000 may see bears target $58,000 and $54,500.

  5) Brent bulls back in town?

In our report yesterday, we discussed how Brent slipped into Q4 on supply fears.

We highlighted how “many forces are set to influence prices, ranging from China’s stimulus plans, a return of Libya’s oil production, ongoing geopolitical tensions, and bets around lower US interest rates.”

A few hours later, oil prices surged over 5% as escalating geopolitical tensions fueled fears of potential major production disruptions.

In our technical section we stated that “Should $70.80 prove reliable support, this could trigger a rebound toward the 21-day SMA at $72.30 and $75.00.”

This target was reached with Brent pushing beyond $75 this morning.