Israeli conflict continues to shake the markets

The Israeli conflict is ongoing and markets tend to worry about a possible escalation with a ground operation by Israeli forces, which could also involve neighboring countries. A possible escalation could enhance safe haven flows in the market with the main beneficiaries being possibly the JPY and the USD. We had some mixed signals from US stock markets on Friday, yet we highlight the release of better-than-expected earnings reports for a number of major US banks. The release tended to highlight the resilience of the US financial sector amid a tight financial environment. Furthermore, we note the strong rise of gold’s price, with analysts highlighting a possible safe haven effect supporting the precious metal’s price. Given how closely investors are monitoring developments, any shift in the Israeli conflict could quickly influence risk sentiment across global markets.

XAU/USD rallied on Friday breaking consecutively the 1885 (S2) and the 1910 (S1) resistance line, both now turned to support and proceeded to reach the 1930 (R1) resistance barrier. Despite the correction lower in the late American session on Friday and during today’s Asian session, we tend to maintain a bullish outlook as the RSI indicator despite correcting lower is still near the reading of 70, implying a rather bullish sentiment in the market for gold. Should the bulls actually regain control we may see gold’s price breaking the 1930 (R1) resistance line and aim for the 1955 (R2) resistance level. Should the bears take full control, we may see the precious metal’s price breaking the 1910 (S1) support line and aim for the 1885 (S2) support nest.   

On the commodities front, we note the rally of oil prices on Thursday and Friday. Market worries for a possible escalation of the Israeli conflict tended to also enhance the scenario of a tight supply in the international oil market. On the sideline, we note that the number of active oil rigs in the US has risen which may imply a wider demand for oil in the US oil market and also the supply side of the oil market may become tighter, as the US imposed sanctions on owners of tankers carrying Russian oil.

WTI prices rose on Friday breaking the 84.50 (S1) resistance line, now turned to support. Despite a correction lower during today’s Asian session, we still tend to maintain a bullish outlook for the commodity, yet the RSI indicator seems to continue to correct lower implying that the bullish sentiment of the market seems to be fading away. Should the bulls regain control over oil prices, we may see WTI breaking the 87.50 (R1) resistance line and aim for the 91.50 (R2) resistance level. Should the bears take over, we may see WTI’s price breaking the 84.50 (S1) support line and aim for the 80.75 (S2) support level.  

Other highlights for the day:

On an easy Monday, in the American session, we note the release of the US NY Fed Manufacturing for October and from Canada the manufacturing sales and Wholesale Trade growth for August. On the monetary front, we note that Philadelphia Fed President Harker and BoE Deputy Governor Woods are scheduled to speak. In tomorrow’s Asian session, we note the release of New Zealand’s CPI rates for Q3 and note that RBA is to release the October meeting minutes. 

As for the rest of the week:

On Tuesday, we note the release of UK’s employment data. Later on, we note Germany’s ZEW figures for October, the US Retail sales rate, Canada’s BOC Core CPI rates, and the US Industrial production rate all for the month of September. On Wednesday, we note China’s Industrial output and GDP rate for Q3, followed by the UK’s CPI rates. On Thursday, we note Japan’s trade data and Australia’s Employment data both for the month of September, followed by the US weekly initial jobless claims figure and the US Philly Fed Business Index figure for October, while Fed Chairman Powell is scheduled to speak. Lastly, on Friday we start with New Zealand’s trade data for September, Japan’s Core CPI rates, Chain store sales rate, the UK’s retail sales rate, all for the month of September and lastly Canada’s retail sales rate for August.

XAU/USD 4 Hour Chart

Support: 1910 (S1), 1885 (S2), 1860 (S3)

Resistance: 1930 (R1), 1955 (R2), 1987 (R3)

WTI Chart

Support: 84.50 (S1), 80.75 (S2), 77.10 (S3)

Resistance: 87.50 (R1), 91.50 (R2), 94.00 (R3)

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