MORNING OVERVIEW
Oil prices may be the main focus of the day, as US forces destroyed five Iranian tankers carrying crude oil in response to attempts by Iranian forces to strike US Navy warships. The continued escalation of tensions between the US and Iran further hinders the supply of oil to the global markets and may thus have aided oil prices higher. On another level, market participants will be preparing for the ECB’s interest rate decision tomorrow and thus the market’s focus may shift towards the EUR starting from today. For Asia we’d like to note the Chinese CPI rates earlier on today which came in hotter than expected, potentially aiding the CNH
The objective: Key focus on the EUR as the bank’s interest rate decision is due out tomorrow, with a secondary focus on the oil markets as tensions continue to escalate between the US and Iran
MARKET SNAPSHOT
| MARKET | CURRENT | CHANGE | COMMENT |
| S&P 500 | 7682 | 0.12% | US CPI rates in focus |
| DXY | 98.709 | -0.08% | May be influenced by ECB decision tomorrow |
| EUR/USD | 1.1617 | -0.05% | ECB decision tomorrow |
| USD/CAD | 1.3773 | -0.07% | Trade war with US intensifies |
| Gold | 4400 | 1.03% | Geopolitical tensions |
| Brent Crude | 99.45 | +1.61% | US-Iran tensions continue |
KEY MARKET THEMES
01 — US destroys Iranian tankers following attempts by Iran to strike US Navy warships
The US has destroyed five Iranian oil tankers following attempts by Iran to strike US Navy warships. The move comes as the two sides resumed exchanging blows last week, with the latest strike marking a further escalation of tensions between the two nations. According to Secretary of State Marco Rubio “When they try to hit US naval ships, they will get hit themselves”, showcasing the US’s willingness to continue on this path. Nonetheless, as the global oil supply continues to be constrained, oil prices appear to have risen in response to the latest attacks.
Market implication (OIL) : BULLISH
02 — ECB decision tomorrow
The ECB’s interest rate decision is set to take place tomorrow and thus market participants may be shifting their focus to the EUR starting today. As a reminder, the ECB is anticipated by market participants to hike rates by 25 basis points in their meeting tomorrow, with EUR OIS currently implying a 99.85% probability for a 25bp rate hike.
Market implication (EUR): Bullish
03 — US-Canada trade war intensifies
Trade tensions between the US and Canada have escalated, with the US moving to block imports of some Canadian products and preparing to slap tariffs on others. The continued tit-for-tat measures between the US and Canada as their trade war unravels could influence the Canadian economy and may in turn affect the Canadian dollar. Nonetheless, the situation warrants closer monitoring for any new developments.
Market implication (CAD) : Neutral
WHAT MATTERS TODAY
ECB President Lagarde Speaks
Time (GMT+2): 20:00
Potential market reaction:
Depending on ECB President Lagarde’s comments we may see heightened volatility in the EUR considering that the bank’s decision is due tomorrow. Any hawkish comments may provide some support for the EUR, as the markets have effectively priced in a rate hike. However, any indication that there may be some hesitation from the bank to continue hiking rates may heavily weigh on the common currency.
WHAT MATTERS TOMORROW MORNING
Norway’s CPI rate for August
Time (GMT+2): 09:00
Expected: N/A
Previous: 3.0%
Showcases the inflation narrative in Norway
Potential market reaction:
Any rate higher than 3% could possibly provide support for the NOK as it would imply an acceleration of inflationary pressures in the Norwegian economy. Whereas any rate lower than 3% could have the opposite effect.
ASSET FOCUS
[GOLD / COMMODITIES]
Gold appears to be moving in a sideways fashion for now after failing to clear our 4330 (S1) support line.
KEY LEVELS
Resistance (R1): 4520
Resistance (R2): 4695
Support (S1): 4330
Support (S2): 4180
Technical / Fundamental View: NEUTRAL
CROSS-ASSET VIEW
| ASSET CLASS | BIAS | KEY DRIVER |
| Equities | Neutral | Fed rate expectations |
| USD | Bearish | US CPI rates |
| Gold | Neutral | Geopolitical tensions |
| Oil | Bullish | Saudi energy facilities struck |
RISKS TO THE VIEW
The biggest risk to our views for today may be geopolitical developments once again
The US-Iran situation continues to be volatile as we have stated on numerous occastions. We would be surprised to see a further escalation. Yet the risk to our view would be a sudden easing of tensions in the Mid-East
TRADING SPHERE VIEW
Bullish for oil prices
Our base case:
As tensions continue to escalate between the US and Iran we continue to maintain our bullish outlook for the commodity’s price as the tit-for-tat responses continue between the nations, resulting in an oil supply crunch for the global markets.
What would change our view:
A genuine attempt to de-escalate the situation
TODAY’S WATCHLIST
01 ECB Lagarde’s Speech
