Global macro overview for 08/05/2018

In July 2015, a nuclear agreement was signed to give the international community control over Iran's actions in exchange for a conditional and temporary loosening of sanctions regarding primarily the possibility of oil exports. Its further fate is very uncertain, which pushed out WTI oil prices over $70 per barrel for the first time since the fourth quarter of 2014 at the beginning of May. The reaction of investors is an anticipation of the increase in geopolitical tensions, but also fears that the tightening of sanctions will reduce the flow of oil flowing to global markets and will accelerate the progressive process of reducing global stocks. Donald Trump has repeatedly criticized the agreement, and the presidential legal advisor Rudy Giuliani announced that the United States would probably withdraw from it. Donald Trump is due to announce his decision before 08:00 pm GMT today.

The question of Iran's reaction is also crucial. The withdrawal of the US from the agreement means that its conditions will cease to apply also to Tehran. An acute reaction and tightening of the position, or for example the announcement of the resumption of the nuclear program is unlikely, one should rather take into account the attempt to play on time and with a conciliatory attitude. President Rouhani finally rules to a large extent thanks to the popularity that has ensured him to ease the sanctions. His radical opponents may count on an increase in support at the time of withdrawal of the US agreement, which may translate into a wave of protests and escalation of internal tensions.

Since the US believes that diplomacy and economic sanctions have not helped sufficiently control Iran's nuclear program, Trump may have to refer to the last resort, namely armed conflict and attempts to destroy alleged installations for uranium enrichment in airstrikes and rocket attacks. The growing risk of such a scenario and a serious destabilization of the geopolitical situation in the Middle East would be a factor with a stronger impact than the mere limitation of the availability of the crude oil and the prices will skyrocket.

Let's now take a look at the USD/CAD technical picture at the H4 timeframe. This main currency pair is very negatively corelated to the Crude Oil prices. The market has made a breakout from the tight range between the levels of 1.2803 - 1.2900 and the price made a new local high at the level of 1.2980, just below the round level of 1.3000. Nevertheless, there is a clear bearish divergence between the price and the momentum indicator, which might indicate the rally is completed. The key level to the downside is the area of 1.2802-1.2813 and the key level to the upside is the area of 1.3126 - 1.3165.

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