Tension declined markedly after the US refused to continue the escalation of the military conflict with Iran. Iran's missile attack on US military bases in Iraq was limited and largely symbolic, which allowed both sides to demonstrate resolve but avoid a full-scale military conflict.
As a result, markets reacted by falling oil and gold prices, and as of Thursday morning, Brent quotes are lower than before the Soleimani assassination. At the same time, yen has returned to the range that it has been in since October, the US stock indexes closed in the green zone, and only gold somewhat falls out of the general trend slightly correcting after strong growth.
Moreover, geopolitical factors are diminishing for markets and economic factors are coming to the fore. The US Private Sector Private Employment Report ADP in December turned out to be noticeably better than expected, with growth of 202 thousand, which adds optimism before nonfarm publication on Friday.
At the same time, the main trends remained unchanged. Employment growth was observed exclusively in the services sector plus construction, while the US industrial sector continues to slow down.
Despite the decline in tension, the demand for risk in the coming days will remain limited. There is no certainty in the markets that the world economy is capable of starting recovery this year, so consolidation is more likely in anticipation of new data.
EUR/USD
The bullish sentiment in the euro is gradually disappearing after the publication of weaker than expected indicators of production orders in Germany in November at the level of -1.3% m / m with a forecast of 0.2%. The speed of economic recovery in Germany raises questions, and even the growth of retail sales in the eurozone above the forecast and stable inflation are not able to give the euro an additional impetus sufficient to resume growth.
The key industrial sectors of the eurozone will not return to the path of sustainable growth. The most noticeable changes in moods is in the automotive industry wherein there is an obvious decline in demand for European cars compared to American, which puts pressure on all related industries.
It is also necessary to take into account the growing risks associated with the reassessment of the prospects of the Fed and the ECB for managing the financial climate in the United States and the eurozone. Most recently, the Fed actively intervened in the repo market, and the markets proceeded from the fact that the probability of a rate cut in March increased, then at the moment, such sentiments have somewhat weakened, largely due to the fact that trading risks have decreased (which, in turn, supported the growth of stock indices), and also because of the difference in favor of the US data on consumer spending and business investment.
As a result, short-term technical signals in the euro are changing to bearish and with attempts to grow to resistance 1.1150 and 1.1180, resumption of sales is likely. Moreover, the euro is close to the support of 1.1100, from which a decline below 1.1065 will strengthen the bearish sentiment.
GBP/USD
The pound does not have its own diver due to the lack of economic news in the first decade of the year. Thus, it is trading mainly in the range and has no obvious intentions to go beyond it.
British Prime Minister Johnson met with European Commission President von der Leyen, reiterating that he wants to conclude a deal by the end of 2020, while the EU continues to emphasize that a comprehensive deal is "impossible in principle." Therefore, risks of increased tension are present, but they will begin to recoup by the markets later and are not yet taken into account.
GBP/USD forms a converging triangle with a gravitation towards the equilibrium point 1.3050, support at 1.2985, and resistance at 1.3200. Trading will continue for some time in the indicated range. There will be a lot of news next week, which will serve as a catalyst for getting out of the range, but it is too early to judge in which direction.
The material has been provided by InstaForex Company - www.instaforex.com