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War in Middle East: which assets move the most?

  

Fundamental analysis

The conflict between the Hamas in Palestine and the Israelis keeps shaking up the world currently. The situation turned intense with the attack of Hamas on Israelis last week on Saturday, which started in the escalation of both parties and has led into a war between the two nations. The Hamas has furthermore used rockets to attack several places in Israel. On the flipside Israeli forces have mobilized their military and used attack helicopters as well as heavy weapons to retaliate recent attacks.

On another note, the situation could escalate further as several other nations have stated that they would support each side. Hamas are seemingly getting support from Iran and other Middle Eastern nations whereas most parts of the Western world support Israel. The US have said to send their warships to the region as well as offering military intelligence and ammunition for the war.

The ongoing war has mainly caused two asset classes being volatile during the current situation. First of all, oil prices have resumed their recent uptrend, trading with high volatility and secondly gold prices started moving higher as investors are looking to diversify their portfolios. Some change in sentiment can be observed as certain risk aversion keeps supporting oil prices currently.

Technical analysis

USOUSD: the price of oil has weakened over the past 10 days after the market reached the technical resistance level at USD 92.00. The bullish trend from the past four months had come to a stop, as the market is trading above the 50- moving average based on the monthly chart. Oil production has been increased by countries like Saudi Arabia, which currently eases the price development and a slight lesser demand as well as higher inventory numbers from the US caused the trend to weaken again.

The above weekly chart shows that the market is currently trending lower but also nearing the USD 82.50 support zone. Slightly below the 50- moving average might also add further support, which could cause prices to move higher again.

The daily chart, however, best reveals the current trend. After the deadly war has broken out last weekend, prices opened this week on Monday at a higher level. A so- called gap has been formed as the price jumped towards the USD 86.00 zone, which was well beyond the 50- moving average. Despite the situation in the Middle East not improving the market faded at the middle of the week also falling back below the important moving average zone. A potential close of the gap, which has been created on Monday might currently been under way, paving the way for further momentum lower. The daily candlestick from Thursday could reveal prices will proceed to lower levels for now with the USD 82.40 zone as a potential target. Now taking long term momentum into consideration, the price might only continue towards higher levels if the USD 87.00 resistance zone is being broken. If prices continue trading beyond the highest level of this week, the general uptrend, as the monthly chart suggests, might continue.

XAUUSD: The gold price is in particular interesting as the market is seemingly looking for a long-term trend. Based on the monthly chart the recent falling price pattern has stopped, leading to potential further momentum to the upside. With the generally weaker Dollar, Gold might also find further upside momentum.

The market is also trading well beyond the 50- moving average potentially indicating further momentum towards higher levels. The general triangle formation pointing to the upside also supports such a view.

Based on the daily chart the gold price also gapped up higher following last week’s beginning of the war. The USD 1850 level has been regained, which was the result of a USD 15.00 jump on Monday morning. Based on the daily chart the current momentum is looking positive and might cause the market to test the next resistance area at USD 1888, marked above with the black trendline. If this zone can be tested, further momentum towards the USD 1900 area looks feasible, just slightly above the 50- moving average. Also, the weekly chart looks well supported also pointing to similar levels to the upside potentially.

Conclusion

Currently both assets are being highly influenced by the ongoing war in the Middle East. Also, the further trend of the Dollar will cause impact to both prices, with potentially some weaker momentum on the horizon. If the situation would escalate further, which it looks like at the moment, Gold might find higher levels rather soon. Oil prices on the other hand might remain sideways if not weaker as the initial impact is seemingly fading and the supply currently can be secured. With also other Middle Eastern countries entering into the conflict this situation might change sharply.

Should the war calm down any time soon, also Gold might settle at current levels, being rather moved by the general trend in markets and the motivation of the Dollar.

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