6th January 2020 - The quick responses can be enough for escalation

Walid Salah Eldin

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Protesting against the Iraqi government in the strict green region which is having also the US Embassy leaded to sizing and compounding around the embassy ended shortly.

The sizing has been followed by assassination of Iranian military commander in Iraq drove the Iraqi Parliament to vote against the US military existence in it has been replied by unseen sanction threatening by Trump against it, amid series of escalating exchanged hostile threats between US and Iran sent the oil prices up with the demand for safe haven.

The Iranian government said during the weekend that it could signal end of the 2015 agreement to have no limitations of its nuclear program including its uranium enrichment capacity and production.

These are the most recent events follow which ended to the current risk aversion sentiment which drove the gold prices higher to reach its highest level since Apr. 7, 2013 touching $1587 in the beginning trading hour of this week.

The demand for safer haven sent UST 10yr yield down below 1.80% level, after it was above 1.90% before the assassination of the Iranian military commander in Iraq.

As the markets were focusing in the ending days of 2019 on the Sino-American trade deal phase one successfulness to support the global economy and avoid lingering trade war between US and China which will lower import tariffs on over 850 products, including frozen pork and frozen avocado starting from this new year beginning and also from July. 1, it will lower the import tariffs on some information technology products by God's will.

From its side, PBOC decided by the beginning of this new year to cut the Reserve Requirement Ratio by 0.50% to boost the economy by 800b Yuan lending liquidity.

The Fed recent meeting minutes release have shown also last Friday its continued care of boosting economic activity and its language shows that it is to hold for while or cut again later, if needed and the tendency to hike is not yet in place for talking seriously about it, as long as the inflation is at this current levels below its 2% yearly target.

I guess that there will be greater appreciation of the geopolitical concern anyway in this new year from the Fed's side and the markets as well by God's will.

This appreciation can be cool for gold which was rising even during the equities markets ascending by the end of last year due to the Fed’s balance sheet widening which reached 4.166b in the ending week of last year, comparing to 3.761b has been reached in Sep. 4, after squeezing of it started in the week ending on Jan. 14, 2015, after reaching 4.516b.

The Fed's balance sheet widening pace was one the most important reasons why the Gold was rising in the last weeks.

USDJPY is now struggling to hold above 108 because the demand for the Japanese yen increases amid the risk aversion sentiment as it has the lowest financing cost.

The demand for Bitcoin as a safe haven crypto currency away from the geopolitical concerns rose to reach $7564, after it was trading just below $6850 before the assassination of Qassim Suleimani which sent also S&P 500 future rate down for trading close to 3010, after scoring all times high at 3262.47 in the early hours of last Friday.

Kind Regards

Global Market Strategist of FX-Recommends

Walid Salah El Din
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