Israel-Hamas Catalyst
New reactive event brought heat into the markets
Today is Monday 9th and a bank holiday in North America and Japan was expected to have quiet markets to start out this week, but reactive event during the weekend with the war in Israel and Hamas made markets to open with gaps.
Such type of reactive events cause a safe haven demand and on the previous chart we have DXY, Yen and Gold, but CHF (Swiss Franc) and OIL are also examples. Of course demand on such safe havens removes the appetite on risk currencies and assets and so expect high volatility on such pairs and questions like “How much weight will it hold?” or “Will the gaps be filled?” arise so let’s zoom out a bit.
Markets tries to always be ahead of time, don’t forget the Wall Street say “Buy the rumors sell news” and unexpected real world events makes the market to react and price in (or price out) such event. Notice that this gap was caused by the war in Israel but we have still a war running in Ukraine and since 2022 you haven’t seen any gap because of it, right? So right now what we will see on the markets is an adjustment to such reactive event and for short term it will hold more weight until completely priced in. Now you might ask, “yeah but for how long?” - well that will be our job to assess and we can do it by keeping an eye on reactive headlines that can translate in war escalations or de-escalations and looking for price points on safe havens. If we go back to the start of Ukraine and Russia war we will find the answers to our previous questions.
As we can see above, on 24th Feb 2022 with start the initial fear and uncertainty caused gold to spike up and got corrected (DXY gap was almost filled during Asian session today) but escalations on the war made gold to rise until reach previous ATHs at 2060s, an excellent price for sellers jumping back in and setting their focus on FED monetary policy that started one the hardest rate hikes cycles in US history and since no further events on that war like NATO countries direct involvement or no nuclear threat, the priced in effect was complete. Remember that even today, we keep seeing headlines of such war but only strong catalysts like the examples I gave will hold weight to markets to react to it. Looking at the timeline, this priced in effect took almost 2 weeks and only judging for price points where Gold conveniently retested ATHs, we would have needed such strong catalysts to make it go further that point. Does this means that Gold will go to 2060s again? Well, for what we know at the moment when writing this post, no it is not enough to do it of course. But, successive catalysts, not only related to war, could make it go above 1900, by breaking the 1885 area.
So right now we are in a situation that Gold and DXY are both strengthening. We know that such FED Monetary Policy actions are bullish for DXY and beside there is no one-to-one relation with Gold we have been playing with order flows by moving from/to Gold and using DXY also as a reference to support our bias on Gold. Since such catalysts are fundamental reasons for both being bullish, our job will be to keep continuous assessment on headlines and market reactions. So can this dual bullish effect on DXY be a reason for another Yen Intervention? Right now for me it’s very unlikely to occur since such event is also bullish for Yen and this is supporting the Japan MoF to reduce the effect of DXY “bullish speed” against the Yen.
Remember that this event will be “short lived” and it can hold more weight now than the Monetary Policy that has and is still driving the markets, but this week we will have Inflation figures on US and be prepared for expected volatility until this event is digested.
We will cover up the week preview in another post and we follow day-by-day on what is going on and assess when such event will be priced in.
Stay Sharp.