Bullion leaps, crude slides on Iran diplomacy hopes, testing Citi's thesis
Gold rose about 3.3% and Brent fell about 9% on Iran diplomacy hopes, testing Citi's de-escalation thesis. Fed hike odds stayed near 83%.
Crude fell then consolidated after conflicting US-Iran reports; escalation risk limited downside.
Following an Al Arabiya report that the US and Iran had made concessions on the nuclear program and frozen funds, crude oil extended its selloff yesterday. The report also noted that Washington had approved a draft Memorandum of Understanding and that the announcement would be made in steps and simultaneously.
The downward pressure then eased when the secretary of Iran's Supreme National Security Council described the US response to Tehran's demands as unconvincing, and IRIB news reported that assertions of an imminent US-Iran deal were false.
Trump repeated that the US has no immediate plan to attack Iran. However, his actions are unpredictable, especially after his loss in the midterm elections. There is a risk he could escalate the conflict now that he has little to lose.
The escalation threat is likely to cap losses in oil prices until a clear breakthrough in negotiations emerges.
Crude oil (CFD contract) extended its losses to the lower bound of the channel yesterday before bouncing. Buyers are likely to keep entering near that lower bound, with a defined risk below it, to aim for a rally to 110.00 resistance. Sellers will look for a downward price break to increase bearish bets toward 68.00 support, with 87.00 as the initial target.
The price is now consolidating near the lower bound of the channel. The swing high around 98.82 could act as resistance. If the price reaches that level, sellers are expected to step in, with a defined risk above it, targeting a break below the channel. Buyers will want a move above that level to increase bullish bets toward 110.00 resistance.
Buyers will continue to step in around the lower bound, while sellers look for a break below the channel or a rejection around 98.82 to target new lows.
Today's releases include the US ADP and US ISM Services PMI. Tomorrow brings the latest US Jobless Claims figures. Friday wraps up the week with the US NFP report and the University of Michigan Consumer Sentiment survey. The market will continue to focus on US-Iran negotiations.
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