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Dollar Up, Oil and Yen Down as Iranian Deal Reverberates through Markets

Dollar Up, Oil and Yen Down as Iranian Deal Reverberates through Markets

2013-11-25 11:14:00
Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- Crude Oil slides nearly -1.5% after Iranian nuclear deal reached.

- “War premium” being priced out of commodities markets – precious metals lower, too.

- Dollar firms, Yen weakens as equity markets jump across globe.

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(vs USD)








Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.22% (+0.73% prior 5-days)


Risk markets across the globe were provided some new stimulus to start the week as oil prices plummeted after an Iranian nuclear accord was reached among the P5+1 powers (China, France, Germany, Russian, the United Kingdom, the United States, and Iran) in Geneva, Switzerland. Notably, Crude Oil has dropped by -1.42% on the day to $93.49/brl.

The reduction in “war premium” – presumably that the chance of conflict in the Middle East has been diminished based on this deal – extends beyond oil. Gold has dropped by another -0.95% to $1232.03/oz, while Silver is down -0.51% to $19.77/oz. In spot FX, the Yen is the worst performer overall, and the USDJPY has rallied by +0.42% to ¥102.70. Bond markets are confirming the reduction in demand for safety, with the 10-year US Treasury note yield rising by +0.7-bps to 2.750%.

While the impact outside of energy markets might be slower moving or less sensitive to the Iranian accord, two questions are necessary going forward: will the fundamentals allow the breakdown in oil to continue? (a major positive for the global economy); and what are the technical levels to look for in a trade?

Crude Oil Weekly Chart: April 2010 to Present

Dollar_Up_Oil_and_Yen_Down_as_Iranian_Deal_Reverberates_through_Markets_body_x0000_i1027.png, Dollar Up, Oil and Yen Down as Iranian Deal Reverberates through Markets

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First, the major fundamental event that led to the deal: Iranian President Hassan Rouhani assuming power on August 3, 2013. Since then, oil has fallen by -12.50% (at the time of writing today), and US gasoline prices are down by -3.78% over the same time (which boosts US consumers’ spending power). With about $7B in economic sanctions relief coming to Iran, we suspect that there is good reason to believe that further tension in the near-term is a distant possibility.

If the “war premium” continues to be reduced and the fundamental shift since early-August remains on course, Crude Oil is nearing a potentially major inflection point as seen in the chart above:

- Crude Oil is sliding back towards late-October lows at 92.49/51, coinciding with the uptrend off of the 2008 and 2013 lows (lower black dotted line).

- A weekly close below 92.49/51 could signal the beginnings of a longer-term downtrend.

- First support comes in at 90.00, psychologically and technically from ascending TL support off of the 2009, 2011, 2012, and 2013 lows.

- Below 90.00, 87.14, 84.20, and 77.50/75 are the next swing lows seen from 2012 to present.

- A rebound above the November high (95.59/64) would invalidate the burgeoning bearish bias.


Dollar_Up_Oil_and_Yen_Down_as_Iranian_Deal_Reverberates_through_Markets_body_Picture_1.png, Dollar Up, Oil and Yen Down as Iranian Deal Reverberates through Markets

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--- Written by Christopher Vecchio, Currency Analyst

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