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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

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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