Crude Oil, Gold Jump on Middle East War

The weekend’s lethal surprise attack by Hamas on Israel has drawn a massive Israeli response, which may escalate further into a wider middle east war, sending stocks lower and safe-haven assets higher.

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  1. Saturday morning saw a surprise invasion of part of Israel by Hamas, who proceeded to massacre hundreds of civilians and kidnap over 100 Israelis into Gaza. This was the most lethal day of violence ever seen in Israel, surpassing even the 1973 and 1948 wars. Israel has responded by going onto a fully mobilized wartime footing and attacking Hamas in Gaza with strong force. The Israeli PM has warned of a long and difficult war. Markets are now fearful that the conflict could widen and disrupt supplies of crude oil, which rose by over 4% since markets opened a few hours ago. The USA has sent a strike carrier group to waters near Israel and Gaza in the eastern Mediterranean in a bid to deter Iran, Hezbollah, Syria, or militias in Iraq from getting involved in the war, which may be helping to keep markets relatively calm.
  2. Stock markets are trading lower, but not dramatically, on the news of the war. Gold has risen firmly as safe-haven assets get a boost. For the same reason, the US Dollar is also holding firm, though not advancing everywhere.
  3. In the Forex market, since the weekly open in Asia, the Japanese Yen has been the strongest major currency, while the Australian Dollar has been the weakest, putting the AUD/JPY currency cross in focus. Trend traders in the Forex market will be most interested in being long USD/JPY and short EUR/USD as these are the two major Dollar pairs which have historically tended to trend most reliably, and both have valid long-term trends.
  4. It is a public holiday today in the USA and Canada. This means market volatility and liquidity are likely to be low after the first few hours of today’s London session.
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