Trump Considers Troop Withdrawal? Oil Prices Drop in the Short Term, Gold May Continue to Rebound
Trump Considers Troop Withdrawal? Oil Prices Drop Sharply, Gold May Continue Rebound
Written by: Gain Capital Senior Analyst Jerry Chen
There has been no significant progress in geopolitical tensions at the beginning of this week. Oil prices and the US dollar remain strong, while global stock markets continue to decline. On Monday, Trump once again threatened Iran, stating that if they do not open the Strait of Hormuz, the US will destroy their power plants, oil fields, and Kharg Island (from which 90% of oil exports depart). These verbal threats are echoed by the US military buildup.
The probability of ground action continues to rise. Iran has called the US ceasefire proposal unrealistic, while Israel says it does not wish to set a timetable for war. Pakistani officials believe that direct talks between the US and Iran this week are unlikely.
The longer the war drags on, the higher the risk of energy supply disruption. With the Houthis joining the fight, the risk of the Red Sea shipping lane being blocked makes the supply outlook even more severe. International oil prices continued to rise on Monday, with WTI crude exceeding $105, bringing this month’s cumulative gain close to an astonishing 60%.
Inflation and rate hike risks continue to drive global equities lower. Overnight, all three major US stock indices opened higher but closed lower, with only the Dow Jones posting a slight gain. Both the Dow Jones and Nasdaq have retreated over 10% from their all-time highs, entering correction territory. After five consecutive gains, the US Dollar Index stabilized above 100, while gold rebounded for a second straight day, climbing above $4,500.
On the monetary policy front, both the US and Japan have seen new developments. Federal Reserve Chair Jerome Powell said Monday that the "Fed can wait and observe how the Iran war affects the US economy and inflation," a slightly dovish comment. The interest rate markets now expect rates to remain unchanged this year, as opposed to the earlier forecast for a minor hike. However, at this stage, market dynamics are still driven more by geopolitics than monetary policy.
Japan's Ministry of Finance on Monday sent its strongest signal of potential forex intervention, stating that if speculative activity continues, the authorities may need to take "decisive" action. At the same time, the Bank of Japan Governor hinted inflation pressure could provide grounds for a rate hike. This helped the yen strengthen overnight, although USD/JPY remains "sluggish" near 160, and a pullback risk should be watched.
A piece of news in early Tuesday trading triggered market volatility. According to the Wall Street Journal, Trump told his staff he is willing to end the war with Iran even if the Strait of Hormuz remains closed. Oil prices quickly dropped, gold briefly surged past $4,600, and Asia-Pacific equity markets and US stock futures reversed from losses to gains. However, whether this truly translates into a ceasefire remains highly uncertain.
For Tuesday, focus will be on China's March PMI, Eurozone March CPI, and US February job openings data.
Eurozone inflation is expected to jump from 1.9% to 2.7%. Markets anticipate the European Central Bank will raise rates 2-3 times this year, but this is unlikely to reverse the negative economic outlook weighing on the euro. US job openings are expected to fall from 6.946 to 6.87 million; downside risk for employment and upside inflation risk put the Fed in a dilemma, and disappointing data may increase the risk of a US equity pullback.
XAUUSD Gold 1 Hour Chart
From a daily structure perspective, after stabilizing near $4,400, gold prices have gradually begun a rebound, and this week is likely to see continued recovery. News of Trump considering troop withdrawal (Wall Street Journal) and Powell's dovish tone caused a short-term drop in the US dollar, pushing gold close to $4,600. Here, the pace of bulls is expected to temporarily slow, but the target remains the $4,740 area and the trend line near $4,800.
As shown in the chart, on the downside, a break below $4,500 would see bears regain control.
JP225 Nikkei 225 Index 4 Hours
Boosted by market news, the Nikkei 225 turned positive in early Tuesday trading. Meanwhile, technical patterns also suggest the index may oscillate upward near the lower bound of the adjustment channel around 50,600 and possibly challenge the upper bound at 52,800 in the short term. However, a true breakout awaits genuine easing of geopolitical risks.
Editor: Zhu Henan
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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