Tension in the Middle East escalate further, gold rallies to multi-year high

Summary:
- Trump decides not to retaliate against Iran after drone attack
- Mixed picture of the Asian PMIs
- Gold at the highest level since August 2013, Bitcoin above $9500

Trump decides not to retaliate against Iran after drone attack

Tensions between Iran and the United States continue to mount and the latest developments in the Middle East threaten to military escalation. Iranian forces shoot down the US drone saying that it has entered its airspace illegally. As reported by the New York Times, the United States prepared retaliatory attacks on some Iranian targets, including radar and missile batteries. However, Donald Trump decided to abandon plans of retaliation and not to escalate tensions now. Markets welcomed the NYT report with a relief and oil erased some of the recent, rapid gains. However, it should be noted that it is not the only thrilling news from the Middle East that surfaced over the past few hours. It was also reported that Yemen’s Houthi forces hit Saudi Arabian power plant with a missle. Additionally, so-far unconfirmed, news of an explosion near Iranian nuclear plant in Bushehr also surfaced. While lack of the US retaliation against Iran is good news, the other 2 pieces of news show that the situation in the Middle East is far from calm.

Gold continues to move higher and higher being fuelled by rising geopolitical tensions and USD weakening. This week saw insane rally with the precious metal trading 4% higher against last week’s close. Note that on Friday morning, gold price broke above the $1400 handle for a brief moment. $1411.6 handle reached this morning was the highest level since the turn of August and September 2013. Source: xStation5

Mixed picture of the Asian PMIs

Over the course of the Asian trading session investors were offered some PMI indices for June. Australian indices prepared and released by the Commonwealth Bank Australia (CBA) showed quite an interesting development. Namely, while the world is coping with deteriorating economic conditions, survey gauges from Australia managed to tick higher. Manufacturing gauge jumped from 51 pts to 51.7 pts while the services gauge moved from 51.5 pts to 53.3 pts. Details of the release showed that the growth momentum in the Australian private sector is picking-up and that output and new business subindices jumped the most in 7 months. On the other hand, preliminary PMI reading from Japan was disappointing to say the least. The manufacturing PMI index dipped from 49.8 pts to 49.5 pts while the market expected an advance to 50 pts. Details showed that the new orders subindex dropped by the most in 3 years while inventories rose the most in 6.5 years on the back of disappointing sales volumes. Softer demand was spotted both domestically and internationally with automotive demand being hurt the most by the uncertainty spurring from the US-China trade war.

AUDUSD is trading higher this week - partially on the back of upbeat Austrialian data and partially on the back of the general USD weakening. Nevertheless, the pair remains in a downward trend. However, it could be invalidated with a break above the 0.6950-0.6970 area, where 50-session moving average (green line) and the downward sloping trendline can be found. Source: xStation5

In other news:

  • Federal Aviation Administration banned US carriers from entering Iranian airspace

  • Japan CPI decelerated from 0.9% YoY to 0.7% YoY in June (as expected)

  • EU leaders to hold another summit on EU top jobs on 30 June

  • Xi Jinping and Kim Jong Un pledged for a deeper cooperation between their countries amid shifting international environment

  • EU Commission Chief Juncker said that EU will prepare measures against Turkey as the country continues gas & oil exploration in the Cyprus’ territorial waters

  • Gold broke above the $1400 handle this morning for the first time since August 2013

  • Bitcoin trades above the $9500 for the first time since May 2018

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