Middle East tensions escalate

Middle East Tensions Escalate – US equities started this week’s trading slightly lower due to the escalation in the Middle East over the weekend. However, all three main indices managed to close yesterday’s trading session higher. The Dow Jones added 17 points, the S&P 500 advanced by 0.4%, and the Nasdaq 100 ended the day higher by 0.26%.

Overnight, Israel announced a ground invasion in Lebanon. Gold and Silver are reacting to this development. Gold is now up by over $10, trading above $2645, while Silver added 1%, trading near $31.50 by the time this report was released. On the other hand, Crude Oil doesn’t seem to be bothered by this development as it remains lower on the day. The decline in Crude Oil might still be telling us that the risk of lower growth is much greater than the risk of an expanded war in the region.

Eyes on EU inflation ahead

During today’s European session, all eyes will be on the inflation data.

We will be paying closer attention to the Core CPI, which is expected to decrease to around 2.7% but is likely to remain stable. This would give the ECB more time before considering another rate cut. Currently, the markets are factoring in a more than 60% chance of a 25-bp rate cut in the ECB’s next meeting. Any unexpected positive results are likely to postpone these estimates by a significant margin.

EURUSD failed At 1.12

The Euro has attempted to break above 1.12 multiple times since mid-August, but it has failed to do so. Each time the pair tested that resistance, it declined back towards the 1.11 – 1.1090 support area. Additionally, the technical indicators are now showing a stronger inclination towards the downside.

In the meantime, a break below the support area of 1.11 – 1.1090 would indicate further declines towards 1.1050 and then 1.10. If there is a weekly close below 1.10, it would signal an extension of the downside retracement, possibly targeting 1.0925.

US data ahead

During today’s US session, another round of important economic data will be released.

Today’s data will be significant as it should provide us with more clues about the labor market. Even with the Manufacturing PMI release, investors and traders should focus on the Employment component, which reached its lowest level since 2020 last month. Another disappointing labor market report could increase the expectations of faster and larger interest rate cuts by the Federal Reserve in the upcoming meetings.

Signs of a USD Index trend change

Since Mid-September, the US Dollar Index succeeded in holding above 100.30 and 100.60 solid support area, which also remained solid since February 2023, leading the technical indicators to turn slightly higher, indicating a possible trend change.

The current outlook is also supported by remarks from the Federal Reserve’s Jerome Powell yesterday. He hinted that the Fed is not in a rush to cut rates, but any changes will happen gradually over time. However, the time/price indicator is now suggesting a short-term shift in the bearish outlook, with a potential target of 101.80 over the next few days or weeks.

Silver bullish outlook remains intact

Silver has achieved four consecutive quarters of gains and posted the highest quarterly and monthly close since 2012, strengthening the bullish outlook for the short and medium term.

Silver is currently facing resistance at the $32 and $32.50 levels, which have been strong since May, causing the price to retreat multiple times. Despite this, Silver is still above $31. Although there might be further downward movement towards $30, the bullish outlook is maintained as long as Silver stays above $28.40 for now.

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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