Oil Prices Bolster by Heighten Geopolitical Tension

• Oil prices surge on heightened tension in the Middle East region.

• The U.S. dollar remained strong on the back of robust job data last Friday.

• Eye on tomorrow's RBNZs interest rate decision with the expectation of a 50 bps rate cut.

Market Summary

Oil prices surged by nearly 4% in the last session, reaching a near two-month high as the confrontation between Israel and Iran-backed militaries escalated, sparking concerns over potential supply disruptions in the region, which accounts for a significant portion of global crude production.

In contrast, gold prices remained stable, hovering above the $2,640 mark. Despite heightened geopolitical tensions, the strengthening U.S. dollar has dampened demand for the safe-haven asset. The dollar index rose above 102, its highest level since August, supported by strong U.S. job data from last Friday.

In New Zealand, the Reserve Bank of New Zealand (RBNZ) is set to announce its interest rate decision tomorrow, with expectations of a 50 basis point rate cut. This prospect has weighed on the New Zealand dollar (NZD), which fell nearly 3% against the U.S. dollar last week.

Meanwhile, the Reserve Bank of Australia's (RBA) monetary policy meeting minutes, released during the Sydney session, initially boosted the Australian dollar (AUD) due to a hawkish tone. However, as markets digested the news and concerns grew over the country's economic outlook, confidence in the Aussie dollar faltered, pushing it to a near one-month low against the U.S. dollar.

Current rate hike bets on 7th November Fed interest rate decision:

Source: CME Fedwatch Tool

-50 bps (7%) VS -25 bps (93%)

Market Movements

DOLLAR_INDX, H4

The Dollar Index continues to stay in a positive zone, bolstered by strong U.S. jobs data. A jump in Nonfarm Payrolls, a lower unemployment rate, and solid wage growth have led investors to reduce expectations for aggressive rate cuts. Now, an 85% likelihood is placed on a 25 basis point cut, as opposed to a 50 basis point cut. U.S. Treasury yields are also rising for the first time in two months, reflecting the markets adjusted outlook on interest rates.

The Dollar Index is trading higher while currently testing the resistance level. However, MACD has illustrated increasing bearish momentum, while RSI is at 67, suggesting the index might enter overbought territory.

Resistance level: 102.50, 103.30

Support level: 101.80, 100.95

XAU/USD, H4

Gold prices remain flat, consolidating as mixed fundamentals prompt a cautious investor stance. Middle East tensions have provided a bullish underpinning for gold as a safe-haven asset. However, the stronger Dollar and better-than-expected U.S. jobs report are limiting gains. This week‘s U.S. CPI and PPI reports, along with the Fed meeting minutes, could serve as key indicators for gold’s next move.

Gold prices are trading lower while currently testing the support level. However, MACD has illustrated increasing bullish momentum, while RSI is at 47, suggesting the commodity might experience technical correction since the RSI rebounded sharply from oversold territory.

Resistance level: 2670.00, 2690.00

Support level: 2640.00, 2630.50

CL OIL, H4

Oil prices have retreated slightly due to profit-taking and technical correction, despite recent gains amid Middle East conflicts. Escalating tensions between Israel, Hezbollah, and Iran continue to inject volatility into oil markets. In addition, Hurricane Miltons approach toward the Gulf of Mexico is being closely monitored for its potential impact on U.S. oil production and shipments, as port restrictions in the region may temporarily disrupt oil flows.

Oil prices are trading lower following the prior retracement from the resistance level. MACD has illustrated increasing bearish momentum, while RSI is at 55, suggesting the commodity might extend its losses since the RSI retreated sharply from overbought territory.

Resistance level: 77.55, 79.10

Support level: 73.80, 71.90