Iran Deal Helps Boost U.S. Dollar

Iran (Nov 25)  For at least a day, it looks like another news event took center stage instead of Fed tapering. Over the week-end, Iran reached a deal with six major nations including the United States to curb its nuclear program at least over the near-term. According to the plan, the easing of sanctions on Iran will soon follow, creating uncertainty about increased crude oil supplies.

The deal is not expected to result in an immediate increase in oil supplies, but the groundwork has be laid for a significant agreement perhaps within six months to a year. The countries involved in this deal want to see if Iran can adhere to the rules before offering any more deals.

At first, Iran is likely to increase oil exports by about 1 million barrels per day. Before the sanctions, the country supplied about 2.5 billion barrels. The initial reaction to the news was bearish, but so far the market is holding the recent bottom at $93.17. A move through this level will likely mean a test of $90.00 over the near-term. Taking out $95.63, however, will change the main trend to up on the daily chart.

The news from the Middle East helped underpin the U.S. Dollar early in the session, leading to a sharp break in December gold. The inability to follow-through to the downside, however, gave short-sellers an excuse to book profits, triggering a short-covering rally. Oversold conditions are also helping to boost prices. Due to the prolonged move down in terms of price and time, don’t be surprised by a closing price reversal bottom today. This could fuel the start of a 2 to 3 day correction.

The EUR/USD also failed as it attempted to challenge the recent top at 1.3578. The subsequent sell-off suggests the market is likely to straddle a 50% level at 1.3491 while investors sort out the short-term developments. Fundamentally, the market was also hurt by a comment from European Central Bank member Ardo Hansson who said the ECB is technically prepared to make its deposit rate negative. This call for further stimulus is bearish for the Euro.