The first full trading week of 2020 has certainly been eventful. US President Trump directed the killing of top Iranian general Qasem Soleimani in a drone attack at Baghdad airport last week. This act took the Iranian Government by surprise and could have triggered a series of responses leading to a much wider Middle Eastern conflict. On these initial fears, safe-haven bids into gold saw bullion briefly move above $1600 and US oil above $65 last week. However, at the time of writing, both markets have pulled back sharply from weekly highs as President Trump and Iran both avoid open war.

Key events from the past week

• US-Iran: Reaction to Qasem Soleimani killing, Monday, Jan 6. Around 68% of OPEC’s oil supply could have been impacted by a wider regional conflict in the Middle East. However, the oil market is very well supplied, so the de-escalation in the crisis led to oil prices retreating sharply from $65 a barrel. Without further escalation, we expect lower oil prices from here in the next few weeks.
• USD: ISM non-manufacturing index, Tuesday, Jan 7. A solid reading gave the dollar a lift on the release. One area of concern was new orders coming in at 54.9 vs 57.1 last month, but the level is still in expansion territory. This print relieves some of the concerns from weak ISM manufacturing data the week before.
• USD: Non-Farm Payrolls, Friday, Jan 10. Dollar bears were surprised by the strong ISM data above on Tuesday. So, although the NFP data has not been released at the time of writing this piece, a strong job print will add further encouragement to USD bulls. Definitely one event to watch this week.

Key events for the coming week

• NZD: Business Confidence, Monday, Jan 13. The RBNZ has made a shift to data dependence going forward with only a 20% chance of a cut seen at their February meeting. Business confidence is important for the RBNZ, so watch for a reaction from an unexpected print.
• USD: CPI, Wednesday, Tuesday, Jan 14. The Fed is now on hold with the dot plot from their December meeting indicating no changes in rates for 2020. However, the FOMC has also made it clear that for any rise in rates there will need to be a sustained rise in inflation.
• Geo-Politics: US-Iran and US-China. The focus will shift in the coming week to the signing of the US-China phase 1 trade deal. Watch out for a risk off-market, with flows into gold, JPY, CHF, and US treasuries if the deal is not signed.