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Chart of the Day: XTIUSD

Oil spiked Monday after a tense weekend of back and forth rhetoric between the US and Iran after President Trump’s lethal drone strike Friday.

WTI crude (XTIUSD) reached 64.53, the highest its traded since April. Brent crude (XBRUSD) similarly hit a multi-month high as it momentarily soared past 70.

Despite tensions, oil supply has not been affected. Gains in price have pared back today as markets wait to see what happens.

On the XTIUSD daily chart, you can see WTI crude is trading above its major moving averages, all in bullish patterns. The RSI indicates it was a touch overbought and came off the 70 level.

XTIUSD daily chart

Markets panicked as Iran scrapped its commitment to limited levels of uranium enrichment, Iraq expelling US troops from the country, and Trump tweeting that the US will respond in a “disproportionate manner” should Iran retaliate. Oil spiked during the panic, a move typical when this region’s in unrest.

But the gains pulled back after Secretary of State Mike Pompeo counteracted Trump’s aggressive stance by saying Washington would behave lawfully. Rather than pricing in an aggressive retaliation, investors are taking a wait-and-see approach.

If Iran chooses to respond aggressively, Trump has made it clear he will strike back. So a retaliation from Tehran will panic markets, and we would expect oil to spike again, however gold might be a better hedge against conflict than oil in this case.

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