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Oil rallies as biggest oil exporter cut relations with Iran

Saudi Arabia announced on Sunday cutting diplomatic ties with Iran

CFDs are a leveraged product and can result in losses that exceed deposits. Trading CFDs may not be suitable for everyone, so please ensure you fully understand the risks and take care to manage your exposure.
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The asset class, which considered one of the worst performing in the past 2 years, started 2016 on a positive note. Oil surged early Monday by more than 3%, as Saudi Arabia announced on Sunday cutting diplomatic ties with Iran in response to the attack of its embassy in Tehran. The oil rally clearly has nothing to do with fundamentals as Chinese data shown factory orders contracted for the 10th consecutive month suggesting that pain is not over yet in the second biggest economy. Oil traders are just pricing some risk premium for now and it could widen if tensions intensified within the middle eastern region, however, the higher prices go, the more bears will join the trade as energy markets doesn’t seem rebalancing in Q1 2016.

Brent-WTI spread widened again by about 40 cents, after West Texas Intermediate traded on premium to the global benchmark in December for the first time in more than 11 months. Brent is likely to face pressure around first resistance level at $39.41 (15-Dec high) followed by a major resistance at $42.23 (24-Aug low).

Geopolitical woes not only lifted oil prices but also the Japanese Yen, which traded higher against all its major peers, with USDJPY dropping below 120 for the first time since 22 Oct.  The Japanese currency strength should be limited especially against the USD, as divergence in monetary policy will continue to rule the trade in first quarter of this year.

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CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.