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Iran Attacks American Military Bases, Triggering Global Flight to Safety

Karl Schamotta January 7, 2020

Multiple news sources are reporting an Iranian missile attack has been launched on several American military bases inside Iraq this evening, sharply raising geopolitical risk premia across global currency markets.

The damage inflicted remains unknown, with some reports suggesting that “several rockets have been fired” at the Ayn al-Asad base in Iraq, while others have described assaults on troops elsewhere in the country. In an official statement, the Islamic Revolutionary Guard Corps said, “the brave soldiers of the IRGC’s aerospace unit have launched a successful attack with tens of ballistic missiles on Al Assad military base in the name of martyr General Qasem Soleimani”.

The assault comes days after President Donald Trump authorized the killing of General Soleimani, and after the secretary of the country’s national security council, Ali Shamkhani said that 13 “revenge scenarios” were under consideration – with the most limited option representing a “historic nightmare” for the United States.

Front-month West Texas Intermediate prices are up almost 4% as we go to pixels, erasing the losses of the last two days.

The Swiss franc and Japanese yen are surging upward, while the Canadian dollar – simultaneously weakened by flows into the safe-haven dollar and strengthened by the rise in oil prices – is sitting near levels that prevailed two hours ago.

Traders in financial markets are in sell-first-and-ask-questions-later mode, but the wider consequences are difficult to foresee. Depending on scale and targeting precision, the attack may be largely symbolic, or have deeper military implications – and, although this response was largely foreordained last week and telegraphed through movement of Iranian missile forces over the weekend, the current inhabitant of the White House may choose escalate the conflict further by ordering the world’s most powerful military to strike targets in Iran.

Uncharted territory – but also a useful reminder of the risks floating under the surface of today’s remarkably-placid currency markets.

Karl Schamotta
Chief Market Strategist

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