FX Daily Strategy: Europe, April 7th
Market Spotlight Remain on Middle East
U.S. February Durable Goods Orders to see Aircraft slipping
Choppy Japan February Household Spending
Figure: Major Middle East and Other Invasions
| Troop Numbers | War Length | Comments | |
| Gulf War 1991 | 689k U.S. | 42 days | 42 country coalition with 6 month build-up and 42 day desert storm. Ground invasion by Saudi Arabia. Iraqi sea mines severely damaged two U.S. Navy vessels, the USS Princeton and USS Tripoli. 2 year mine clearance after the war. |
| Iraq Invasion 2003 | 466k U.S. | 26 days | Six country coalition with 6 month build-up and invasion by land through Kuwait. |
| Iran-Iraq 1980 | 210k Iraqi | 8 years | Iraq invades Iran September 1980, with former Iraq leader Saddam Hussain starting peace negotiations June 1982 but a UN ceasefire only reached August 1988. |
| Ukraine War 2022 | 190k Russian at border | 4 years | Land based invasion from Russia and via Belarus. 5 month build-up at the border. The war is ongoing with Russia holding around 20% of Ukraine’s land. |
| Falklands 1982 | 25.9k UK | 42 days | UK did not have air superiority. UK Lost seven ships—four warships and three auxiliary/merchant vessels—along with one landing craft. |
Source: Continuum Economics
Any ground-based invasion would likely result in a long war and Iran would likely counter with attacks on energy or other key facilities around the Gulf. Sea and air based invasions are also difficult, while any victory would likely be followed by occupation. WTI oil prices would spiral higher to USD120-150 on fears that the Strait of Hormuz could be closed for months (here). This would cause major risk-off in global markets. This financial market risks could mean that the Trump administration stops short of ground invasion and could threaten to blockade Iran oil/bomb power plants, but still trying to reach a ceasefire deal – our baseline remains for a 4-to-8-week war.
The U.S. build-up before the 1991 gulf war and 2003 Iraqi was around 6 months (Figure) and the U.S. military would likely strongly advise the Trump administration that build-up cannot be rushed. If the objective is Kharg Island (90% of Iran’s oil exports), then the build-upcould be shortened– though Iran is reported to have reinforced Kharg Island defense in anticipation of a U.S. invasion. The Iran mainland around the Straits of Hormuz would be more difficult, while islands in the Straits of Hormuz would be symbolic but would not free up the Straits of Hormuz and guarantee the reopening of the shipping lanes. This could mean that the current phase of the war has to be continued prior to an invasion happening in April/May.
We expect February durable goods orders to decline by 2.2% on a correction from recent strength in aircraft, though ex transport we expect continued underlying strength to be shown, with a rise of 0.7%. Boeing orders suggest aircraft will see a significant decline after three straight strong months, November being the strongest. Elsewhere in the transport breakdown we expect a modest increase in autos and a bounce in defense, which has a strong overlap with transport, after a weak January, though modest in comparison with the aircraft dip. We expect orders to fall by 2.6% ex defense.
The Japanese February Household Spending came in mixed with y/y at -1.7% but m/m +1.5%. While the m/m data is still a miss from estimate, it indicates improvement in private consumption as real wage turns positive.
On the chart, the pair is drifting narrowly below the 160.00 level but pressure remains on the upside following bounce from 158.27 low last week. Bullish structure from the 152.10 January current year low suggest scope for retest of the 160.00 figure and 160.46 high. Would expect reaction at these highs but a later clearance cannot be ruled out. Clearance will open up scope to 161.00 level then 161.95, 2024 year high. Meanwhile, support is at the 159.45/159.00 area which extend to the 158.27 low. Would take break of these ease the upside pressure and see room for deeper pullback to the 157.50 support.