Tariffs have been the driving theme for markets this year, but they took a back seat to geopolitics over the past week. Assets such as oil, the USD and gold all swung higher as the hostilities ramped up between Israel and Iran, but now with a ceasefire in place, precarious as it may be, all three have turned lower.
The oil price moves have arguably been the biggest story in financial markets, with the crude chart being a good barometer of the stages of escalation and de-escalation in the conflict. US bombing of Iranian nuclear targets and threats from Iran to close the Strait of Hormuz resulted in supply concerns returning to the fore, but the cessation of hostilities for the time being at least has caused a normalisation of crude prices.
Having made a run towards $78 per barrel earlier in the week, US crude is now back trading at around the $65, with traders largely discounting the possibility of Iran taking action to close the Strait of Hormuz. Such a move by Iran would have created a self-inflicted economic wound, given that it would have disrupted their own oil exports to their biggest crude customer, China. If the ceasefire fails to hold, crude would likely be staring at an upside move once again, so price moves are likely to be headline driven rather than influenced by technical factors in the coming days.
In FX, the USD received a lift from the conflict, with the Dollar Index (DXY) rallying to the 99 level as investors sought the currency as a safe haven move. The DXY has since backtracked to the 98 level on news of the tentative ceasefire, ahead of support at 97.65 and below resistance at 98.40. Federal Reserve Chairman Jerome Powell delivered the first of two congressional testimonies before the House Financial Services Committee, where he again repeated the central bank’s stance of waiting to see if tariff policies produce any inflationary impacts before cutting rates. This hawkish stance on rates failed to provide much support to the USD though. If tensions in the Middle East start rising again this could spark another run higher in the Dollar.
Like oil and the USD, the gold price has been deflated by the onset of the ceasefire between Isreal and Iran with safe haven demand abating. The spot gold price has pulled back to $3323 (as of early trading hours on Wednesday), with key supports awaiting at $3290 and $3260. But gold, much like oil and the Dollar, has the capacity to bounce back should the situation in the Middle East start to flare up again. While demand for safety assets has declined with a ceasefire in place, the move lower in gold looks to be limited due to ongoing prevailing uncertainty in other areas such as tariffs. Resistance at $3365 would need to be overcome to allow another run towards $3400.
Looking ahead for the remainder of the week, Powell’s second day of testimony will be closely followed though we are not expecting his ‘happy to wait’ messaging to change when he appears before the Senate committee. Also, US GDP will be released on Thursday, with a -0.2% reading expected for the quarter (Q1).
Whether the Middle East ceasefire holds will determine if investors remain focused on geopolitical risks driving oil prices or shift attention to tariff policies impacting global trade.
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