Waiting Game Continues for a Possible Peace Deal
The market is currently playing a patient waiting game, closely watching for any meaningful progress toward a US-Iran peace deal. This anticipation has helped keep risk assets buoyed, providing a counterbalance to geopolitical jitters while driving oil prices lower. President Trump has been sounding notably optimistic in recent days, keeping market hopes elevated with talk of potential breakthroughs. However, the wait continues. Until a concrete agreement materialises, investors remain in a state of cautious optimism, willing to buy the rumour but not yet ready to fully celebrate.
Oil presented a tale of two contracts today. WTI fell sharply, reflecting broader hopes for de-escalation and improved supply prospects, while Brent moved higher in response to fresh US strikes on Iranian targets. This divergence highlights just how difficult it is to get a clear read on peace deal progress when hostilities are still occurring on the ground. The market is trying to price in both hope and reality at the same time.
Meanwhile, the softer tone in oil has dragged the US Dollar lower in FX markets. However, the Dollar Index (DXY) is still clinging stubbornly to the 99 handle, as meaningful US rate cuts remain a distant prospect. This could test President Trump’s relationship with the new Fed Chair Kevin Warsh, who was sworn in last week. If oil prices take a long time to normalise, Warsh may be forced into a more hawkish posture - something that could create early tension between the White House and the Fed.
Gold has been one of the clearer beneficiaries of the shifting dynamics. With oil prices easing and inflation worries receding somewhat on hopes that the Strait of Hormuz could reopen, the yellow metal has found some breathing room. It has managed to stabilise and edge higher, reclaiming some lost ground as the immediate energy-driven pressure has eased. Levels to watch for gold include support at $4515 and $4470, with resistance awaiting in and around $4600 and $4700. Gold could be poised for further upside should a US-Iran peace deal emerge which opens the Strait of Hormuz and drags oil prices and the USD lower. But in the meantime, it is the uncertain inflation and interest rate outlook which is keeping a lid on any larger gains in gold.
Looking ahead, the macro calendar offers a few important releases, most notably US Core PCE data on Thursday, which will be closely watched for any further signs of creeping inflation. Expectations are that we could see a 0.3% month-on-month increase in this key inflation print that the Fed watches very closely. However, it is Middle East headlines that will most likely determine the near-term direction of risk assets. A genuine breakthrough toward a peace deal could trigger a sharp relief rally across equities and commodities, while any setback or renewed escalation would quickly remind investors how fragile the current optimism really is.
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