Lower Oil, Soft Dollar, and the Jobs Test Ahead

The market has become accustomed to US-Iran relations operating much like an on-again, off-again relationship. One month the two sides are sitting at the table drafting ground rules and testing the waters for reconciliation; the next, a provocation triggers a dramatic breakup, public recriminations and a return to the silent treatment. Right now, the frost appears to be thawing. President Trump, followed by US Treasury Secretary Scott Bessent, has been teasing the market with hopes that a deal to re-open the Strait of Hormuz could be imminent. The prospect of supply flowing more freely again has boosted risk assets and pulled oil lower, easing the inflationary threat that had been building. One clear lesson since this conflict began, however, is that no agreement is set in stone and remains prone to sudden reversal. For now, markets are clinging to any de-escalatory signals that bring oil back to more tolerable levels (Brent oil has eased from a recent nudge toward $100 two weeks ago to around $80 currently).

Lower oil prices, combined with last week’s joint US-Japan intervention to support the yen, have taken some of the wind out of the US Dollar’s sails. The Dollar Index has dipped below the 100 level. Even so, the USDJPY rate is still showing residual upside tendencies, having recovered from a low around the 155 handle to trade around 157. The key question is whether the threat of further intervention will be enough to overcome the natural market forces that continue to favour a weaker yen, driven largely by the yield differential between US and Japanese bonds. Time will tell, but US and Japanese officials will be hoping that the action already taken, together with the credible threat of more, can keep the pair below the closely watched 160 level.

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Gold has been an indirect beneficiary of the currency intervention. A softer US Dollar tends to support the precious metal given their historically inverse relationship, even if exceptions occasionally appear. Lower oil prices have also helped gold establish a firmer base above the $4,000 level. Upside progress remains relatively slow, however, constrained by lingering uncertainty over how long oil can stay suppressed given the volatile nature of US-Iran relations, and by market expectations that the Federal Reserve may still need to deliver a rate hike around September. Technical levels to watch include support at $4,015, with resistance waiting up at $4,115.

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US earnings season has so far delivered a broadly positive message. The Dow Jones Industrial Average and the S&P 500 both closed at record highs on Tuesday, underscoring the general tone of positivity in the earnings results so far. Within the highly scrutinised technology sector the picture has been slightly more mixed. Meta Platforms and Alphabet both missed EPS (earnings-per-share) expectations, yet these disappointments have been outweighed by stronger showings and constructive forward guidance from Microsoft, Amazon and Palantir. That combination has powered a recovery in the Nasdaq, which has advanced roughly 4.5% over the past five sessions. In essence, what started as a nervous earnings season turned into a notable Nasdaq recovery once key tech leaders reported. Hits from hyperscalers like Amazon and Microsoft, alongside home-run results from Palantir, have given credence to the notion that enterprise demand is accelerating fast enough to justify heavy AI spending, which has given traders the green light to re-enter tech with some gusto over the past week.