There's good news from the geopolitical table! The United States (US) and Iran have reportedly agreed to step back from prolonging the conflict, easing market concerns over a previously fragile ceasefire agreement.
The two superpowers have agreed to halt attacks and are scheduled to meet in Qatar this week to resume peace talks on the Strait of Hormuz issue to end the war.
Following this peace news, markets are starting to calm down:
Brent Crude Oil: Erased early gains and traded flat around $72 a barrel. (Previously, the market was in turmoil after Iran attacked container ships, Qatari oil tankers, and military bases in Kuwait and Bahrain, which prompted US retaliatory strikes).
Gold (XAU/USD): Fell nearly 1% to around $4,050 an ounce as investors began to exit safe haven assets.
US Dollar (USD): Moved mixed against other major currencies.
US Treasury Yield: The 10-year bond yield edged up one basis point to 4.38%.
Two Major Trader Focuses This Week: Sintra Forum & NFP Data!
This week is expected to be a busy one as traders await two major events that will determine the direction of the USD:
Sintra Forum in Portugal: The annual gathering of world central banks featuring a strong lineup of speakers including Fed Chairman Kevin Warsh. Strategists from the Commonwealth Bank of Australia predict that while Warsh may tone down his hawkish tone in Sintra and pressure the USD for a while, the Greenback is still expected to climb higher in the coming weeks due to the US economic narrative remaining resilient.
US Employment Data Series (NFP): The US labor market remains resilient along with inflationary pressures have many betting that the Fed may have to raise interest rates as early as September. Added to this is Richmond Fed President Tom Barkin's statement, which warned that current inflation rates are still "too high."
Economic ‘Time Bomb’ Warning From BIS
Despite the news of US-Iran peace, you still need to be careful. In its annual report released on Sunday, the Bank for International Settlements (BIS) warned of several “pressure points” that could threaten the current global economic prosperity:
The risk of a sharp correction in stock markets driven by the AI technology rally.
Stubborn inflation issues and national fiscal pressures.
Hidden weaknesses in the financial system that could magnify the impact of any economic shock.
“The global economy is currently caught between progress and danger. The level of resilience of our economies is being tested and is becoming increasingly strained,” said a BIS official in the report.
Trader’s conclusion: The easing of the Middle East conflict gives room for gold and oil to make a price correction (retracement). However, the combination of Kevin Warsh’s speech in Sintra and this week’s NFP data could be decisive in whether the USD continues to rocket or not.
Are you ready to face the market this week? Take good care of Money Management (MM)!
