20th April - Whipsaw

Forex

On Friday, Trump announced the Strait of Hormuz was open, pushing the DXY to a seven-week low, before the realization that the reopening was only partial pulled back some of that move. Oil fell to less than $80 per barrel at that time, before recovering to just under $88 by Monday morning. This is the story for most of the USD pairs: a strong move against the Dollar on Friday before a retracement leading to Monday's open. Any future move is, at the moment, almost entirely dependent on the outcome of the war. The current ceasefire is due to expire on Wednesday (22nd Apr). Market moves until then will be affected by swings in optimism as to whether the conflict will end or if it will worsen. I would be hesitant to enter any USD trades in the short term until there is more certainty. Markets are so focused on news from Iran that fundamental and technical analysis are completely overpowered by geopolitical news.

The JPY saw a strong day on Friday based on the news headlines. Falls in oil prices reduced the strain on the economy's import costs amid their reliance on oil from the region. However, as with everything at the moment, this is heavily dependent on the updates from Iran. While the JPY is normally a safe-haven currency, their dependency on Middle-Eastern oil means the currency will benefit from reduced uncertainty and a more concrete ceasefire arrangement.

The EUR and GBP gained some ground on the USD on Friday's news, with the EUR performing better than the GBP due to increased expectations of ECB rate hikes and the complicated situation the BoE has to sort out with stagflation concerns in the UK. In the short term, however, again as with everything else, the markets are highly sensitive to the war and any movements in oil prices.

Indices

The US indices continued their wild ride on Friday, seemingly pricing in a peace that has not been finalized yet and causing a feeding frenzy. The news over the weekend has caused a slight pullback so far, but it will be interesting to see if any further negative news causes the markets to collapse or whether they will ignore any bad news and FOMO will continue to drive prices north. I do wonder whether this could be a recipe for a violent pullback if we do get negative news, while if we get positive news I also wonder just how much is already priced in and how much further the rally could go?

Precious Metals

Gold is in a very interesting situation; the normal safe-haven is in a position where it will benefit from reduced uncertainty. If we get reduced oil costs and thus lower inflation concerns, we will then see fewer incentives for US rate hikes and more chances of rate cuts, making non-yielding assets such as gold a boost. However, a rise in oil prices and an increase in stagflation concerns in the US could also be beneficial to gold, as money flows into gold in its normal role as a safe-haven. This could be one to watch over the next week or so. Will it continue on the upward trend we have seen over the past few weeks?

Today's Market Drivers

• CAD - CPI numbers are released at 1:30 pm UK time today

• NZD - New Zealand's CPI numbers are released overnight

• All Markets - The main driver will be the Middle East, as it has been since the start of the Iran War. Any updates will be fundamental to how we see markets move over the next 24 hours