23rd April - An Extension Without Resolution

Forex

Yesterday was another day of contradictions, as always with the focus squarely on Iran. The ceasefire was extended, which gave a boost to risk-on currencies, but negotiations did not restart and the Strait of Hormuz saw blockades continue. There has not been a timeframe placed on the ceasefire extension, so we may not see deadline day uncertainty in the markets in the same way we saw this week. The US and Iran are currently in a standoff; Iran says they will not negotiate until the US Navy blockade is lifted, and the US has said they will not lift the blockade until the Strait is opened.

The USD is caught between a number of forces. Strong retail sales and a more hawkish than expected tone from Kevin Warsh were positive for the dollar, but the ceasefire extension removed some safe-haven demand and increased rate cut potential pushed the other way. The DXY did make some gains on the day overall, meaning the EUR/USD and GBP/USD both fell. Future moves will still hinge on news from Iran, but with no deadline looming, the standoff could settle into more of a slow-burn phase — one where economic data gradually starts to matter again.

The JPY continues to struggle under the weight of high oil prices, with the USD/JPY inching back towards the key 160.000 intervention level. If we see the currency pair get back to or push past this level, we could see the BoJ repeat their actions of the past to boost the JPY's strength. There is no certainty of this, but we have seen in the past that 160.00 is the BoJ's line in the sand. Even if there is no intervention, the psychological threat of one could be enough to move the JPY through market forces alone. This is one to look out for, especially if we also see signs of de-escalation and a reduction in oil prices.

Indices

The US indices saw another positive day on the back of the extended ceasefire. The feeding frenzy and aggressive moves may have fallen away for now, but the market still seems confident, and the sentiment is overwhelmingly positive. Today is a big day for earnings, with Intel, American Express, Lockheed Martin, Honeywell, and Blackstone all releasing figures that will affect the market. As with forex, we may start to see a move back to traditional market catalysts affecting the indices as the war moves into its next phase.

Around the world, the Nikkei continues to look strong, temporarily reaching all-time highs this morning. The FTSE 100 in the UK fell back over the past few days, due in part to the UK economy's larger exposure to the energy markets and negative sentiment around GDP forecasts.

Precious Metals

Gold and silver are still stuck in the same holding pattern, caught between safe-haven demand and rate hike fears in the US. Major US banks are still predicting that gold will end the year somewhere in the region of $5,500 to $6,000, up from its current price of roughly $4,700, but this is dependent on a de-escalation and a reduction in oil prices to remove inflation pressures. It is likely to hold around its current level until more certainty is found, so this market would be a 'wait and see' play for the time being.

Silver is broadly following gold's lead and is likely to do the same in the near future at least. Silver's commercial uses give it more of a baseline demand in the long run, but in the near term, this would also be a market where doing nothing may be the best idea.

Todays Market Drivers

• Iran - Any movement either way in the Middle East will be the main driver of the day. Every social media post and every rumor will be taken into consideration. If there is no movement, we may see the markets reduce their focus on the conflict, but for now, it is front and center.

• US Flash PMI - A miss will put pressure on the dollar, while a beat would back up Kevin Warsh's hawkish tone.

• Weekly Jobless Claims - After a figure below expectations last week, the same again could start to shift the narrative on the US economy from resilient to signs of cooling. One to watch.