28th April - Waiting Game

Forex

There was cautious optimism yesterday on the back of the Iranian proposition to the USA, which was pared slightly by some of the lukewarm responses from some US politicians. The White House confirmed Trump discussed the offer in the Situation Room, but no outcome has been made public as of yet. It does seem unlikely, however, that a proposal would be accepted that would leave the nuclear discussion off the table, as this was a key factor behind the beginnings of the conflict itself. Iran has received backing from the Russian regime in their efforts, while the French President Macron has signaled he will be speaking to the Iranians over the coming days in an attempt to reopen the Strait. The circle of international players is widening; how this will affect the outcome of the war is yet to be seen.

The USD weakened on the day after the initial weekend gap higher, fueled by the possibility of a deal between the US and Iran. It is still heavily dependent on the Middle East; we can expect to see plenty of movement with no real direction until a concrete outcome is signaled either way, whether a deal is reached or the ceasefire is ended.

Oil prices have continued to rise over the past week or so due to the continued closure of the Strait of Hormuz, with Brent Crude sitting around $103.00, close to a 50% increase on pre-war levels. This is affecting a number of markets, putting downward pressure on the EUR and GBP as energy-dependent economies, while giving support to the CAD as an oil-producing nation.

The big news overnight was the rate decision from the BoJ. Rates were held at 0.75% as expected, but the surprise was the vote totals, with more board members than expected voting for a rate increase. Three of the nine members voted for a hike to 1%, a hawkish result and a clear signal that June rate rises are now the base case. This moved the markets significantly, with the USD/JPY falling away from the key 160.000 level and the move mirrored in other Yen crosses. Governor Ueda's media briefing is due at some point this morning, which will give further context to the decision as well as clues on forward guidance.

Indices

US market indices seemed to be in a bit of a holding pattern yesterday, with all three ending at or close to parity for the day. The markets may be treading water ahead of the huge 48 hours to come, with four of the Mag 7 due to release earnings tomorrow after the bell and one more on Thursday. One thing to note, the underlying data on the stocks that make up these indices seem to indicate the drive up in the markets is being increasingly driven by a small number of mega-cap tech firms, possibly indicating that the underlying market is less healthy than it may appear. This gives even more weight to the earnings releases tomorrow; should the huge tech firms release weak data, it could have a significant effect on the market outlook as a whole.

Precious Metals

Both gold and silver are falling due to higher oil prices and increased chances of rate hikes across major economies. This trend is likely to continue if we experience a longer period of uncertainty or prolonged higher oil prices. For gold, the $4500 level remains the key technical level below the current price. This setup, paired with good news, could lead to a bump back towards previous highs and could be a promising opportunity. Everything, however, as has been the case since the start of the conflict, hinges on the news coming from the US and Iran. One to keep an eye on.

Today's Key Market Drivers

• BoJ Governor Ueda's Speech - This will add further color to the rate decision and the vote overnight. Dovish or hawkish language could push Yen pairs either way.

• US Consumer Confidence - This is the last major economic data before the FOMC decision. Expectations are low, but I wonder just how much of an effect this could have given the larger factors affecting the US economy at the moment.

• Iran - As always, the situation in the Middle East is comfortably the most impactful driver for the day. News either way will push all markets and is the most important thing to be aware of.