Forex News
OCBC strategists Sim Moh Siong and Christopher Wong highlight that Brent briefly topped USD126 as the Strait of Hormuz closure and inventory drawdowns tightened supply, but optimism on a US–Iran deal has recently weighed on prices. They warn that if Hormuz remains shut for months, materially higher Oil prices will be needed to curb demand and see Brent near USD80 by year-end.
Hormuz closure underpins tighter oil outlook
"Hormuz disruptions linger, keeping physical oil markets tight despite an extended ceasefire and partial pipeline diversions."
"With the Strait of Hormuz still closed, prices would likely be even higher if not for ongoing drawdowns in strategic and commercial inventories."
"If the strait remains shut for months, markets will need to price materially higher oil to force demand destruction."
"Supply recovery, constrained by damaged infrastructure, will be uneven, even after reopening, supporting higher prices for longer into 2H26."
"We now expect Brent to end the year near USD80/bbl, up from USD70/bbl previously."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
A senior Iranian official told Reuters that Iran fired a warning shot against a US warship to prevent its entry into the Strait of Hormuz, adding that it was unclear whether there was any damage.
Meanwhile, citing an unnamed source, Iran's Tasnim News agency reported that Tehran is ready for any possible scenario and that they will not let the US to bully Iran. The outlet reiterated that Iran will not allow US forces to pass through the Strait of Hormuz.
Market reaction
The US Dollar (USD) stays resilient against its rivals in the second half of the day on Monday. At the time of press, the USD Index was up 0.2% on the day at 98.40.
- GBP/USD extends losses below 1.3550 from last Friday's highs at 1.3657.
- Rising tensions between the US and Iran are boosting the safe-haven US Dollar on Monday.
- Trump's plan to free vessels in Hormuz has put investors on their toes.
The Pound (GBP) reverses initial gains against the US Dollar (USD) on Monday and extends its correction from Friday’s highs above 1.3650, to session lows below 1.3550. Concerns about escalating tensions in the Middle East have hammered investors’ appetite for risk and are boosting support for the safe-haven USD.
The Iranian Fars news agency has reported that two missiles have impacted a US warship that ignored Iran’s warning and intended to pass the Strait of Hormuz. The report has triggered a wave of risk-aversion, sending the Oil price and the Greenback higher.
These events occurred after US President Donald Trump announced a plan to free vessels stranded in Hormuz, which would start on Monday. The announcement took investors by surprise and had already triggered a cautious response amid the complexity of the operation and the lack of details.
Tehran, in turn, has warned that any incursion by the US Military in Iranian waters would be considered a violation of the ceasefire and would be responded to with “full strength.”
In the macroeconomic front, the UK calendar is thin on Monday, while in the US, March Factory Orders is the only event worth mentioning, apart from the speech by the New York Federal Reserve (Fed) President John Williams.
Later this week, the US ADP Employment Change on Wednesday and, above all, Friday’s Nonfarm Payrolls (NFP), and a slew of Fed speakers throughout the week would add some context to the hawkish tilt of last week’s monetary policy meeting.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
BNY’s Bob Savage highlights that the European Central Bank (ECB) is now clearly leaning toward a June rate move, contrasting with the Bank of England's (BoE) preference to wait for fuller confirmation. He sees this directional guidance as a break from the prior “policy in a good place” stance. Divergent paths for Norges Bank and Riksbank versus ECB expectations are likely to drive NOK–SEK and Euro-area rate pricing into year-end.
June move bias and Nordic spillovers
"Our take: The ECB and BOE decisions for April have largely set the tone for the rest of the continent. The ECB is clearly leaning toward a June move at this point, with President Christine Lagarde stating at the post-decision press conference that while the economy was not seen as facing second-round effects, she knew “where the ECB is headed on interest rates.”"
"The fact that there is even a direction in place moves squarely against the notion of the “policy in a good place” designation before the conflict. This also stands in contrast to BOE Governor Andrew Bailey’s notion that unchanged rates were “a reasonable place” for the BOE."
"Transposing such views onto Norges Bank and the Riksbank, which decide in the coming days, we believe a similar approach is needed as markets continue to expect multiple hikes toward year end at both. As we have stressed, domestic conditions already justified aggressive moves from Norges."
"For the Riksbank, considering their low policy starting point, matching the ECB would have been understandable, but the surprisingly soft inflation prints for March (sequential decline in both CPI and CPI-F) and lackluster growth expectations forced out almost 50bp in tightening through mid-April, though expectations are ticking up again due to ceasefire uncertainty. We don’t see the Riksbank moving this year either, and NOK–SEK divergence will likely become more apparent in the coming cycles."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- Gold extends losses below $4.550 on risk-off markets on Monday.
- Escalating tensions in the Strait of Hormuz have provided a fresh boost to the USD.
- Gold bears are aiming to test support at the $4,500 area.
Gold (XAU/USD) accelerates its downtrend in Monday’s European session, trading right below $4,550 at the moment of writing, with bears aiming for last Thursday’s lows, right above $4,500. The risk-averse market, amid escalating tensions between the US and Iran, has provided additional support to the safe-haven US Dollar and is weighing on precious metals.
US President Donald Trump announced on Monday a plan to free vessels blocked in the Strait of Hormuz, but did not provide details of the operation. Iranian authorities reiterated that the critical waterway will remain closed and that any incursion of the US military in the area would be considered a violation of the ceasefire and responded with “full strength.”
Technical Analysis: Bears aim for the $4,500 area
XAU/USD maintains a bearish near-term bias from mid-April highs, with technical indicators on the 4-hour chart endorsing the negative view. A softer Relative Strength Index (RSI) near 36 and a Moving Average Convergence Divergence (MACD) reading, slipping into negative territory, hint that downside momentum is still dominating rebounds.
Bears are aiming for the support area between the April 29 low, at $4,510, and the late March lows right below $4,500. Further down, the March 26 low at the $4,350 area, and the March 23 low near $4,100 emerge as the next likely target.
Upside attempts, on the other hand, are likely to be tested at Friday's high of $4,660, ahead of the mentioned mid-April highs, below $4,900.
(The technical analysis of this story was written with the help of an AI tool.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Axios journalist Barak Ravid reported on Monday, that a senior US official denied that a US was ship was hit by Iranian missiles.
Earlier in the day, several Iranian news outlets reported that a US warship was hit after it ignored warnings against attempting to pass the Strait of Hormuz.
Market reaction
Markets remain risk-averse in the second half of the day. At the time of press, US stock index futures were down between 0.1% and 0.5% on the day. Meanwhile, the US Dollar Index was up 0.1% at 98.30.
Crude Oil prices gathered bullish momentum in the European session on Monday on news pointing to a further escalation of the conflict in the Middle East.
At the time of press, the barrel of West Texas Intermediate (WTI) was trading near $103.50, rising about 4% on the day, while the barrel of Brent was up 4.1% at $112.
Iran's Fars News Agency reported a US warship attempting to pass through the Strait of Hormuz was targeted and hit by two missiles after it ignored Iran's warnings. Reporting on the matter, Iran's state TV said the warship turned back and Iran was able to prevent its entry in the strait.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
Iran's Fars News Agency reported on Monday that a US warship that ignored Iran's warning and intended to pass through the Strait of Hormuz was hit by two missiles when it was sailing near Jask island, per Reuters.
Citing Iran's navy, Iran's state TV said they prevented the entry of US warships in the strait.
Market reaction
Markets turned risk-averse with the immediate reaction to this headline. At the time of press, US Stock index futures were down between 0.3% and 0.6% on the day, while the US Dollar Index was up 0.25% ad 98.45.
- The US Dollar Index appreciates beyond 98.00 but remains within previous ranges.
- Trump's vow to free Hormuz vessels has sparked fresh tensions with Tehran.
- US employment data due later this week will put into context the Fed's hawkish tilt.
The US Dollar (USD) edges up against its main peers on Monday, with the USD Index (DXY) returning to levels above 98.00 after bouncing at 97.70 lows on Friday, although it remains within the lower range of the last few weeks' trading band. Escalating verbal tensions between the US and Iran have dampened investors’ appetite for risk and are underpinnig a mild USD recovery.
The situation in the Middle East soured after US President Donald Trump announced a plan to free vessels stranded in Iran that will start on Monday. Trump has not given any further details on a complex operation, but Tehran has warned that any incursion on Iran’s waters by the US military will be considered a violation of the ceasefire and responded with “full strength.”
Trump’s plans have sent Oil prices higher. The US benchmark West Texas Intermediate (WTI) is trading a few cents below the $100 level, curbing investors' appetite for risk and weighing on some of the US Dollar's main rivals like the Euro (EUR) and the Japanese Yen (JPY).
In the economic calendar, the focus today is on the US Factory Orders for March, although the highlights of the week will be April’s job reports, especially Friday’s Nonfarm Payrolls data. These figures will be observed with interest following the hawkish tilt of last week’s Federal Reserve (Fed) monetary policy meeting, where three dissenters opposed including the “easing bias” in the statement.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
Commerzbank’s Michael Pfister argues that higher Oil prices are giving the Canadian Dollar (CAD) temporary support, but warns that a fragile Canadian economy and upcoming USMCA (United States-Mexico-Canada Agreement) talks could trigger setbacks. The bank keeps a 1.37 forecast for the first half, looking for lower USD/CAD only once Bank of Canada (BoC) hike timing and trade negotiations become clearer later in the year.
Oil shock offers only partial CAD relief
"After years of depreciation, higher oil prices are helping the CAD to appreciate. This is likely to be only a short-term rebound, however, unless the Canadian real economy recovers sustainably, thereby paving the way for interest rate hikes. The USMCA negotiations, which are due to begin in July, will further complicate matters."
"At first glance, one might think that the CAD would outperform the USD in the event of an oil price shock, given that Canada relies much more heavily on energy exports than the US does. However, the CAD rarely manages to decouple from the USD's performance as the two economies are too closely intertwined."
"USD/CAD is already trading at our forecast rate for the end of September. But given the fragile real economy and the approaching USMCA negotiations, setbacks cannot be ruled out. We therefore continue to expect lower USD/CAD levels only in the second half of the year."
"We therefore remain comfortable with our USD/CAD forecast of 1.37 for the first half of the year. It is only once it becomes clearer when the BoC will actually raise rates and the negotiations are concluded that we are likely to see lower levels."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
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