Hormuz Blockade Returns; Markets Await Key US PCE Inflation Data

Market Wrap-up: Hormuz Blockade Returns, Dollar Hits Three-Month High Ahead of PCEMarkets started the new week under renewed uncertainty surrounding the US-Iran agreement, while continued pressure from new Fed Chair Kevin Warsh's hawkish stance pushed the US Dollar to its highest level in more than three months.

After negotiations in Switzerland were temporarily postponed, Iran unexpectedly reinstated its blockade of the Strait of Hormuz. Meanwhile, Israel launched airstrikes in Lebanon in response to Hezbollah attacks against Israeli military positions in southern Lebanon.

Shortly afterward, US President Donald Trump warned that Iran could face stronger military action if it failed to restrain Hezbollah, the group it supports. These developments triggered renewed supply concerns in energy markets, lifting WTI crude more than 1% to around $78 per barrel.

US equities also reacted negatively to the escalation in geopolitical tensions. During Sunday evening's opening session, all three major US indices posted modest losses, with the S&P 500 down 0.6%, the Dow Jones falling 0.37%, and the Nasdaq declining 0.1%, despite ending Friday's pre-holiday session in positive territory.

The combination of renewed geopolitical risks and a more hawkish Fed outlook further strengthened the US Dollar. The DXY Index briefly touched 101.11 before easing slightly during Monday's Asian session.

Market attention is now shifting toward the upcoming PCE inflation report, the Fed's preferred inflation gauge. Preliminary forecasts suggest that May PCE could accelerate from the previous month, reinforcing the Fed's hawkish stance and supporting the current upward trend in the US Dollar.

A stronger Dollar continues to pressure major currencies, including those supported by central banks that have already tightened policy, such as the ECB and the BOJ. Markets continue to anticipate another ECB rate hike at the July meeting, while the Japanese Yen remains under close scrutiny for potential intervention by Japanese authorities.

Looking ahead for today, no major economic releases are scheduled, suggesting markets may remain relatively calm as investors digest the unexpected developments from the weekend. Traders will nevertheless closely monitor speeches from FOMC member Christopher Waller and ECB President Christine Lagarde for further policy signals.

XAU/USD: Gold Stabilizes as Safe-Haven Demand Offsets Hawkish Fed Expectations

Key takeaway:

Gold attracted some buying interest at the start of the new week, appearing to have ended a three day decline that pushed prices to their lowest level in more than a week on Friday.

However, traders continue to price in nearly a 90% probability that the Federal Reserve will raise borrowing costs later this year.

At the same time, geopolitical developments over the weekend have provided additional support for the US Dollar, which could limit further upside for Gold despite safe-haven demand.

Technical Outlook:

Daily Bias: Bullish

Support: 4,053

Resistance: 4,170

WTI: Oil Rises on Hormuz Supply Risks and Escalating Middle East Tensions

Key takeaway:

Oil prices moved higher after US-Iran negotiations in Switzerland were unexpectedly postponed.

US President Donald Trump warned that Washington could take stronger action against Tehran following the renewed closure of the Strait of Hormuz and ongoing tensions involving the Iran-backed Hezbollah group in Lebanon.

Last week, Iran and the United States signed a memorandum of understanding (MoU) aimed at lifting the blockade of the Strait of Hormuz, leading to a 60-day negotiation process regarding Iran's civilian nuclear program.

Looking ahead, market focus remains firmly on developments involving the US and Iran, as any escalation could have a significant impact on oil prices, particularly if Israeli military operations in Lebanon continue.

Technical Outlook:

Daily Bias: Bullish

Support: 74.97

Resistance: 79.19

DXY: US Dollar Holds Near Three-Month High as Inflation Risks Support Fed Outlook

Key takeaway:

The US Dollar Index (DXY) remains supported as concerns surrounding the US-Iran peace agreement keep inflation risks and the prospect of higher-for-longer interest rates in focus.

In addition, the Federal Reserve kept interest rates unchanged last week but delivered a notably more hawkish policy message.

Importantly, nine of the nineteen Fed policymakers now project at least one rate hike this year, while market participants are pricing in the possibility of an increase as early as September.

Technical Outlook:

Daily Bias: Bearish

Support: 100.54

Resistance: 101.12

EUR/USD: Euro Weakens as Stronger Dollar Overshadows ECB Rate Hike Expectations

Key takeaway:

The Euro weakened as investors reacted to renewed uncertainty surrounding the progress of the US-Iran peace agreement.

Meanwhile, European Central Bank policymaker and Belgian central bank governor Pierre Wunsch stated on Friday that the ECB could raise interest rates again as soon as next month if additional evidence emerges that inflation pressures are broadening beyond the energy sector.

The ECB deposit rate currently stands at 2.25%, and financial markets continue to anticipate an additional 25-basis-point increase in either July or September, potentially followed by another hike in the early months of next year.

Technical Outlook:

Daily Bias: Bullish

Support: 1.14177

Resistance: 1.14879

USD/JPY: Japanese Yen Under Pressure as Energy Risks and Strong Dollar Drive USD/JPY Higher

Key takeaway:

The Japanese Yen (JPY) faces renewed pressure and has started the week on a weaker footing against the US Dollar.

Japanese Finance Minister Satsuki Katayama reiterated on Monday that authorities stand ready to respond appropriately to excessive currency volatility whenever necessary.

Nevertheless, the Yen continues to underperform as investors worry that Japan's economy could face additional headwinds from Middle East tensions and potential energy supply disruptions through the Strait of Hormuz.

Technical Outlook:

Daily Bias: Bearish

Support: 161.40

Resistance: 161.80

Renewed geopolitical tensions in the Middle East have returned to the forefront after Iran reinstated the Hormuz blockade, pushing oil prices higher and reviving inflation concerns across global markets.

The move has reinforced expectations that interest rates could remain elevated for longer, providing fresh support for the US Dollar while weighing on risk-sensitive assets and major currencies.

Gold has found some support from safe-haven flows, though gains remain constrained by rising US rate expectations. Meanwhile, the Euro and Japanese Yen continue to face pressure as the Dollar benefits from both geopolitical uncertainty and a more hawkish Fed outlook.

For now, markets are trading less on growth expectations and more on inflation and policy repricing. The next major catalyst will be the upcoming US PCE inflation report, which could determine whether expectations for additional Fed tightening continue to strengthen in the weeks ahead.

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