Iran Signals Diplomacy; Fed, GDP, PCE in Focus - CPT Markets

Market Wrap-up: Iran De-escalation Sends Oil Lower Before Fed WeekMarkets experienced significant volatility at the start of the week as geopolitical risk sentiment eased. WTI crude opened with a gap lower of more than 5%, falling to USD 86 per barrel, after Iran reportedly signaled it would halt further attacks if the United States maintained its pause in military operations. The development eased concerns over a broader escalation in the Middle East and prompted traders to unwind part of the geopolitical risk premium embedded in energy markets.

The move followed Washington's decision to suspend its airstrike campaign. According to Reuters, advisers to US President Donald Trump warned that the US military was running short of viable strategic targets while also raising concerns over the depletion of military stockpiles.

US Ambassador to the United Nations Mike Waltz told Fox News that President Trump paused the strikes to provide additional room for diplomatic efforts.

The de-escalation also weighed on the US Dollar. The DXY Index opened with a 0.3% downside gap to 101.20, as fading safe-haven demand supported major currencies including the euro, British pound, and particularly the Japanese yen.

Gold, meanwhile, opened nearly 1% higher at USD 4,100/oz as easing concerns over inflation and further interest rate hikes improved sentiment toward the precious metal.

Attention now turns to one of the busiest macro weeks of the quarter. Investors will navigate policy decisions from the Federal Reserve, Bank of England, and Bank of Japan, alongside key US growth and inflation releases including GDP and Core PCE, all of which could reshape expectations for global monetary policy.

The July 28-29 FOMC meeting is expected to attract particular attention. Although no updated dot plot will be released, the Fed's policy statement and Chairman Kevin Warsh's press conference will serve as the primary guidance for markets. The Fed is widely expected to leave interest rates unchanged at 3.50%-3.75%.

Following the Fed, the Bank of England is also expected to keep the Bank Rate unchanged at 3.75%, while the Bank of Japan is forecast to maintain its policy rate at 1.00%.

Looking ahead for today, in addition to monitoring developments in the Middle East, traders will begin the week with the US Durable Goods Orders and Core Durable Goods Orders reports ahead of what is expected to be a highly eventful week for global markets.

XAU/USD: Gold Climbs as Oil Retreats and Fed Looms 

Key takeaway:

Gold advanced on 24 July as oil prices cooled after previously trading above USD 100 per barrel, while investors reassessed the latest developments in the Middle East and their implications for inflation ahead of the Federal Reserve's policy meeting.

Analysts at ING noted that gold's recent rebound has been driven primarily by bargain hunting and short covering following the sharp correction from its record highs earlier this year.

However, upcoming releases including US GDP and Core PCE inflation are expected to play a decisive role in shaping global interest rate expectations, making them key catalysts for gold in the near term.

Technical Outlook:

Daily Bias: Bullish

Support: 4,044

Resistance: 4,166

Oil: WTI Gaps Lower as Iran Signals De-escalation 

Key takeaway:

Oil prices fell sharply at the start of the week after Iran reportedly indicated it would suspend attacks if the United States continued its pause in military operations, easing fears of a broader conflict in the Middle East and reducing the geopolitical risk premium.

Three Reuters sources said Pakistan's mediation efforts were backed by Beijing, reinforcing hopes for a diplomatic resolution.

Despite the sharp decline, a strategist at UBS Global Wealth Management cautioned that the market may be overestimating how quickly oil supply can normalize following the conflict.

Technical Outlook:

Daily Bias: Bearish

Support: 81.43

Resistance: 88.60

DXY: US Dollar Opens Lower Ahead of Fed Decision 

Key takeaway:

The US Dollar Index weakened as signs of easing tensions in the Middle East reduced demand for traditional safe-haven assets. Market attention is now shifting toward this week's Federal Reserve decision and a series of high impact US economic releases that are expected to drive dollar positioning.

The Fed is widely expected to leave its target rate unchanged at 3.50%-3.75%.

US preliminary Q2 GDP is forecast to show annualized growth of 2.3%, up from 2.1%, while monthly Core PCE inflation is expected to slow to 0.1% from 0.3%.

Technical Outlook:

Daily Bias: Bearish

Support: 100.93

Resistance: 101.50

EUR/USD: Euro Gains as Softer Dollar Lifts Risk Currencies 

Key takeaway:

The euro strengthened as renewed optimism surrounding diplomacy with Iran weakened demand for the safe-haven US dollar.

Supporting the single currency further, Germany's preliminary HCOB Composite PMI rose to 51.2 in July from 49.5, beating expectations of 49.8 and returning to expansion territory.

Manufacturing PMI improved to 52.2 from 50.3, while Services PMI increased to 49.6 from 48.6, although it remained below the 50.0 threshold separating expansion from contraction.

Business activity across the broader euro area also strengthened, with the Composite PMI rising to 51.9 from 50.0, exceeding the market forecast of 50.3.

Technical Outlook:

Daily Bias: Bullish

Support: 1.13655

Resistance: 1.14359

USD/JPY: Japanese Yen Strengthens on Oil Slump and Weaker Dollar 

Key takeaway:

The Japanese yen gained support from lower oil prices following the US decision to suspend military action against Iran over the weekend, alongside Tehran's reported pause in retaliatory attacks. Reduced energy prices also improved sentiment toward Japan's trade outlook.

Meanwhile, Japanese Prime Minister Sanae Takaichi's approval rating fell to its lowest level since taking office last July as rising living costs continued to weigh on public sentiment.

Economic weakness has added pressure on Takaichi, whose expansionary economic policies have pushed government bond yields higher while contributing to the yen's slide toward four-decade lows.

Technical Outlook:

Daily Bias: Bearish

Support: 163.88

Resistance: 163.24

Geopolitical de-escalation is the dominant driver at the start of the week, triggering a broad unwind of defensive positioning across global markets.

The sharp decline in oil prices reduced inflation concerns, weighing on the US dollar while supporting major currencies and allowing gold to stabilize after recent volatility. With the immediate geopolitical risk premium fading, market focus has shifted firmly back to monetary policy.

This week's decisions from the Fed, BoE and BoJ, together with US GDP and Core PCE, are expected to determine whether current expectations for interest rates remain intact or require further repricing.

Those events are likely to set the direction for the US dollar, commodities, equities and major currency pairs through the remainder of the week.

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