Middle East Uncertainty Weighs on Oil - CPT Markets

Market Wrap-up: Middle East Mixed Signals Lift Risk SentimentMarket sentiment improved during the previous session as easing geopolitical concerns sparked a recovery across gold and US equities.

Oil prices fell more than 2% after US President Donald Trump stated that Iran had proactively reached out in search of a potential agreement. Qatar and Pakistan are reportedly acting as intermediaries in efforts to bring Washington and Tehran back to the negotiating table.

The remarks contrasted sharply with Trump's comments a day earlier, when he suggested he was no longer interested in negotiating with Iran. Prior to that, he had declared that the US-Iran ceasefire had effectively "ended" following a fresh wave of attacks across the Middle East.

Analysts at Goldman Sachs noted that oil flows through the Strait of Hormuz had previously recovered to around 80% of pre-conflict levels but have since slipped to approximately 70% as heightened maritime risks continue to disrupt shipping activity.

Despite ongoing tensions, market participants increasingly view the current escalation as likely to remain short-lived due to the significant economic and political constraints facing both sides. That assessment has strengthened expectations that diplomatic negotiations could resume.

US equities advanced in the previous session, supported by a rebound in semiconductor stocks and lower oil prices. European and Asian markets also participated in the recovery, with the Stoxx 600 gaining 0.8% and Japan's Nikkei 225 rising 1.4%.

Spot gold climbed 1.1% to USD 4,122.15 per ounce after falling to its lowest level since July 1 in the previous session. The decline attracted bargain hunters, helping prices recover.

In a report released on July 9, HSBC lowered its average gold price forecast for 2026 to USD 4,560 per ounce from USD 4,864 and reduced its 2027 forecast to USD 4,925 from USD 5,000.

Looking ahead, there are no major economic releases scheduled today, leaving developments in the Middle East as the primary market driver. For CAD traders, Employment Change and the Unemployment Rate will be the key data points to monitor.

XAU/USD: Gold Rebounds on Bargain Buying 

Key takeaway:

Gold gained more than 1% on July 9 as bargain buying emerged following the previous session's sharp decline, while investors continued to monitor developments in the Middle East.

In the near term, Federal Reserve policy expectations remain the dominant driver for gold. According to the CME FedWatch Tool, markets are currently pricing in a 64% probability of a Fed rate hike at the September meeting.

Attention is now turning to next week's inflation data and Fed Chair Kevin Warsh's congressional testimony for further guidance on the outlook for US monetary policy.

Technical Outlook:

Daily Bias: Bearish

Support: 4,021

Resistance: 4,134

Oil: WTI Retreats as Geopolitical Risks Ease 

Key takeaway:

WTI continued to consolidate around USD 72 per barrel as traders weighed conflicting signals surrounding US-Iran relations.

President Donald Trump indicated on Wednesday that the ceasefire had effectively ended.

However, market concerns eased after Trump said on Thursday that Iran had contacted the US in an effort to reach an agreement and de-escalate hostilities in the Middle East.

In addition, a White House official stated that the US remains committed to its memorandum of understanding with Iran.

Market participants generally believe the latest tensions are likely to prove temporary given the political and economic constraints facing both sides, limiting expectations of a prolonged supply disruption.

Technical Outlook:

Daily Bias: Bearish

Support: 70.00

Resistance: 74.63

DXY: Dollar Weakens on Improved Risk Sentiment 

Key takeaway:

The US Dollar Index weakened as easing tensions in the Middle East reduced inflation concerns, prompting some unwinding of recent safe-haven positioning.

Meanwhile, US labour market data offered limited support for the dollar. Initial Jobless Claims for the week ending July 4 came in at 215,000 versus expectations of 218,000, down from the previous reading of 217,000.

On Wednesday, the latest FOMC meeting minutes showed that most policymakers continued to support further monetary tightening, although officials favouring additional rate hikes chose to leave rates unchanged while waiting for more incoming economic data.

Technical Outlook:

Daily Bias: Bearish with Rebound Potential

Support: 100.50

Resistance: 100.95

EUR/USD: Euro Gains on ECB Rate Hike Bets 

Key takeaway:

The euro edged higher as traders increased expectations for additional ECB rate hikes.

Minutes from the ECB's previous meeting released on Thursday showed policymakers were presented with projections indicating inflation would remain above target into next year despite nearly three rounds of rate increases.

The ECB raised interest rates at its June policy meeting, and markets expect two additional hikes next year to contain inflationary pressure stemming from the Iran conflict's impact on energy prices.

Technical Outlook:

Daily Bias: Bullish

Support: 1.14317

Resistance: 1.14729

USD/JPY: Yen Strengthens as Intervention Risks Persist 

Key takeaway:

The Japanese yen strengthened against a softer US dollar as speculation over potential currency intervention continued to build.

However, investors remain cautious over Japan's economic outlook due to persistent disruptions to energy supplies through the Strait of Hormuz, with the country relying on the Middle East for more than 90% of its crude oil imports.

At the same time, borrowing costs in Japan remain significantly lower than those of other major developed economies, including the United States.

That interest rate differential may discourage traders from building aggressive long positions in the yen despite the recent recovery.

Technical Outlook:

Daily Bias: Cautiously Bullish

Support: 161.28

Resistance: 162.70

Markets regained some stability as hopes of renewed US-Iran diplomacy reduced geopolitical risk and eased concerns over energy-driven inflation.

The decline in oil prices supported a recovery in global equities, while bargain buying helped gold rebound despite expectations that the Fed could maintain a restrictive policy stance. The US dollar softened as safe-haven demand faded, although the latest FOMC minutes continued to reinforce a hawkish policy outlook.

For now, traders remain focused on developments in the Middle East, while next week's US inflation data will be the next major catalyst for repricing Fed expectations across asset classes.

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