Oil Holds Steady Despite Escalating US-Iran Conflict

Market Wrap-up: Markets Focus on US CPI Despite Rising Middle East Tensions

US-Iran tensions flared up once again after Iran shot down a US military helicopter patrolling near the Strait of Hormuz. Washington subsequently launched retaliatory and defensive strikes, reigniting serious concerns over oil supply disruptions and the prospects for a peace agreement between the two countries.

What stands out is that markets are no longer reacting as aggressively as they did during previous escalations. Instead, the response has remained relatively contained, with WTI crude holding steady around the $89.00 area.

The US Dollar Index (DXY) even slipped to 99.70 before recovering toward the key psychological 100.00 level. This suggests that investors remain primarily focused on upcoming inflation data as they reassess the Federal Reserve's policy outlook ahead of next week's rate decision.

Even if a formal agreement were reached, operations through the Strait of Hormuz are unlikely to normalize quickly. As a result, inflation concerns linked to energy markets are likely to remain embedded in market expectations for the foreseeable future.

Key inflation reports including CPI and PPI are scheduled for release today and tomorrow. A stronger than expected CPI reading could reinforce expectations for a higher for longer Fed stance, supporting the US dollar while weighing on USD denominated assets.

Gold has been a notable example of this dynamic. The precious metal experienced a sharp decline during the previous session and has fallen below the $4,200/oz mark as of this morning.

According to analysts at Citi Group, gold could decline toward $3,500/oz if the Strait of Hormuz remains closed, implying a further downside of roughly 20%.

One factor that helped limit the dollar's upside was softer US labor market data. ADP figures showed that US companies added an average of 29,000 jobs per week over the four weeks ending May 23, down from 35,750 previously. The moderation in hiring suggests some cooling in labor demand and has partially offset bullish momentum in the USD.

Looking ahead for today, alongside the closely watched US CPI release, the Bank of Canada will become the first major central bank to announce its June policy decision. Markets broadly expect the BoC to leave interest rates unchanged at 2.25%.

XAU/USD: Gold Retreats as Traders Await Key CPI Data

Key takeaway:

Gold fell below the $4,200 level as renewed US-Iran tensions coincided with growing anticipation ahead of today's US CPI release.

Headline US CPI is expected to rise 4.2% YoY in May, up from 3.8% previously. Core CPI is forecast to increase 2.9% YoY, compared with 2.8% in the prior reading.

Any signs of accelerating inflation could strengthen the US dollar and increase downside pressure on USD-denominated commodities in the near term.

Technical Outlook:Daily Bias: BearishSupport: 4,108Resistance: 4,280

WTI: Oil Prices Remain Stable Amid Hormuz Risks

Key takeaway:

WTI remained stable despite renewed supply concerns after the US launched a third round of retaliatory strikes against Iranian coastal targets following the downing of a US military helicopter near the Strait of Hormuz.

Meanwhile, tightening physical supply conditions continue to support the market.

Industry data from the API showed that US crude inventories fell by 9.1 million barrels last week, reaching the lowest level in four months as buyers rushed to replace disrupted supplies linked to instability in the Persian Gulf.

Technical Outlook:Daily Bias: BearishSupport: 86.38Resistance: 90.10

DXY: USD Finds Support Despite Softer ADP Data

Key takeaway:

The US dollar remained broadly stable despite escalating tensions in the Middle East.

At the same time, hiring activity in the US private sector showed signs of cooling toward the end of May.

The ADP National Employment Report indicated that companies added an average of 29,000 jobs per week over the four weeks ending May 23.

This represented a modest decline from the previous reading of 35,750, suggesting some loss of momentum in labor demand and helping to cap gains in the dollar.

Technical Outlook:Daily Bias: BullishSupport: 99.70Resistance: 100.20

EUR/USD: ECB Rate Hike Expectations Support the Euro

Key takeaway:

The euro edged lower after the US carried out defensive military strikes against Iran.

However, expectations that the European Central Bank (ECB) will raise interest rates at tomorrow's policy meeting could help limit downside pressure on the single currency.

The ECB is expected to increase its key lending rate by 25 basis points while maintaining a hawkish policy tone, as policymakers continue to monitor inflation pressures linked to elevated energy prices.

Technical Outlook:Daily Bias: BearishSupport: 1.15052Resistance: 1.15761

USD/JPY: Yen Weakens Despite Strong Japanese PPI

Key takeaway:

The Japanese yen remains close to a one-month low against the US dollar as Middle East tensions offset support from stronger-than-expected Japanese PPI data.

Markets appear to have largely priced in the possibility of a Bank of Japan rate hike at the June 15-16 meeting.

Expectations were reinforced after Japan's May PPI exceeded forecasts, highlighting persistent cost pressures stemming from higher energy prices and imported raw material costs.

This has also fueled speculation that Japanese authorities may intervene again to support the domestic currency if depreciation pressures intensify.

Technical Outlook:Daily Bias: BullishSupport: 160.24Resistance: 160.50

Geopolitical tensions in the Middle East remain a key source of inflation risk, but markets are no longer reacting solely to headlines from the Strait of Hormuz. Oil prices remain elevated yet stable, while the dollar has struggled to extend gains despite renewed safe-haven demand.

The main driver at this stage is inflation. Traders are increasingly focused on whether today's CPI report confirms that price pressures are reaccelerating, particularly through higher energy costs.

A stronger reading would likely support the USD, weigh on gold, and reinforce expectations that the Fed will maintain a restrictive policy stance for longer.

For now, cross asset price action points to a market waiting for inflation data rather than repricing geopolitical risk. The next major catalyst is today's CPI release, followed by PPI data and next week's Fed rate decision.

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