Risk Sentiment Improves as Middle East Tensions Ease, CPI in Focus

Market Wrap-up: Geopolitics and Inflation Drive Market SentimentMarkets have partially stabilized following the stronger than expected US Nonfarm Payrolls report. Investor focus has now shifted toward improving geopolitical developments in the Middle East.

Iran's Foreign Ministry stated that Tehran has ended its military operations against Israel, while warning that attacks could resume should Israel continue military actions in Lebanon. The announcement reinforced expectations that the fragile ceasefire between Iran and Israel may remain intact.

On the Israeli side, Prime Minister Benjamin Netanyahu confirmed that airstrikes have been temporarily halted, although he emphasized that operations targeting Iran and Hezbollah are not yet over.

West Texas Intermediate (WTI) crude fell more than 1% on Monday and was trading around $90.00 per barrel on Tuesday morning. Easing geopolitical tensions reduced concerns over energy supply disruptions, while gold rebounded modestly by 0.3% to $4,343.03/oz. However, expectations of further Fed tightening continue to limit upside momentum in the precious metal.

According to CME FedWatch, the probability of a 25 bps Fed rate hike in December has risen from 14% to 43% over the past month. However, in a recent interview with NBC, US President Donald Trump argued that the US economy should not be "penalized" with higher interest rates while growth remains resilient.

"There is no reason to raise interest rates," Trump stated, while adding that new Fed Chair Kevin Warsh should remain free to make independent policy decisions. He also reiterated his call for rates to be lowered from the current 3.50%-3.75% range.

In the foreign exchange market, the US dollar edged lower but remained near the 100.00 level. Investors are now looking ahead to US CPI and PPI data, as well as the Bank of Canada and ECB interest rate decisions scheduled for Wednesday and Thursday.

Looking ahead for today, the economic calendar remains relatively light. However, traders will monitor US ADP Weekly Employment Change, Trade Balance, Existing Home Sales, and Final Wholesale Inventories for additional signals on economic momentum.

XAU/USD: Gold Price Recovers as Traders Await US CPI

Key takeaway:

Gold recovered at the start of the week as improving prospects for a ceasefire between Israel and Iran helped the metal rebound from intraday lows.

A potential peace agreement could reduce energy-driven inflation risks, easing pressure on central banks to maintain restrictive monetary policy settings for longer.

Investors are now turning their attention to the US May Consumer Price Index (CPI) on Wednesday and Producer Price Index (PPI) on Thursday for further guidance on the Federal Reserve's policy trajectory.

Technical Outlook:

Daily Bias: Bullish

Support: 4,300

Resistance: 4,423

WTI: Oil Falls as Iran Signals End to Military Operations

Key takeaway:

Oil prices pared gains on June 8 after Iran announced the end of its military operations against Israel, reducing concerns over a broader escalation in the Middle East.

Separately, OPEC+ agreed to increase production quotas by 188,000 barrels per day starting in July, according to the group's latest announcement.

This marks the fourth production increase approved by OPEC+ since the closure of the Strait of Hormuz.

The additional supply is helping to ease market concerns over potential global crude shortages and has contributed to a softer near term outlook for oil prices.

Technical Outlook:

Daily Bias: Bearish

Support: 86.38

Resistance: 92.00

DXY: US Dollar Remains Resilient Despite Improved Risk Sentiment

Key takeaway:

The US Dollar Index (DXY) traded cautiously around the 100.00 level as investors balanced resilient US economic data against improving global risk sentiment following reports that Iran had ended military operations against Israel.

Meanwhile, comments from Donald Trump provided some support for the dollar. Trump argued that the US economy should not be "penalized" with higher interest rates while economic growth remains healthy, reinforcing confidence in the broader economic outlook.

Technical Outlook:

Daily Bias: Bearish

Support: 99.54

Resistance: 99.70

EUR/USD: Euro Holds Firm Before ECB Policy Decision

Key takeaway:

The euro remained stable ahead of the ECB interest rate decision later this week.

Markets have fully priced in a 25-basis-point rate hike following the rise in Eurozone inflation to 3.2%.

Traders will closely monitor the ECB press conference for further clues regarding the policy outlook. Any hawkish guidance from ECB policymakers could provide additional support for the single currency in the near term.

Technical Outlook:

Daily Bias: Bullish

Support: 1.15861

Resistance: 1.16226

USD/JPY: Yen Weakness Persists Despite Official Warnings

Key takeaway:

The Japanese yen remained under pressure despite renewed warnings from Japanese authorities regarding potential currency market intervention.

Officials delivered strong verbal intervention, reiterating that the government stands ready to take decisive and appropriate action to support the domestic currency. Such rhetoric could provide support for the yen and limit upside potential in USD/JPY.

In addition, Japanese Finance Minister Satsuki Katayama emphasized that the government's stance remains unchanged and that authorities are prepared to act decisively if necessary.

Technical Outlook:

Daily Bias: Neutral

Support: 160.00

Resistance: 160.50

Overall, markets are gradually shifting away from the initial reaction to the strong US NFP report and focusing on geopolitical developments in the Middle East and upcoming inflation data. Iran's announcement that it has ended military operations against Israel has helped reduce the geopolitical risk premium in energy markets, weighing on oil prices and supporting broader risk sentiment.

The US dollar remains supported near the 100.00 level by expectations that the Federal Reserve will maintain a restrictive policy stance, while gold has staged a modest recovery despite continued pressure from higher rate expectations. In FX markets, EUR/USD remains steady ahead of the ECB meeting, while USD/JPY continues to trade near recent highs as intervention warnings from Japanese authorities have had limited impact so far.

For now, market direction is being driven by the balance between post-NFP Fed repricing and easing Middle East tensions. Attention now turns to this week's US CPI and PPI reports, which could reshape interest rate expectations and set the near-term tone for the dollar, gold, and broader risk assets.

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