Markets mark time ahead of Trump Iran decision Markets mark time ahead of Trump Iran decision Markets mark time ahead of Trump Iran decision

Markets mark time ahead of Trump Iran decision

Forex
John J. Hardy

Chief Macro Strategist

Trump is giving his decision on the Iran nuclear deal the usual “reality show unveil” treatment, supposedly set to make his decision today around 14:00 Washington time (18:00 GMT). Apparently, judging from the squeeze higher in equities, markets are somewhat hopeful that this decision won’t result in any geopolitical firestorm, but we’ll reserve judgment for now. The most hostile option that would likely lead to a very ugly showdown would be a US attempt to roll back to the prior set of sanctions that isolated Iran before the Obama deal was struck. Other options include unilateral US sanctions that don’t impose sanctions on others doing business with Iran, or some delaying tactic that aims to get other US allies on board with a more limited set of sanctions or conditions.  

The euro continues to suffer at the hands of the USD and JPY, although this is more of a question of “lack of consolidation” rather than marking notable new lows. Yesterday, Germany’s April factory orders data showed further contraction and helped drag the Citi economic surprise index for the EU down to the -100 level, which it hasn’t seen since the teeth of one of the worst phases of the EU sovereign debt crisis back in 2011.

In Italy, attempts to build a government have failed and the establishment is hoping to form a caretaker government and avoid new elections, while the two populist parties that fared best in the polls are against this move and would like another poll as soon as July. Italian-German spreads have barely noticed, but the situation speaks to the slow burning eventual return of an EU existential crisis.

Elsewhere, the next two sessions look pivotal for the Swedish krona as the Riksbank may finally be getting a bit unsettled by the recent pace of SEK weakening. Tomorrow, Sweden reports its latest CPI data and today sees the release of the Riksbank minutes from the most recent meeting, which should remind us of the significant divide in sentiment among the voting members, some of whom (including Jansson out speaking today) are more convinced that inflation will return.

Chart: EURUSD
EURUSD has paused in the low 1.1900s for now, more notable for the lack of consolidation or “bounce” than anything else. Effectively, the pair has broken down technically, but is making things difficult for the bears by not following through lower after working down through key pivot levels. As long as the 1.2000 area continues to provide resistance, we continue to focus lower, at least until 1.1750-1.1800, but possibly all the way to the 1.1500-1.1600 structural area.

eurusd 080518
Source: Saxo Bank

The G-10 rundown

USD – the USD rally is largely intact, with general market sentiment just ahead today over Trump’s Iran decision. Watching the US treasury market with the most interest as a coincident indicator as things have gone eerily quiet in recent sessions.

EUR – The euro is struggling to find buyers as economic data has been a disaster and on the discovery that the EU fundamentals could be the most challenged under any worsening of global trade tensions.

JPY – the JPY is doing well as bond yields have gone sideways and after USDJPY upside was turned just ahead of the pivotal 110.00 area. The loudest signal for JPY direction may come from the bond market in the wake of the Iran decision today.

GBP – signs that the sterling sell-off is easing under the weight of weak euro sentiment. The next critical test is Thursday’s Bank of England meeting, but EURGBP looks heavy for now.

CHF – EURCHF has flatlined between 1.1950-1.2000 and may need an improvement in the EU economic outlook to resume the rally.

AUD – similar to other USD pairs, the AUDUSD sell-off has paused in the pivotal 0.7500 area after having broken down through an important trendline up above 0.7600. Interest rate spread developments are not favorable, but for some reason these have garnered scant attention in recent months.

CAD – CAD has been unable to post any notable resistance to the strong USD rally and looks ready to crumble further if Trump’s decision today puts the oil rally in reverse, which could see USDCAD challenging the key 1.30-1.31 zone.

NZD – the kiwi is bogged down in the pivotal 0.7000 area versus the USD and AUDNZD bulls can’t get any fresh momentum, so we’re at a loss for catalysts at the moment, though suspect the USD and US rates will provide the next lead.

SEK – the situation for the krona is heating up as we get the sense of some pushback (or at least surprise) on the recent pace of SEK weakness from at least one Riksbank governor. A “hawkish” deputy governor Jansson out speaking today and CPI up tomorrow.

NOK – Norway’s latest CPI data is also up tomorrow and EURNOK bearsh in better shape as the range held last week and the sell-off has the 9.55-50 downside areas back in the crosshairs. Oil prices in focus today over Trump’s Iran decision.

Upcoming Economic Calendar Highlights (all times GMT)

07:30 – Sweden Riksbank Minutes 
08:30 – Sweden Riksbank Dep. Governor Jansson 
12:15 – Canada Apr. Housing Starts 
18:00 – Trump Decision on Iran Nuclear deal 

 


Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992