Senior Research Strategist at Pepperstone

(MENAFN- Your Mind Media ) DI–EST – Stocks gained yet more ground yesterday, as crude crumbled, and the dollar rolled over, amid growing hopes for a peace deal in the Middle East. Today, geopolitics remains in focus, along with a host of remarks from monetary policymakers, and the conclusion of bank earnings season.


To recap, that ‘direction of travel’ remains, by and large, towards some sort of US-Iran peace deal being done, amid further reports through yesterd’y’s session that additional talks between the two sides are soon set to take place. Simply continuing in this direction is, for the time being, enough for market participants to focus squarely on the light that is now emerging at the end of this particular tunnel, especially given that the fortnight-long ceasefire continues to hold.

Speaking of which, it seems fairly clear at this stage that neither side is seeking to escalate the situation further, from a kinetic perspective, with it also increasingly obvious that the US blockade of the Strait of Hormuz is a negotiating gambit designed to choke off Iranian oil revenues and force concessions in peace talks. With that in mi’d, I’d argue th‘t the ‘working a’sumption’ for now must be that, even if no deal is done by the time the ceasefi–e expires – and there remains every chance that an agreemen– is reached – then the proverbial can will be kicked down the road once more in the form of a ceasefire extension.

Though, of course, there remains some potential for kinetic action to resume, as each day of an observed ceasefire goes by, and as the path continues to point firmly towards durable de-escalation, risk appetite should remain underpinned, with any equity dips continuing to be viewed as buying opportunities.

O– course, stocks – p–r the S&P 500 – erased all declines seen since the conflict began on Monday, with yesterday seeing the G10 FX complex become the next asset class to do so. The dollar, per the DXY, has now retraced all gains made since the start of March and, having been the ‘nly ’aven to really ‘work’ when geopolitical angst flared, is arguably a better sign than the equity rally of mark‘ts beginn’ng to try and ‘front-run’ an end to the conflict.

In actual fact, the FX market is quite inter’sting at the momen’, and that’s not a sentence I’ve written for a while! This interest ‘ainly stem’ from the question of ‘what next?’, with markets having now, for all intents and purposes, erased the haven premium that was priced into the greenback.

I’d argue that further, significant losses for the USD should be relatively limited from here on in, particularly considering that the US economy is in a considerably better place to deal with the negative demand implications of higher energy prices than counterparts elsewhere in DM, especially that of the eurozone.

The only thing that may complicate this view, though, would be if the ECB and/or the BoE were to pull the trigger on a rate hike. Though policy tightening at this juncture would, undoubtedly, be a policy mistake in my mind, such a move would probably still spark some knee-jerk strength in the currency in question. The risk-reward, hence, is arguably better for USD longs around the 1.20 figure in the EUR, and the 1.37 Feb highs in cable, than where spot currently trades.

LOOK AHEAD – It probably goes without saying that geopolitical events will again be the main focus for market participants today.

Besides that, there isn’t actually that much to keep an eye on. This morning’s eurozone industrial production figures are too stale to matter especially much, while neither of the latest US empire manufacturing index, nor th’ F‘d’s ‘B’ige Book’ release should move the needle too much.

Elsewhere, earnings season rolls on on Wall Street with Bank of America and Morgan Stanley set to report before the open, while a ton of central bank speakers are due once again, with that particular slate highlighted by BoE Governor Bailey & ECB President Lagarde.

Appreciate your cooperation in publishing the analysis.

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