Today’s Market Outlook
Dollar Selling Dominates as Middle East Risks Ease, but Equity-Market Volatility Remains a Concern
■ Market Overview
The new trading week has begun with the U.S. dollar under selling pressure as tensions in the Middle East show signs of easing.
Over the weekend, both the United States and Iran confirmed that attacks had been suspended, raising expectations that negotiations through intermediary countries could resume.
In response, WTI crude oil opened sharply lower, falling from above $90 at the end of last week to the $83 area.
Prices have since struggled to move above $85, suggesting that the geopolitical premium in crude oil has eased for the time being.
In FX, safe-haven dollar positions are being unwound, leaving the dollar broadly weaker.
USD/JPY has fallen from the upper 163 area to below 163.50.
Meanwhile, EUR/USD has risen from the upper 1.13 area into the 1.14 range, while GBP/USD has advanced from the lower to the upper 1.33 area.
The easing of Middle East tensions has reduced immediate inflation concerns and encouraged renewed buying of European currencies.
■ U.S. Dollar
The dollar opened the week slightly lower.
The Dollar Index opened below Friday’s close of 101.468 at around 101.325.
It briefly fell to 101.116 during the Tokyo morning and tested the downside again in early London trading.
However, the index later stabilized around 101.25–101.30, indicating that dollar selling has not developed into a one-way move.
Safe-haven dollar positions accumulated over the previous week are being unwound, but aggressive dollar selling remains limited ahead of major central bank events and amid uncertainty surrounding U.S. yields.
The sustainability of the current dollar decline will depend on whether expectations of improving Middle East conditions continue and whether crude oil can remain relatively stable.
■ USD/JPY
USD/JPY has fallen from the upper 163 area toward the mid-163 range.
The main driver has been the unwinding of safe-haven dollar demand following the easing of Middle East risks.
Some dollar buying returned around midday in London, lifting USD/JPY back toward 163.60.
However, the pair remains within today’s range and continues to trade below Friday’s closing levels.
USD/JPY is still at historically elevated levels, but the momentum toward 164 has temporarily eased.
If tensions in the Middle East continue to subside, concerns over the negative impact of higher oil prices on Japan’s terms of trade may also diminish, reducing some of the pressure on the yen.
At the same time, the U.S.–Japan interest-rate differential and demand for yen-funded carry trades remain in place, which may limit the downside.
Near-term attention will center on whether USD/JPY can hold around the mid-163 area or whether the current dollar-selling trend extends further.
■ EUR/USD and GBP/USD
EUR/USD has risen from the upper 1.13 area into the 1.14 range.
The easing of Middle East tensions has reduced concerns over higher oil prices and renewed inflation, supporting demand for the euro.
However, some dollar buying returned around midday in London, pushing EUR/USD back toward 1.1395.
The pair has not yet shown enough momentum to establish itself firmly above 1.14.
European data and movements in the Dollar Index are likely to provide the next directional signal.
GBP/USD has also advanced from the lower to the upper 1.33 area.
However, with several major central bank meetings scheduled this week, sterling is also likely to be driven more by position adjustments than by aggressive directional buying.
■ Yen Crosses
Yen crosses are showing mixed performance.
EUR/JPY has remained relatively well supported by the rise in EUR/USD.
GBP/JPY initially declined before reversing higher.
With USD/JPY moving lower while European currencies strengthen against the dollar, yen crosses are finding it difficult to establish a uniform direction.
If Middle East risks continue to ease and equity markets stabilize, yen crosses may receive additional support.
However, renewed risk aversion triggered by semiconductor shares or earnings from major U.S. technology companies could generate fresh yen buying.
■ Middle East Developments and Crude Oil
Expectations of de-escalation in the Middle East have increased for the time being.
Both the United States and Iran have confirmed a suspension of attacks, raising hopes that talks through intermediary countries could resume.
As a result, WTI crude oil fell sharply from above $90 to the $83 area.
Prices have since remained capped around $85.
The sharp decline in crude oil has reduced concerns over renewed inflation and weakened one of the main sources of recent dollar demand.
However, the situation in the Middle East has not been fully resolved.
Whether negotiations actually resume or military action begins again could trigger significant volatility in both crude oil and the dollar.
■ Equity Markets
Equity markets remain highly volatile, particularly in the semiconductor sector.
In Asia, CXMT, China’s largest semiconductor memory producer, listed on the Shanghai Stock Exchange and surged as much as 500% above its IPO price of 8.66 yuan.
The company briefly became the largest mainland-listed Chinese company by market capitalization on its first trading day, highlighting continued investor enthusiasm for semiconductor-related shares.
At the same time, shares of competing companies declined temporarily, indicating that capital rotation is taking place within the sector.
Semiconductor stocks have a significant influence on broader equity indices, meaning their volatility can quickly affect market risk sentiment and spill over into FX.
Major U.S. technology companies, including Microsoft, Meta, Apple, and Amazon, are also scheduled to report earnings this week.
Markets will closely watch whether expectations for AI-related investment strengthen again or whether concerns over elevated valuations lead to a broader correction.
■ Central Bank Events This Week
Policy decisions from several major central banks, including those of the United States, Japan, and the United Kingdom, are scheduled this week.
As a result, FX markets are likely to experience significant position adjustments ahead of the announcements.
The Federal Reserve has entered its communications blackout period, limiting the likelihood of new policy guidance from officials.
This leaves markets more sensitive to economic data, Treasury auctions, equity movements, and developments in the Middle East.
The results of upcoming U.S. Treasury auctions may be particularly important, as they could influence yields and determine the next direction of the dollar.
■ Today’s Key Economic Data
The main economic releases scheduled for later today include:
German Ifo Business Climate Index
Eurozone M3 Money Supply
Hong Kong Trade Balance
Mexico Trade Balance
U.S. Preliminary Durable Goods Orders
The German Ifo index is expected to rise to 86.0 from 85.6 previously.
With concerns over the European economy still elevated, a stronger-than-expected result could provide support for the euro.
U.S. durable goods orders are forecast to rise 1.8% month-on-month following a 4.5% decline previously.
A strong result could help slow or reverse the current dollar-selling trend.
■ Key Events
The New York session will feature auctions of U.S. 2-year and 5-year Treasury notes.
The 2-year auction is expected to total $69 billion.
The 5-year auction is expected to total $70 billion.
With major central bank meetings ahead, markets are likely to pay close attention to movements in U.S. yields.
Weak auction demand could push yields higher and trigger renewed dollar buying.
Conversely, strong demand could lower yields and reinforce the current dollar-selling trend.
■ Key Focus for London and New York
Markets will closely monitor:
- Whether expectations of an improvement in Middle East tensions continue
- Whether WTI crude oil remains capped around $85
- Whether the Dollar Index breaks below 101.10
- Whether USD/JPY can hold around 163.50
- Whether EUR/USD can establish itself above 1.14
- Whether U.S. durable goods orders trigger renewed dollar buying
- U.S. yield movements following the 2-year and 5-year Treasury auctions
- Equity-market positioning ahead of major U.S. technology earnings
The main focus today is whether dollar selling caused by the easing of Middle East risks can continue.
However, renewed movements in U.S. yields or equities could still lead to a dollar rebound.
■ Bottom Line
The new week has begun with the dollar under pressure as risks in the Middle East appear to be easing.
The suspension of attacks by both the United States and Iran has raised expectations that negotiations may resume, causing WTI crude oil to fall sharply from above $90 to the $83 area.
This has triggered an unwinding of safe-haven dollar demand.
USD/JPY has fallen from the upper 163 area toward the mid-163 range, while EUR/USD and GBP/USD have moved higher.
However, some dollar buying returned during the London session, indicating that the move is not yet one-directional.
With major central bank meetings in the United States, Japan, and the United Kingdom, as well as earnings from several major U.S. technology companies, markets are likely to remain highly sensitive to position adjustments.
For the remainder of the session, attention will focus on developments in the Middle East, crude oil prices, U.S. durable goods orders, Treasury auctions, semiconductor shares, and expectations surrounding U.S. mega-cap technology earnings to determine whether dollar selling can continue.
