Asian Pacific indices mixed

US stock index futures began Wednesday’s session little changed, following on from a relatively flat session yesterday. Markets have calmed down since the start of the week when oil prices gapped up from Friday’s close to hit their highest levels in close to four years.

Source: TN Trader

Crude subsequently dropped back, with front-month WTI trading as low as $76 per barrel yesterday afternoon, having come close to $116 in the early hours of Monday morning. Oil has rallied again overnight but remains below Friday’s close. Investors are paying close attention to activity in the Strait of Hormuz, with concerns growing that it has not yet been secured by US forces.

Higher energy costs feed through to everything. And if the US’s war on Iran isn’t concluded swiftly, the concern is that the upside inflationary pressures apparent before the outbreak of hostilities will accelerate. This is already persuading analysts that the next move from central banks could be rate hikes, rather than the cuts previously forecast.

Today brings the latest update on the US Consumer Price Index (CPI). This won’t include data from this month when energy prices really took off. So, if the CPI ticks up from the prior month’s reading, that will be worse news as far as Federal Reserve rate cuts are concerned, and this is likely to weigh on equities.

At the same time, geopolitical developments remain central to market positioning. Reports overnight indicated that US forces had sunk several Iranian vessels, including 16 minelayers. That was positive news. But the Strait of Hormuz has seen less than 10% of its usual traffic pass through. And some of that has come under Iranian attack.

Overnight, reports from the Royal Navy said three ships in the Strait of Hormuz and Persian Gulf were hit. Expect oil prices to remain elevated for as long as the Strait is blocked and unsafe.

European stock indices were lower across the board on Wednesday. All the majors dipped a touch, giving back some of their recent gains as they bounced back from lows made at the beginning of the week. Traders were forced to react to intensifying military operations in the Middle East, and all were keeping a close eye on oil prices.

Source: TN Trader

Crude has pulled back sharply from the near-four-year highs hit early on Monday. But it remains exposed to events in the Middle East, particularly as the Strait of Hormuz, through which 20% of the world's energy is transported, remains unsafe and effectively blockaded by Iran.

FX markets were relatively quiet overnight. The US dollar was mixed against the majors, being little changed against the euro, a touch weaker versus the British pound, but firmer against the Japanese yen.

Overall, the cash Dollar Index was up a touch in early trade. Yesterday afternoon, it dropped back to 98.20, having surged to within a few cents of 99.50 in the early hours of Monday morning. It managed to recover from its lows and was pushing up towards 98.80 by mid-morning.

Source: TN Trader

President Trump continues to suggest that the conflict with Iran could end soon. As a result, safe-haven demand for the US dollar eased slightly. But it remains supported by ongoing geopolitical uncertainty, as the Israeli military continues to conduct strikes in Iran and Lebanon while Iran’s Islamic Revolutionary Guard Corps has escalated operations in response.

Market attention now turns to the February US Consumer Price Index report, which is expected to show headline inflation rising 2.4% year on year and core inflation increasing 2.5%. A softer reading could place additional pressure on the dollar, while a stronger print may reinforce expectations that interest rates will remain elevated for longer, or may have to rise.

The USD/JPY pair moved higher for a second consecutive session, trading near 158.30 as the Japanese yen struggled amid uncertainty over the Bank of Japan’s (BOJ) policy outlook. Japanese Prime Minister Sanae Takaichi is reportedly urging caution regarding further tightening, reflecting concerns about the economic impact of the Middle East conflict and elevated energy prices.

At the same time, she is still looking to make tax cuts and increase government spending to boost economic growth.

Gold was a touch weaker this morning, having begun the Asian Pacific session in positive territory. Yesterday, it made some modest upside progress and managed to push back above $5,200 per ounce. But it was unable to hold on to those gains this morning. It fell back below $5,200 to trade at session lows as lunchtime in Europe approached.

Overall, it remains stuck in a trading range which has been developing since this time last week. There is resistance around $5,200 to the upside, while support comes in around $5,000. Gold has found some support from ongoing geopolitical tensions in the Middle East.

Source: TN Trader

But recent strength in the US dollar, along with the slump that followed gold’s blow-off record hitting rally at the end of January, appears to be limiting its upside for now. Traders are now awaiting the US CPI data for further guidance on the Federal Reserve’s interest rate outlook, with the PCE inflation report scheduled for release on Friday.

Silver has also developed a clear trading range since last Wednesday. It has repeatedly found support around $80 per ounce, while the upside has been capped at $90. The daily MACD has flattened out in the neutral zone, so there are no clues to be found here concerning the direction of the next big move.

Source: TN Trader

Overall, traders are keeping a close eye on the US dollar. Recent strength has weighed on silver to some extent. And the oil price remains significant, given how sustained elevated prices will lift inflation and potentially crush forecasts for further rate cuts this year.

Rising interest rates and a stronger US dollar typically increase the opportunity cost of holding non-yielding assets such as silver, limiting upside momentum. Investors are therefore focused on this week’s US inflation data, as it could influence expectations around the Federal Reserve’s future policy path.

Crude oil movements have calmed down since the start of the week. In the early hours of Monday, front-month WTI came within a few cents of $116 per barrel, hitting its highest level in close to four years. Just twelve hours later, it dropped back below $80.

Since then, WTI has largely been rangebound, with support coming in around $80 and resistance at $90. This means that prices are consolidating below Friday’s closing price, just before this latest leg higher. Investors are paying close attention to activity in the Strait of Hormuz, with concerns growing that it has not yet been secured by US forces.

Source: TN Trader

While the US has destroyed many Iranian vessels in the area, it has not declared the Strait safe to transit, and this is putting significant upside pressure on prices. At the same time, oil has been capped to some extent as the International Energy Agency (IEA) has proposed, according to the Wall Street Journal, releasing as much as 400 million barrels of crude from strategic reserves, its largest release ever. But time is the factor here.

If shipping is still unable to pass through the Strait of Hormuz by the weekend, then that would represent a big failure by the US and would undermine investor confidence. At the same time, there are only so many occasions when you can tap strategic reserves before they dwindle. This helps to explain oil’s current quandary.

Bitcoin slipped overnight, pulling back from the recent high just above $71,700 hit yesterday afternoon. Movements across most risk assets have found themselves at the mercy of oil prices, which have been extraordinarily volatile of late. Geopolitical tensions and concerns over tighter financial conditions, which came on fears of higher inflation, continue to weigh on risk-sensitive assets.

Yet Bitcoin continues to consolidate, holding in a relatively tight range which has been developing for just over a month. This began after Bitcoin fell to a sixteen-month low just north of $60,000, before recovering.  

This time last week, it looked as if Bitcoin was finally breaking out to the upside as it hit $74,000, its best level in a month. But that now looks like a false dawn. Despite this, Bitcoin looks quite healthy from a technical perspective, with the daily MACD indicating the potential for some decent upside momentum.

Market volatility remains elevated as geopolitical tensions continue to dominate the global outlook. The March VIX was hovering just shy of 25.00 this morning, reflecting heightened uncertainty as the conflict in the Middle East shows few signs of de-escalation.

While markets have partially stabilised following the sharp swings at the start of the week, ongoing military activity and uncertainty around oil supplies continue to create a fragile trading environment.

Risk sentiment improved modestly as oil prices retreated from recent highs, helping bring buyers back into equity markets. Strong corporate results, including Oracle beating expectations, have also helped support sentiment in early trade on Wednesday.

However, investors remain cautious ahead of the release of the US Consumer Price Index. The inflation report will be closely watched for clues about the Federal Reserve’s policy path and whether interest rate hikes, rather than cuts, may emerge in 2026. With geopolitical tensions still high and oil prices continuing to drive market direction, traders are likely to remain highly sensitive to new headlines in the sessions ahead.