Dollar Surges, Oil Slides: Markets Brace for Iran Sanctions Fallout

Market Wrap-up: Safe-Haven Demand Rises as Washington Increases Pressure on Iran

Trading was relatively subdued yesterday in the absence of major economic data. Instead, investor attention turned back to the Middle East, where geopolitical developments continued to intensify.

The Trump administration announced plans for global scale sanctions on Iran. US Treasury Secretary Scott Bessent described the move as an "economic D-Day" on social media, also calling it "the single greatest financial offensive ever marshaled against an adversary."

Commonwealth Bank of Australia (CBA) expects oil prices to remain volatile through the second half of the year as markets assess whether Washington's efforts to economically isolate Iran will succeed, as well as how Tehran may choose to respond.

Despite these developments, oil prices fell more than 2% in the previous session. West Texas Intermediate (WTI), the US benchmark, ended the day down around 2.5% at 84.89 USD/barrel. Brent crude, the international benchmark, also lost 2.5% to settle at 92.06 USD/barrel.

Nonetheless, Washington's latest statements drove capital toward safe haven assets. The DXY index, which measures the strength of the US dollar, climbed above the 99.00 level for the first time since last Wednesday's sharp decline.

Spot gold rose 0.7% to 4,635.39 USD/ounce, having earlier touched its highest level since May 14. Gold backed ETFs recorded net inflows of 46.7 tonnes, equivalent to 6.4 billion USD, over the past week.

According to the World Gold Council (WGC), this marked the largest weekly inflow in 10 months, led by funds listed in North America and Europe.

Markets are now concerned that a prolonged conflict in the Middle East could keep oil prices elevated and add further pressure on inflation. This, in turn, is driving global bond yields higher and weighing on equity markets. Yields in Japan, France, and Germany have all climbed to multi year highs.

The European Central Bank (ECB) is widely expected to raise interest rates by 25 basis points in September, following its June tightening move. Meanwhile, rising price pressures are also reinforcing expectations that the Bank of Japan (BoJ) could hike rates as early as September.

Looking ahead to today, markets will focus on the week's first batch of data releases, including the ADP Weekly Employment Change, CB Consumer Confidence, the Richmond Manufacturing Index, New Home Sales, and a speech from FOMC member Thomas Barkin.

DXY:

Key takeaway:

• The dollar index broke above 99.00 for the first time since last Wednesday's sharp drop, as safe-haven flows returned amid escalating Middle East developments.
• Renewed geopolitical risk following the new US sanctions plan on Iran is reinforcing demand for the greenback.

Technical Outlook:

• Daily Bias: Bullish
• Support: 98.90  
• Resistance: 99.29  

Gold:

Key takeaway:

• Spot gold rose 0.7% to 4,635.39 USD/ounce, touching its highest level since May 14, as investors sought safety amid Middle East escalation.
• Gold-backed ETFs saw a net inflow of 46.7 tonnes, equivalent to 6.4 billion USD, last week, marking the largest weekly inflow in 10 months, led by North American and European-listed funds (WGC data).

Technical Outlook:

• Daily Bias: Cautiously Bullish
• Support: 4,625
• Resistance: 4,696

WTI:

Key takeaway:

• Despite Washington’s plan for global-scale sanctions on Iran, oil prices fell more than 2%, while markets continued to assess the potential impact of the measures and Iran’s response.
• WTI dropped 2.5% to 84.89 USD/barrel; Brent fell 2.5% to 92.06 USD/barrel.
• CBA expects continued oil price volatility in the second half of the year as markets assess US pressure on Iran and potential retaliation from Tehran.

Technical Outlook:

• Daily Bias: Bearish
• Support: 84.36  
• Resistance: 86.24

EUR/USD:

Key takeaway:

• Rising bond yields across Europe (France, Germany at multi-year highs) are pressuring equities and reinforcing inflation concerns.
• The ECB is widely expected to hike rates by 25bps in September, following its June tightening move.

Technical Outlook:

• Daily Bias: Bearish
• Support: 1.16552    
• Resistance: 1.16747

Calendar Watch:

• ADP Weekly Employment Change
• CB Consumer Confidence
• Richmond Manufacturing Index
• New Home Sales
• Speech from FOMC member Thomas Barkin

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