Crude Surges After US-Iran MoU Lapses - CPT Markets

Market Wrap-up: US-Iran MoU Expires, Oil Surges and Stocks Fall

Market attention has shifted back to the Middle East as both the US and Iran ruled out extending the June memorandum aimed at ending the conflict.

Iranian Foreign Ministry spokesman Esmail Baghaei rejected the possibility of negotiating an extension, while US President Donald Trump also said he was not interested in extending the agreement with Iran as it approaches expiry.

A senior Iranian official also told Reuters that Tehran would shift from a defensive posture to an offensive one should diplomatic efforts with the US fail, a signal that raised the stakes ahead of the MoU's expiry.

Trump called for Iran to surrender in an interview with Fox News and threatened to bomb Oman, a US ally, as Muscat negotiates with Tehran over the management of traffic through the Strait of Hormuz.

The developments triggered a sharp move higher in oil prices. US WTI crude rose 2.6% to settle at USD 84.50 per barrel, while international benchmark Brent gained 2.7% to USD 90.87 per barrel as markets priced a higher risk of further escalation.

Rising oil prices threaten to undo some of the recent softening in the US macro picture. Recent US data have cooled, reducing expectations for further Fed tightening. However, a renewed and sustained rise in oil prices could complicate the inflation outlook and reverse part of that repricing.

The DXY extended its decline in the previous session, falling to a more than two-month low of 99.30. The index, however, rebounded towards 99.60 during the Asian session this morning as geopolitical risk supported demand for the US dollar.

The USD move also affected gold. The precious metal climbed towards USD 4,420 in the previous session as the weaker dollar provided support, but eased back towards USD 4,390 this morning as the dollar recovered.

US equities also came under pressure from higher oil prices. Both the S&P 500 and Dow Jones fell more than 0.5%, while the Nasdaq Composite declined 0.32%. Markets continue to retain some expectations for a return to negotiations, which could ease geopolitical risk and put downward pressure on oil prices, particularly as the US midterm election approaches.

Looking ahead for today, markets will remain focused on developments in the Middle East, alongside the ADP Weekly Employment Change and the API Weekly Statistical Bulletin on crude inventories. US Housing Starts, Pending Home Sales, and Import Prices will also be closely watched.

XAU/USD: Gold Gains as USD Falls to Two-Month Low

Key takeaway:

• Gold rose on 17/08, supported by a weaker USD and reduced expectations for further Fed tightening, while investors continued to monitor geopolitical tensions in the Middle East.
• The USD also fell to its lowest level in more than two months, making gold more affordable for buyers using other currencies.
• However, the dollar's recovery on Middle East safe-haven flows may limit gold's short-term upside, supporting the bearish near-term technical bias despite the broader uptrend.

Technical Outlook:

• Daily Bias: Bearish
• Support: 4,390
• Resistance: 4,420

Oil: WTI Surges After US and Iran Reject MoU Extension

Key takeaway:

• Oil prices advanced sharply on 17/08 after both Iran and the US ruled out extending the memorandum signed in June to end the conflict.
• A senior Iranian official said Tehran would shift from a defensive posture to an offensive one if diplomatic efforts with the US fail.
• Trump reiterated his threat against Oman, adding pressure on Muscat as it works to keep Hormuz shipping routes open.

Technical Outlook:

• Daily Bias: Bullish
• Support: 83.30
• Resistance: 85.00

DXY: US Dollar Hits Two-Month Low on Softer US Data

Key takeaway:

• The US Dollar Index started the new week under pressure, falling to a two-month low of 99.30.
• A softer run of US data in August, including employment, inflation, and retail sales figures, has reduced market expectations for a Fed policy move next month.
• However, Trump's rejection of an extension to the Iran agreement and naval blockades have increased geopolitical tensions and strengthened safe-haven demand, providing support for the USD.

Technical Outlook:

• Daily Bias: Bearish
• Support: 99.30
• Resistance: 99.60

EUR/USD: Euro Holds Higher on ECB Rate Hike Expectations

Key takeaway:

• The euro held near a two-month high against the USD around 1.16100, having pulled back only modestly as the dollar firmed during the Asian session this morning.
• At the same time, growing acceptance that the European Central Bank (ECB) could deliver one final 25-basis-point (bps) rate hike at its September meeting may continue to support the common currency and limit downside in the pair.

Technical Outlook:

• Daily Bias: Bullish
• Support: 1.15600
• Resistance: 1.16100

USD/JPY: Japanese Yen Weakens Despite Hawkish BoJ Signals

Key takeaway:

• The Japanese yen weakened against the US dollar despite expectations for a more hawkish BoJ stance.
• In the latest BoJ Summary of Opinions (SoP), several board members supported further monetary tightening, following the decision to keep the policy rate at 1%. One member argued that the central bank should accelerate tightening, citing the risk of higher inflation.
• Meanwhile, Japan's weaker-than-expected preliminary Q2 GDP data could weigh on hawkish BoJ expectations and limit support for the yen.

Technical Outlook:

• Daily Bias: Bullish
• Support: 159.30
• Resistance: 160.00

Attention now turns to whether Middle East tensions keep pushing oil higher, or whether a return to diplomacy eases the risk premium. Today's US data, including employment, housing starts, and import prices, will offer the next signal on the policy outlook, while any fresh headlines from Tehran, Washington, or Muscat could move markets quickly.

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