Oil Rallies on Middle East Developments, Dollar Slips, Euro and Wall Street Hold Firm

Market Wrap-up: Oil Jumps, Dollar Softens as Markets Navigate Fresh Middle East Flashpoint

Market attention has shifted back to the Middle East, where the geopolitical situation has flared up once again. Specifically, US forces struck two Iranian missile launchers on Larak Island, marking a resumption of hostilities between Washington and Tehran. Tehran subsequently retaliated with attacks targeting US military bases in Jordan.

The development has raised concerns over potential supply disruptions and further inventory drawdowns in the coming weeks and months. As a result, September Brent crude, the international benchmark, rose 2.7% to $90.49 a barrel, while US WTI gained 2.8% to close at $85.76 a barrel yesterday.

Although markets reacted to the deteriorating geopolitical backdrop and Warsh's earlier hawkish remarks, neither factor was enough to sustain further dollar strength. Instead, the greenback edged lower, slipping below the 99.50 level.

The dollar's softness also helped the euro hold its gains above 1.1600. Data released by Germany's Federal Statistical Office on 31 August showed the country's inflation rate climbed to its highest level since the start of the year, reaching 2.9% in August.

The reading could reinforce expectations that the European Central Bank (ECB) may deliver a further rate hike at its upcoming policy meeting on 10 September.

Meanwhile, gold slipped below the $4,500/oz mark, trading near a two-week low as concerns over sharply rising oil prices added to broader inflation worries.

Heightened instability in the Middle East also contributed to choppy trading on US equity markets in August, though Wall Street still posted broad-based gains, led by the technology sector.

The Dow Jones rose more than 1% over the past month, marking its fifth consecutive monthly gain and its 15th positive month in the last 16 for the blue-chip index. The S&P 500 and Nasdaq also logged their first monthly gains since May, up 2.6% and 3.9% respectively, with both the S&P 500 and Dow Jones setting fresh record highs during August.

Looking ahead for today, beyond monitoring further developments in the Middle East, markets will be watching for the week's earliest key US data releases, including the ISM Manufacturing PMI and JOLTs Job Openings.

DXY:

Key takeaway:

• Despite safe-haven demand and Warsh's hawkish remarks, the dollar remained under pressure and slipped below 99.50.

Technical Outlook:

• Daily Bias: Bullish
• Support: 99.26  
• Resistance: 99.72  

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Gold:

Key takeaway:

• Gold lost the $4,500/oz handle, trading near a two-week low.
• Gold remained under pressure despite geopolitical risk, while rising oil prices added to broader inflation concerns.

Technical Outlook:

• Daily Bias: Bearish
• Support: 4,396  
• Resistance: 4,472

Oil:

Key takeaway:

• Renewed US-Iran military clashes, US strikes on Iranian missile launchers on Larak Island and Iranian retaliation against US bases in Jordan, have reignited supply concerns.
• Brent crude rose 2.7% to $90.49/barrel and WTI gained 2.8% to $85.76/barrel, amid concerns over potential supply disruptions and further inventory drawdowns.

Technical Outlook:

• Daily Bias: Bullish
• Support: 84.47  
• Resistance: 87.70  

EUR/USD:

Key takeaway:

• EUR held above 1.1600, supported by broad dollar weakness.
• German inflation accelerated to 2.9% in August, the highest since the start of the year, reinforcing expectations the ECB could tighten further at its 10 September policy meeting.

Technical Outlook:

• Daily Bias: Bearish
• Support: 1.15754  
• Resistance: 1.16200  

Dow Jones:

Key takeaway:

• The Dow rose over 1% in August, marking a fifth consecutive monthly gain and its 15th positive month out of the last 16.
• S&P 500 and Nasdaq posted their first monthly gains since May, up 2.6% and 3.9% respectively, with both the S&P 500 and Dow hitting fresh record highs during the month despite intraday volatility tied to Middle East tensions.

Technical Outlook:

• Daily Bias: Bearish
• Support: 53.000
• Resistance: 53.274  

Calendar Watch:

• Ongoing developments in the Middle East remain a key risk factor to monitor.
• Key US data due today: ISM Manufacturing PMI and JOLTs Job Openings.

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