Oil Price Rebounds

On Tuesday, the market was focused on Trump’s announcement on his position on the Iranian nuclear deal, with oil prices plummeting and recovering sharply right afterward in mid-US afternoon. As it was expected, the US President announced that the country is withdrawn from the deal, triggering some volatility, but not affecting much the dollar against its major rivals.

The EUR/USD pair remained oversold and it is expected that the rising oil prices and the resulting pickup in inflation could force the Fed to hike rates at a faster pace. So, the USD could continue to rise. Overall, it appears that any possible corrective rally in the EUR will likely be short-lived. With no key macroeconomic releases in the Euro-zone today, investors would direct their attention to the US Producer Price index for April, to be released later in the day.

USD/JPY was on the backfoot leading into the Iran announcements by Trump in the mid-afternoon of the US session, but has from then rebounded, currently trading at 109.52. Looking ahead, traders would closely monitor the Bank of Japan’s summary of opinions report as well as Japan’s trade balance for March, both due to release overnight.

A quiet schedule for Wednesday in the UK, ahead of the BoE’s rate decision on Thursday. The GBP/USD is shifting lower ahead of the European market session, touching into 1.3530 as the pound drifts against a dollar that is finding itself bid up once more. The Bank of England, which had been highly expected to lift interest rates this week, has had to walk back their hawkish commentary, and many expect the BoE to hold off on a rate increase until August.

After the US President, confirmed the withdrawal of the US from the Iranian nuclear deal, US will reimpose sanctions on Iran in 180 days. Therefore, oil market could tighten significantly in second half of 2018 as Iran is OPEC’s third biggest exporter of crude. Oil has reversed its earlier losses, and currently trading at $70.60 per barrel, ahead Of EIA’s Weekly Crude Oil Stockpiles Data to be announced later today.

The rising US dollar keeps gold under pressure with the dollar’s resilience speculated to be associated with the expectation that Iran tensions and the resulting oil rally could boost inflation and force the Fed to hike rates at a faster pace. The expectations though of higher inflation are not helping gold – a classic inflation hedge, but the safe haven metal may pick up a bid if the equity markets turn risk-averse on Iran deal fallout.