The Dollar Index is drastically reversing (USDIDX: -0.6%) in reaction to Donald Trump's declaration that he has ordered the postponement of all attacks on Iranian energy infrastructure for the next five days. In his statement, the US president added that over the past two days, both sides of the conflict have held productive discussions regarding a potential halt to operations.
The USDIDX was close to erasing all of its losses from last Thursday, but Trump's statement halted the strong safe-haven flight to the dollar. Source: xStation5
TACO for the Final Hours of the Ultimatum
Trump's declaration pivoted the markets from broad and deep declines to a global rebound. The relief of stress regarding a deeper escalation—and fears of even greater disruption to global energy supply chains—instantly dispelled risk aversion, turning most indices green.
Regional Market Highlights:
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European Indices: Futures on the German DAX (DE40: +2.7%), which had remained the most exposed to the negative beta of the energy sector, are bouncing back the strongest. The broad EU50 gains around 2.3%, while Polish W20 adds a more modest 0.5%, still weighed down by a 4% drop in Orlen shares.
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Sector Performance:
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Banks are recording the largest gains, as their financial results remain sensitive to general economic trends (PKO BP: +4%, HSBC, UniCredit: +3.8%).
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Energy companies flashed red, following the sudden slump in oil prices (Shell: -3.5%, BP: -4.1%, Orlen: -4%).
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Currency Market: A sharp reversal occurred on the dollar. The British pound became the biggest beneficiary of the relief (GBPUSD: +0.5%, GBPCHF: +0.55%), having been hit hard by the recent sell-off in UK bonds. EURUSD is gaining 0.2% to 1.158. Meanwhile, risk-sensitive Antipodean currencies (AUDUSD, NZDUSD) are up by a mere 0.2%, which may underscore the lack of any real improvement in the global economic outlook given the still-closed Strait of Hormuz.
Geopolitical Context & Oil Outlook
Interestingly, this optimism persists despite Tehran's declaration that Iran has not conducted any direct or indirect talks with Donald Trump. According to Tehran, Trump backed down on his own in light of threats of retaliation against the energy infrastructure of Western Asian allies.
It is also worth noting that oil quickly returned to just under the $100 per barrel mark. Therefore, the temporary sell-off in oil companies may be underpricing the scenario of higher average commodity prices in the coming quarters, even in the event of a de-escalation.
Oil seems to be respecting the support at $100 in the face of a realistic continuation of the conflict. Source: xStation5
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