The Morning Update

The USD eases, oil prices firm, equity markets are mixed, and US yields rise as the US weighs its role in the Iran/Israel conflict. The USD Index is set for the biggest weekly rise in over a month as the Middle East conflict and the possible repercussions for the global economy fuelled investor risk appetite and a shift to safe havens. Global equity markets are mixed with Asian markets down, while Europe snapped a three-day losing streak, but remains on track for its first back-to-back weekly declines since April. The White House stated that President Trump would decide within two weeks, indicating a "substantial chance" for a negotiated settlement. On Thursday, Israel continued to target more of Iran's nuclear sites and warned it could lead to a change in Tehran's leadership while both sides await the U.S.'s response. "One must, of course, be aware of the potential for significant gapping risk at the Sunday night open, depending on how geopolitical tensions evolve over the weekend," said Michael Brown of Pepperstone Group Ltd. "Some trimming of risk, and squaring of positions, seems likely as today goes on." Elsewhere, Japan's inflation levels spike to a fresh two-year high, oil prices head for a third weekly gain, Bitcoin strengthens to $105.8k, while gold and silver prices tumble in early trading. Today's focus will be on CAD Retail Trade, US Philadelphia Fed manufacturing Survey, Fed Monetary Policy Report and the EU Consumer Confidence to help guide currency markets intraday.

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In the news: Europe is set for Iran talks as Trump signals a two-week window to decide on an attack. Canada imposes tariffs on steel and aluminum to curb imports. Dow futures drop 70 points as Trump weighs an attack on Iran. China floods Brazil with cheap EVs, triggering a backlash. World markets are on oil watch as Middle East tensions flare. The EU bars Chinese firms from most medical device tenders. China warns of more floods as extreme storms hit the world's No. 2 economy. Under the shadow of Trump's warning, African pioneers are developing a non-dollar payments system. Employees terrified of ICE raids are failing to show up at work.

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In currency markets: Currency markets hold within tight trading ranges as investors remain cautious amid escalating tensions in the Middle East and the potential inclusion of the US. CNY and Asian currencies, on average, are up 0.1% against the USD. Trading currencies are steady, with JPY down 0.1%, CHF, NZD, NOK, and CZK flat, and DKK, ZAR, AUD, and MXN up 0.1% against the USD.

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In commodity markets: Oil prices strengthen by 1%. Natural Gas prices rallied by 2.2%. Gold and Wheat prices weakened by 1%. Silver prices tumbled 2.2%. Copper prices eased by 0.45%, and Wheat prices firmed by 0.3%.

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CAD holds steady at 1.3700, with the loonie trading in line with its peers, ignoring commodity price volatility, and the announcement of increased Canadian tariffs on the US. The loonie is ending the week off its highs as bearish momentum continues to carry over from the Fed's tone after keeping rates on hold and the general risk-off sentiment amid the escalating Iran/Israel conflict. We anticipate the CAD direction will continue to be steered by the global risk sentiment, interest rate divergence and continuing tariff concerns. Intraday, the CAD Retail Sales are expected to weaken to 0.4% in April, down from 0.8% in March, but this isn't likely to impact the loonie today.

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EURCAD extends gains as investors favour the single currency amid receding fears over a likely US military attack on Iran.

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EUR extend gains through 1.1500 amid a softening USD. The euro ticks higher for a third day amid a softening USD following White House comments that the US will wait for two weeks to decide on actions in Iran, allowing negotiations to take their course. We expect the ongoing EU/US trade talks ahead of the July 9th deadline for "Liberation Day" tariffs to weigh on market sentiment, capping the euro's ability to strengthen through 1.16s. Intraday, the US Philly Fed Manufacturing Survey and EU Consumer Confidence will help direct markets.

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GBPEUR are trading flat as markets favour both the GBP & EUR of their G10 peers.

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GBP held on to Thursday's gains, retesting 1.3500 despite weak Retail Sales data. Investors seem to be overlooking the plummeting UK Retail Sales figures for May, which dropped 2.7%—the most significant monthly decline since December 2023. The easing Middle East tensions amid a weakening USD are helping to provide underlying support to the pound. We expect the pound to be capped in the short term after the BoE Governor said that rates are still downward, but it is hard to predict the timing of reductions in a 'highly unpredictable' world. Intraday, we expect investors to remain focused on updates on the Middle East crisis to provide direction for the pound.

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