Financial markets are reacting to the military strike by Iranian forces as they hit the US patrol ship. The US Central Command reused the strike. However, according to local Iranian media, the ship was hit and forced to change course. According to UAE officials, they have intercepted three Iranian missiles.

The situation around the Strait of Hormuz remains the epicenter of the crisis. According to the US, they are going to assist blocked ships in the region. However, the Iranian side claimed that they will attack and block any attempt to leave the strait. The geopolitical crisis is among the most important market drivers, but not the only factor affecting prices.

The Federal Reserve is now trapped. According to the latest FOMC minutes, the Fed is now considering the probability of a recession. With inflation surging due to higher energy prices, the Fed is facing its worst stagflation nightmare since the 1970s.

EUR/USD: Diplomatic Collapse Weighs on the Euro

The single currency is under renewed pressure following the missile strike in the Gulf of Oman. While the euro made an upside attempt last week on rumors of Iranian peace offers, any hope for a diplomatic solution has evaporated overnight. The US has already raised auto tariffs on the EU to 25%, and with the Middle East spiraling, traders are dumping European assets. 

From a technical analysis perspective, the currency pair is trading straight in the middle of the Bollinger Bands indicator, with the lines being close to each other. This tells traders that the volatility is still low. Buyers can step in above 1.1700, targeting 1.1750 and 1.1800. When it comes to sellers, they can engage below 1.1670, targeting 1.1600.

GBP/USD: The Bank of England Trapped

The pound remains under pressure due to geopolitical tensions. The Bank of England held rates at 3.75% last week. However, the messaging was anything but dovish. For the first time, the BOE has scrapped its central forecast and published a “scenario analysis” that explicitly includes a path requiring “forceful” rate hikes if energy prices from the Iran war create second-round inflation effects. Governor Bailey is now signaling that the BoE could hike rates faster even if the economic growth stalls completely.

From a technical analysis standpoint, GBP/USD is trading in the middle of the Bollinger Bands indicator with low volatility. Buyers can engage above 1.3550, targeting 1.3600 and 1.3630. Sellers can step in below 1.3500, targeting 1.3400.

WTI Crude Oil: The Blockade Premium Explodes

Crude oil is spiking as the reality of a long-term blockade sets in. The US military is reportedly preparing a plan for “short and powerful” strikes on Iran to break the deadlock in negotiations. Brent crude surged almost 7% to over $126 a barrel last week. With the IEA calling this the largest energy supply shock on record and Cushing storage at its lowest since 2022, $100+ WTI is now the basic forecast. OPEC+ just raised quotas by 188k bpd for June, but the market sees this as a drop in the bucket compared to the 9 million bpd cut off from Hormuz.

From a technical analysis perspective, oil is trading close to the lower band of the Bollinger Bands indicator, attempting to break it. Traders can go short from 100.00, targeting 96.20. On the upside, traders can buy from 102.50, targeting 107.00.

Gold: The Crossfire Between Safety and Yields

Gold is currently trading below $4,630 as it gets caught in a tug-of-war. On one hand, the missile strike and the threat of US attacks on Iran are driving massive safe-haven demand. On the other hand, the Fed’s hawkish pause and the possibility of future rate hikes in 2027 are strengthening the US dollar and bond yields. For now, the dollar is winning the battle, but if any US bomb hits Iranian soil, expect gold to explode towards $5,000 immediately.

From a technical analysis standpoint, gold is trading above the Bollinger Bands indicator. Traders can buy from 4,570 targeting 4,600 and 4,630. On the downside, traders can sell from 4,650, targeting 4,600.