Global markets enter the second week of November with a significant shift in investor sentiment as market participants expect de-escalation of the conflict in the Middle East. This, in turn, resulted in falling oil prices and reduced concerns about inflation and economic growth. However, the situation in the Middle East remains complex, and any new tensions could quickly reverse the sentiment. 

The Fed is one of the key influences on global markets. The FOMC left the rate unchanged during its October meeting at 3.75%-4.00%. However, market participants still expect the central bank to make another policy tightening by the end of the year. The upcoming CPI and PPI reports from the United States can shed light on inflation and adjust expectations of the further Fed moves.

European markets are also adjusting their expectations. The ECB continues to face inflation pressure from one side and uncertain economic growth from another. However, declining oil prices can ease pressure on the consumer sector. In the United Kingdom, the Bank of England raised its rate in November, but policymakers will consider whether lower oil prices will reduce the need for tighter monetary policy.

On the commodities side, significant changes in the market sentiment affect assets significantly. Oil lost positions sharply as traders and investors reassess the likelihood of further escalation in the region. Gold has gained some support due to lower energy pries and hopes that inflation pressure may step back.

EUR/USD: US Inflation Takes Center Stage

The EUR/USD benefits from a softer US dollar, but still, the currency pair is unable to resume its uptrend on the even of the US inflation data. The currency pair remains sensitive to expectations surrounding the Fed’s future monetary policy decisions. The ECB faces its own challenges as inflation across the region remains elevated, while the economic outlook continues to reflect higher energy costs and restrictive conditions. For EUR/USD, the key data this week will be the release of the US CPI and PPI data.

Buy: 1.1270 Targets: 1.1300 and 1.1350

Sell: 1.1190 Targets: 1.1150 and 1.1100

GBP/USD: Sterling Benefits From the Bank of England’s Decision

The British pound gained support the last week after the BoE decision to hike rates. Sterling has demonstrated resilience against both the US dollar and the euro. The latest Bank of England’s decision reflects concerns about higher inflation. Although additional tightening may contain inflation expectations, it increases borrowing costs, which also slows economic growth. The recent decline in oil prices introduces a new consideration. If energy costs continue to plunge, the BoE may consider changing its course from hawkish to dovish, which, in turn, will put pressure on the pound.

Buy: 1.3480 Targets: 1.3550 and 1.3600

Sell: 1.3400 Targets: 1.3350 and 1.3300

WTI Crude: Diplomatic Optimism Challenges the Supply Premium

Crude oil declined sharply on Tuesday, after a significant plunge in November, which is a result of expectations that the conflict in the Middle East may be resolved by diplomatic measures. According to US President Donald Trump, further strikes are unlikely if the sides make progress and sign an acceptable agreement. For WTI, the key question is whether diplomatic optimism will translate into measurable improvements in physical supply. A sustained recovery in tanker movements and exports could increase downward pressure on oil prices. However, renewed attacks or a breakdown in negotiations could quickly restore concerns about shortages.

Buy: 90.00 Targets: 92.00 and 94.00

Sell: 85.00 Targets: 83.00 and 80.00

XAU/USD: Gold Recovers as Energy Inflation Fears Ease

Gold gained some support but failed to develop its upside. Market participants now assess the upcoming US inflation data and expectations of another Fed rate that can take place in December. Geopolitical developments create competing influences as diplomatic progress reduces demand for safe-haven assets. However, restrictions around the Strait of Hormuz are still in place.

Buy: 4,150 Targets: 4,180 and 4,200

Sell: 4,000 Targets: 3,960 and 3,940