The new week was marked by a new escalation in the Middle East and an exchange of strikes between the US and Iran. Tehran launched drones toward Bahrain and Kuwait, home to military assets of the Fifth Fleet. The Strait of Hormuz is still closed, and tankers are rerouting. This makes the blockade premium a line item in every energy contract. While the US president announces the approaching agreement, financial markets price in further escalation.

In the United States, the latest labor market data showed a sharp increase in new jobs in May, with 172,000 positions created in the non-farm sector. April data was revised with an increase, which also supports the US dollar as the Fed is unlikely to cut rates this year, and about 70% of market participants expect the central bank to hike rates at least by 25 bps by December 2026. The confrontation between Donald Trump and Kevin Walsh (who was recently announced as the new Fed Chair) may put some pressure on the dollar, but in general, the greenback is now enjoying the demand.

The situation in China, meanwhile, remains stable. May import data surprised again and PPI accelerated to 3.5% YoY, which is the highest level since mid-2024. The question is whether Beijing is able to tackle higher oil prices and a hawkish Fed. So far, the situation seems to be controllable. 

EUR/USD: The Dollar’s Game to Lose

The currency pair is getting squeezed by both geopolitical and economic factors. Ongoing tensions in the Middle East provide support to the US dollar, while ECB dovishness puts pressure on the euro. The hawkish Fed stance gives additional demand for the US currency as the Fed is likely to hike rates this year. In this situation, short-term and even mid-term forecasts show that the currency pair may resume its decline unless energy prices spike hard and prompt the ECB to rethink its policy. 

From a technical analysis perspective, the currency pair moved higher on Tuesday, but this is a temporary upside move, which may end with another strong downside. The pair is trading close to the upper band of the Bollinger Bands indicator. Buyers can engage above 1.1580, targeting 1.1650 and 1.1700, while sellers may place orders below 1.1540, targeting 1.1500 and 1.1450.

GBP/USD: The BoE’s Lonely Hawk

The BoE is the only major European central bank voting for higher rates. One member wanted 4% during the last meeting, and the market still considers this proposal. This is what holds the currency pair from moving down sharply following EUR/USD. However, if risk sentiment worsens, the pound will not be able to hold the pressure. The dollar’s safe-haven status will dominate. 

From a technical analysis perspective, the currency pair is trading close to the upper band of the Bollinger Bands indicator, but the upside is limited by macroeconomics and geopolitics. Buyers can engage above 1.3410, targeting 1.3450 and 1.3500. Sellers can step in below 1.3390, targeting 1.3300.

WTI Crude: The Blockade Is Real, But So Is the Ceiling

Oil is trading close to $100 amid ongoing tensions in the Middle East. Escalation of the conflict between the US and Iran may put the price even higher. The Strait of Hormuz remains closed, and many US satellites in the region are targeted by Tehran. Even with the latest decision of OPEC to increase production, many regional oil production leaders can’t do anything due to the blockade of the chokepoint. 

From a technical analysis perspective, oil is trading close to the lower band of the Bollinger Bands indicator, where it found local support. Traders can sell WTI below 87.30, targeting 86.00 and even 85.00. Buyers can step in above 88.50, targeting 90.00 and 95.00/

Gold: The Ultimate Frustration Trade

Gold is trading in a tight range as geopolitical factors support the precious metal, but it can’t outperform US Treasuries, which are trading with higher yields, making them very popular among investors nowadays. Thus, every time gold tries to rally, the dollar gains support as a safe-haven asset. 

From a technical analysis perspective, XAU/USD is trading within a tight range. Buyers can step in above 4,360 targeting 4,400 and 4,440. Traders can sell the precious metal below 4,320 targeting 4,300 and 4,280.