Financial markets settled into a cautious holding mood today, with investors reluctant to extend positions ahead of a potentially pivotal weekend in the Middle East. Despite a sharp selloff across Asia, where the KOSPI plunged -6.37% and the Nikkei dropped -2.79%, the weakness failed to spill into Europe. Major European indexes traded only modestly lower, while US equity futures hovered around unchanged levels. The muted cross-asset response suggested markets were looking beyond day-to-day military headlines and instead waiting for signs of whether the conflict between the United States and Iran is about to return to a more dangerous phase.
That wait-and-see attitude was reflected across asset classes. Brent crude remained confined to a familiar USD 85-87 range after this week’s rally stalled below USD 90. Gold slipped back below the USD 4,000 psychological level but attracted little follow-through selling, while the US 10-year Treasury yield edged higher without reclaiming the 4.6% level. Currency markets were equally subdued, with nearly all major pairs and crosses trapped within Wednesday’s ranges. Rather than signaling complacency, the lack of movement appeared to reflect investors’ reluctance to establish large directional positions before the geopolitical outlook becomes clearer.
One reason markets are hesitating is that recent US military operations increasingly resemble preparation for broader action rather than the decisive escalation itself. According to Reuters, citing US officials, the latest waves of strikes are targeting Iranian air defenses, coastal radar, missile and drone sites, and maritime assets not only to pressure Tehran over the Strait of Hormuz but also to degrade capabilities that Washington would seek to eliminate before undertaking more complex military operations. One official described the campaign as “shaping operations”, suggesting the strikes are expanding President Donald Trump’s military options should he choose to intensify the conflict. That interpretation helps explain why traders have become less reactive to individual headlines: markets are now focused less on the strikes already underway than on whether they evolve into a materially larger campaign over the coming days.
Currency performance this week also reflects evolving macro themes rather than a traditional flight to safety. New Zealand Dollar remains the strongest performer as markets continue to price additional RBNZ tightening. Canadian Dollar ranks second, supported by elevated oil prices and the Bank of Canada’s more constructive assessment of the domestic economy. Sterling has benefited from optimism that incoming Prime Minister Andy Burnham’s cabinet will pursue greater fiscal discipline. At the other end of the spectrum, Yen remains the weakest currency, followed by Dollar and Swiss Franc.
Brent Holds Below $90 as Markets Wait for the Next Escalation Trigger. Is $100 Next?
Brent crude has stalled below $90 despite escalating military conflict between the United States and Iran. The pause reflects two key factors: Washington is simultaneously escalating military operations while easing some commercial measures, and traders are waiting for a genuine supply shock before pricing another sustained leg higher in oil. Read More.
EUR/GBP and GBP/CHF Channel Breakouts as Burnham’s Cabinet Choice Signals Fiscal Discipline
Sterling rallied after reports that Andy Burnham will appoint Shabana Mahmood as Chancellor, a move investors see as an early commitment to fiscal discipline. Rather than focusing on the change in prime minister alone, markets are now repricing the UK’s fiscal outlook, helping EUR/GBP and GBP/CHF break through key technical channels. Read More.
US Retail Sales Rise 0.2% MoM in June as Consumer Spending Stays Resilient
US retail sales rose 0.2% in June, matching expectations and extending the expansion in consumer spending. Combined with an upward revision to May’s 1.0% gain, the report suggests households continue to support economic growth despite elevated interest rates and geopolitical uncertainty. Read More.
US Initial Jobless Claims Decline to 208k as Labor Market Holds Firm
The US labor market remained resilient in mid-July, with initial jobless claims falling to 208,000, below expectations. The decline, together with a lower four-week average, suggests layoffs remain limited despite broader signs that the economy and inflation are gradually cooling. Read More.
Eurozone Trade Swings to Deficit as Imports Surge Despite Stable Exports
The Eurozone’s goods trade balance swung to a €7.8 billion deficit in May as imports surged 10.0% year-on-year, easily outpacing 0.1% export growth. The data suggest the deterioration was driven primarily by higher import costs and stronger import demand, rather than a collapse in exports. Read More.
SNB Minutes: Inflation Risks Rise, But ‘No Immediate Need for Action’
The SNB’s June policy minutes show policymakers becoming more concerned about inflation risks without seeing a need to tighten policy. While acknowledging that oil prices and geopolitical tensions have increased upside inflation risks, the Governing Board concluded there is “no immediate need for action” because “price stability is not jeopardised.” Read More.
BoE’s Breeden Says Soft Growth Reduces Need for Rate Hikes
BoE Deputy Governor Sarah Breeden argued that the UK’s weak economic outlook and labour market slack should prevent the latest surge in oil prices from becoming persistent inflation. Her comments reinforce the view that the Bank of England can keep rates on hold unless higher energy costs begin feeding into wages and broader price-setting. Read More.
UK GDP Grows 0.1% MoM in May as Services Offset Weak Production and Construction
The UK economy grew 0.1% in May, slightly beating expectations after April’s contraction. Growth was driven entirely by the services sector, while production (-0.5%) and construction (-0.8%) both declined, highlighting an expansion that remains resilient but uneven. Read More.
USD/JPY Daily Outlook
No change in USD/JPY’s outlook as consolidations continue below 162.83. Intraday bias stays neutral at this point. In case of another fall, downside should be contained by 38.2% retracement of 155.01 to 162.83 at 159.84. On the upside, firm break of 162.83 will resume larger up trend to 164.34 projection level.
In the bigger picture, rise from 139.87 (2025 low) is seen as another rising leg of the long term up trend. Next target is 61.8% projection of 139.87 to 159.44 from 152.25 at 164.34. For now, outlook will remain bullish as long as 155.01 support holds, even in case of deep pullback.
