Geopolitical tensions remained firmly in focus on Wednesday as conflict in the Middle East entered its eleventh consecutive day of US military strikes and expanded into the Red Sea, keeping Brent crude hovering near $95 a barrel. Yet outside the energy market, investor reaction remained notably restrained. Asian equities ended mixed, major European indexes traded modestly higher, and US equity futures slipped only slightly, suggesting markets are resisting the kind of broad-based risk-off move typically associated with a deepening regional conflict.
Speaking at the ASEAN Foreign Ministers’ Meeting in the Philippines today, US Secretary of State Marco Rubio reiterated that Washington remained open to a diplomatic resolution with Iran. He said the US would welcome an agreement under which Tehran abandons support for terrorism and its pursuit of nuclear weapons. At the same time, Rubio questioned Iran’s willingness to negotiate in good faith, accusing Tehran of violating commitments made under last month’s Memorandum of Understanding within weeks. He also adopted a firmer tone on maritime security, rejecting Iran’s implied authority over the Strait of Hormuz and describing freedom of navigation as a fundamental principle. While stressing that diplomacy remains the preferred outcome, Rubio made clear that US forces would continue protecting commercial shipping and urged other countries to join those efforts.
Even so, investors appear to believe the conflict remains largely contained, at least for now. Another factor limiting broader market moves is the focus on a packed US earnings calendar. Results from Alphabet, Tesla, IBM, ServiceNow, Texas Instruments and AT&T are expected to provide important insight into corporate spending, particularly whether the AI investment cycle remains intact. That has left equity investors balancing geopolitical risks against what could prove an equally important catalyst for market direction over the near term.
The currency market painted a similarly nuanced picture. Higher oil prices have pushed investors to price in a greater likelihood of further Fed tightening, yet Dollar gains have been surprisingly limited. Rather than rallying broadly, the greenback traded largely within recent ranges against most major currencies. The notable exception was the Japanese Yen, which extended its decline to another 40-year low as USD/JPY broke above 163. Tokyo’s renewed verbal intervention warnings had little lasting impact, while reports that Bank of Japan officials may be open to a faster pace of rate hikes ahead of next week’s policy meeting only triggered a brief bout of Yen buying before selling resumed.
Meanwhile, Gold and Silver continued to challenge recent relationships. In previous energy-driven inflation episodes, rising oil prices typically lifted bond yields and the Dollar, creating headwinds for precious metals. This time, however, both Gold and Silver have continued to strengthen alongside crude oil. Whether that reflects temporary positioning, persistent geopolitical demand, or the emergence of a broader shift in macro market behavior remains uncertain, but the divergence is becoming difficult to ignore.
The past two weeks suggest investors are becoming more selective in how they price geopolitical shocks. Energy markets continue to bear the brunt of escalating tensions, but equities remain anchored by earnings expectations, the Dollar has struggled to establish broad momentum despite renewed Fed tightening bets, and precious metals are behaving differently from previous inflation-driven oil rallies. Whether these divergences prove temporary or mark the beginning of a new market regime may become one of the defining questions for investors in the weeks ahead.
Yen Hits Fresh 40-Year Low. Can Japan Still Defend Its Currency?
The Japanese Yen has fallen to a fresh 40-year low, with USD/JPY breaking above 163 and shifting attention from whether Japan will intervene to whether intervention can still make a lasting difference. While markets expect officials to step up verbal warnings and potentially guide expectations for faster BoJ rate hikes ahead of the July 31 meeting, Japan faces a deeper dilemma. Wider global yield differentials, rising oil prices and growing strains in the domestic bond market mean policymakers have few cost-free options, leaving the Yen’s long-term outlook tilted to the downside despite the risk of sharp intervention-driven pullbacks. Read More.
Gold Defies Higher Oil and Yields. Is the Market Entering a New Regime?
Gold’s rally above $4,100 is challenging one of the market’s dominant themes of recent months. Despite Brent crude climbing above $92, US Treasury yields rising to 4.63% and markets pricing a 71% chance of a September Fed hike, both gold and silver continue to advance. The divergence suggests investors may be shifting from viewing higher oil primarily as an inflation and interest-rate story toward seeing it as a broader geopolitical and stagflation risk. While it is too early to declare a lasting regime change, the combination of improving technicals and an unusual macro backdrop makes the move one of the week’s most important developments. Read More.
UK CPI Slows to 2.6%, But Sticky Core Inflation Keeps BoE Cautious
UK inflation delivered a mixed signal in June. Headline CPI slowed from 2.8% to 2.6%, undershooting expectations of 2.7%, while monthly inflation matched forecasts at 0.1%. However, core CPI held steady at 2.6%, above the expected 2.5%, indicating underlying price pressures remain sticky. Although goods and services inflation both eased, the report is unlikely to alter the Bank of England’s policy outlook, supporting expectations that interest rates will remain unchanged for now. Read More.
Japan Exports Surge Most Since 2022 on Weak Yen, but Oil-Driven Imports Push Trade Back Into Deficit
Japan’s exports accelerated from 16.8% to 19.3% year-on-year in June, the strongest growth since November 2022 and above expectations, as semiconductor equipment shipments and Yen weakness lifted export values. However, volumes rose only 0.2%, while imports surged 25.4% on a 59.3% jump in petroleum imports, pushing the trade balance into a JPY 406.9B deficit. Read More.
EUR/USD Daily Outlook
Intraday bias in EUR/USD remains neutral as consolidations continues above 1.1323. With 1.1499 support turned resistance intact, further decline is expected. On the downside, break of 1.1323 will resume the fall from 1.2081 to 100% projection of 1.2081 to 1.1408 from 1.1848 at 1.1175. However, decisive break of 1.1499 will turn bias back to the upside for 1.1621 resistance.
In the bigger picture, focus is back on 38.2% retracement of 1.0176 to 1.2081 at 1.1353. Decisive break there will revive the case of medium term bearish trend reversal after rejection by 1.2 key cluster resistance level. Further fall should be seen to 61.8% retracement at 1.0904. Nevertheless, strong rebound from 1.1353, followed by break of 1.1621 resistance, will retain medium term bullishness.
