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Gold began the week on the defensive while Dollar strengthened broadly across currency markets, as the Middle East conflict has entered its second week with no meaningful signs of de-escalation. The metal is now showing signs of fragility near 5,000 psychological level, which is significant due to positioning in the options market. A break below 5000 could trigger a "cascade" of sell-stops, rapidly accelerating the move towards 4,400.

Historically, geopolitical crises tend to support both Dollar and Gold simultaneously as investors seek protection from uncertainty. However, the specific characteristics of the current conflict are shifting the balance toward Dollar.

The fighting has effectively disrupted energy flows through the Strait of Hormuz, one of the world’s most critical oil shipping routes. The resulting energy shock has already pushed WTI crude oil above the 100 mark, creating a powerful inflationary impulse for the global economy. Supply disruptions of this scale typically lead to higher energy prices, which quickly filter through global production chains. Rising transportation costs, manufacturing inputs, and consumer prices can all contribute to renewed inflation pressure.

As energy costs rise, the narrative of imminent policy easing becomes less certain. Instead, investors are once again considering the possibility that interest rates may need to remain elevated for longer than previously expected. This shift is particularly supportive for Dollar.

Gold’s strong performance in the last two years was in part driven by declining real interest rates as central banks moved toward policy easing. When real yields fall, the opportunity cost of holding non-yielding assets like Gold declines, making the metal more attractive. That environment is now potentially reversing.

Technically, outlook is unchanged that current fall from 5,419.02 is seen as the third leg of the corrective pattern from 5,598.38 record high. Risk will stay on the downside as long as 5,205.99 minor resistance holds. Break of 4,496.03 temporary low will resume the decline to 4,844.91 support. Firm break there will solidify this case and target 4,403.34 support next.

In the bigger picture, Gold is seen as in consolidations to the whole up trend from 1,614.60 (2022 low). The pattern from 5,598.38 could extend to as low as 38.2% retracement of 1,614.60 to 5,598.38 at 4,076.57, or a bit lower to 4,000 psychological level, before bottoming.

China’s consumer inflation rebounded sharply in February, offering a fresh sign of improving domestic demand. Headline CPI rose from 0.2% yoy to 1.3%, well above expectations of 0.9% and marking the strongest increase in more than three years. On a monthly basis, prices climbed 1.0% mom, also beating economists’ forecasts for a 0.5% rise.

The surge in inflation was largely driven by seasonal factors. A nine-day Lunar New Year holiday boosted domestic travel and consumer spending, pushing service prices higher and lifting the overall CPI reading. Core CPI, which excludes volatile food and fuel prices, strengthened to 1.8% yoy from 0.8% in January, indicating broader price pressures beyond the holiday effect.

Upstream price pressures also showed signs of easing deflation. PPI improved from -1.4% year-on-year to -0.9%, the smallest decline since July 2024 and stronger than expectations of -1.1%. NBS statistician Dong Lijuan said the moderation in producer deflation reflected firmer prices in advanced and emerging industries, as well as capacity management in key industrial sectors.

Japan’s wage data delivered an encouraging signal for the BoJ at the start of the year. Real wages rose 1.4% yoy in January, rebounding from December’s -0.1% contraction and marking the first increase in 13 months. The improvement reflects a combination of stronger nominal pay and easing consumer price pressures, suggesting the prolonged squeeze on household purchasing power may finally be easing.

Nominal wage growth was robust. Total cash earnings rose 3.0% yoy, beating expectations of 2.5% and marking the fastest pace since July. Regular pay, or base salary, also climbed 3.0%, the strongest increase since October 1992. Overtime earnings rose 3.3%, the highest level in roughly three years, while special payments—largely one-off bonuses—advanced 3.8%.

The wage gains were sufficient to outpace the consumer inflation rate used by the labor ministry to calculate real wages, which slowed to 1.7% yoy in January. That was the weakest price increase since March 2022, helped by government fuel subsidies and fewer food price hikes.

Momentum in wage negotiations also remains strong. Japan’s largest labor union federation, Rengo, said last week that its member unions are seeking an average wage hike of 5.94% this year. That follows an average increase of 5.25% in 2025, the largest in 34 years, reinforcing expectations that wage growth could remain a central pillar supporting Japan’s domestic demand and the broader policy normalization narrative for the BoJ.

The war in Middle East is rapidly spiraling, showcasing how wars are easy to start, almost impossible to control and difficult to end. Even if it is not our main scenario, readers should prepare for a long war, and one where the broader MENA region and perhaps parts of Europe are to some extent affected as well.

We should expect supply bottlenecks and price increases for not just crude oil and natural gas, but also for fertilizers. The longer the problems last, the higher the risk of a more persistent inflation shock. But for Europe particularly, the negative growth impact would also be significant in that case.

Despite the recent rise in short-term market inflation expectations, we do not think major central banks will react by hiking rates. And they should not. This is a classic negative supply shock beyond central banks’ control, and longer inflation expectations remain anchored.

 As the conflict escalates, beware of propaganda

The non-apology: On Saturday, Iran’s President Masoud Pezeshkian apologized the country’s Gulf neighbours and promised they would not be targeted anymore for as long as the Gulf states themselves would not attack Iran. Whenever you hear something like this, a de-escalatory tone, regardless of which side presents it, take it with caution at this point.

This is warfare, and propaganda is a key part of it. 1) Pezeshkian, while a member of the provisional council, has never been the most influential decision-maker in Iran. 2) The comment was most likely posturing towards neighbours and the international community (= “we are not the bad guys”) more than anything else. 3) In fact, they broke the promise immediately and this morning Pezeshkian said the “enemy drew naïve conclusions from our remarks”.

So, attacks continue. The US / Israeli air raid has been very intense, reportedly the most intense US operation in recent decades. Iran, in turn, based on media reports has reduced the intensity of launching missiles. We do not know if this is to preserve stockpiles or the first signals that their stockpiles are being depleted. Remember, the side that is first starting to run out of stockpiles (Iran missiles vs. US interceptors), will be forced to change tactics. For Iran, it would mean greater reliance on drones (and they are very good at that). For the US (and allies), running out of interceptors would force them to a) prioritize which targets to protect and which to ignore or b) consider a boots-on-the-ground operation, or c) both.

Regarding “boots-on-the-ground”, Axios reported this morning that the US and Israel are considering sending a “special operation” group on the ground in Iran, but at a later stage in the conflict when Iran’s military would no longer pose a danger to the troops. Remember, without boots on the ground, it will be close to impossible to destroy Iran’s nuclear and missile programs completely. According to the same article, the US administration is also mulling seizure of Iran’s main oil exports terminal (responsible for 90% of exports), Kharg Island. (Resembles the Venezuela playbook.)

In a dangerous escalation, both sides now seem to be targeting water desalination plants. First, Iran claimed the US had attacked a desalination plant on Qeshm island on Saturday. Both the US and Israel denied it, and instead, the Israeli media reported that the UAE was behind it. The UAE officials also deny it. Today, Bahrain said an Iranian drone attack had caused material damage to one of their desalination plants.

These attacks mark a very serious escalation. Attacking critical civilian infrastructure could constitute a war crime. In the desert, desalination plants are vital for human life. We can take the example of Jubail plant that supplies Riyadh with more than 90% of its drinking water. As a Bloomberg analyst reported earlier in the week, the city would have to evacuate within a week if the plant was seriously damaged.

Key risks to supply chains – it’s not just oil and gas

Crude oil: According to the IEA, 20 mb/d, around 25% of world seaborne oil trade, transits the Strait of Hormuz – 80% destined for Asia. The pipeline capacity (alternative to SOH) is 3.5 to 5.5 mb/d. At least Kuwait, the UAE and Iraq have already started reducing oil production as the SOH is effectively closed. On Saudi Arabia’s largest refinery, Ras Tanura, operations have been suspended since Monday due to a drone hit. On Saturday, Saudi Arabia said they intercepted drones that were heading toward Shaybah oil field. Brent oil price topped USD 90 on Friday and will most likely continue higher on Monday when markets open.

Natural gas: About 93% of Qatar’s and 96% of the UAE’s LNG exports transit through the Strait, representing 19% of global LNG trade. For LNG, there is no alternative route to the SOH. Qatari LNG production has been halted for days due to repeated attacks on key sites. In Europe, gas inventories are already low and during the coming months, inventories will have to be refilled for the coming winter. As it is likely that inventories will now be filled at a higher price, the impact will still be felt next winter, even if we soon witness a de-escalation (which is looking increasingly unlikely).

Fertilizers: Thanks to the abundant gas reserves, the Persian Gulf is one of the most strategically important regions in global fertilizer supply. Approximately 25-35% of global nitrogen fertilizer exports origins from the region. Exports depend heavily on maritime routes i.e. the SOH, and only small amounts could be rerouted by land / rail. Farmers in the Northern Hemisphere particularly buy fertilizers in March-May before the planting season. Now, as prices spike, farmers could delay or reduce purchases with a negative impact on crop yields. Outcome in any case: higher food prices.

The Trump administration is saying they will ensure safe navigation in the SOH. But how exactly? The US was unable to stabilize situation in the Red Sea, and that’s when the enemy was the Yemeni Houthis, not Iran. The only way to return to normalcy in the Red Sea was for President Trump to sign a truce deal with the Houthis in May last year. Only then attacks stopped. And that truce has now collapsed, the Houthis are active again, and vessels are forced to take the longer route around the Cape of Good Hope as the Suez Canal route is not safe.

Central banks should not react to a textbook supply shock

As we write in our Reading the Markets EUR: Geopolitical inflation concerns, 6 March 2026, we do not think the ECB (nor other major central banks) should or would react to the war-induced increase in commodity prices. This is a textbook negative supply shock completely beyond central banks’ control. And despite the increase in short-term market inflation expectations, longer inflation expectations remain anchored.

In our new inflation projection, we see euro area inflation at 2.1% y/y in 2026 and 1.8% in 2027. We also assess a severe scenario with a prolonged surge in oil and gas prices, where 2026 inflation reaches 2.9% y/y and GDP growth slows to 0.6%, yet we still expect the ECB to keep the policy rate unchanged at 2.00%. The European fixed income market has come under significant pressure following the start of the war.

However, as we do not expect this to result in hikes from the ECB, we favour fading such pricing once significant volatility subsides. An apparent risk to our view is that the 2021-22 trauma from not reacting fast enough dominates and the ECB rushes to hike rates.

Contagion risk in MENA region – with spillover risks to Europe

Lastly, note that tensions are very high in the broader MENA region. Just see the map below where the key hotspots or ongoing conflicts are illustrated. Several European countries are already to some extent involved as well. The UK is allowing the US to use their bases. France has promised to join the US alliance in ensuring safe navigation in the SOH. Turkey and Greece are increasingly at odds in Cyprus. And Trump is threatening to cut trade ties to Spain – the only European country whose leadership has strongly criticized the US attack.

For Russia, the current situation is ambiguous. The longer the US remains tied up in Middle East, the less it will have attention and resources to support Ukraine. On the other hand, the US is now using Ukrainian drones to intercept the Iranian ones, so at least the military collaboration is now reciprocal, which should please Trump. In theory, Russia should benefit from the increase in global oil and gas prices. However, at least for now, Urals price gap to Brent remains unchanged. Lastly, Putin, will certainly take note that his list of friends is getting shorter and shorter: first Al-Assad, then Maduro, now Khamenei… It has become risky being close with Putin.

China will also be watching closely. Will the fact that the US is tied up in Middle East change their calculus regarding Taiwan? A huge provocation would be if the US followed Israel and went to recognize Somaliland’s independence on the other side of the Red Sea. Somaliland is a long-standing friend of Taiwan, which is why China aligns with motherland Somalia. For years, experts have feared that the first conflict between superpowers China and the US would be a proxy war in Africa.

The war in the Middle East escalated last week after U.S. and Israeli military strikes on Iran. Oil prices jumped above $90 per barrel, the highest level since September 2023. Higher oil prices worried investors because they could increase inflation and slow the global economy. As a result, both U.S. and Japanese stock markets fell as traders reduced risk.

In currency markets, USD/JPY rose to around 158 as the U.S. dollar strengthened. Traders expect higher oil prices to push inflation higher, which could make it harder for the Federal Reserve to cut interest rates soon. Gold moved higher briefly as investors looked for safety, but profit-taking quickly appeared and prices pulled back from recent highs.

Economic data also added pressure to markets. U.S. employment data came in weaker than expected, surprising investors and increasing concerns about the economy. At the same time, European inflation data was higher than expected and could rise further if oil prices stay high. This has increased expectations that the European Central Bank may raise interest rates at its next meeting.

Markets This Week

U.S. Stocks

The Dow Jones came under pressure throughout last week as rising oil prices increased concerns about higher costs for U.S. consumers and companies, which could delay future interest rate cuts. Weaker-than-expected employment data also added to worries about the strength of the U.S. economy. With the war continuing, the outlook remains uncertain and further short-term losses are possible. Although sentiment is very bearish, traders should be cautious about selling weakness after the recent decline. The market is already heavily negative, so patience may be better — waiting for a rebound toward resistance levels before looking for selling opportunities. Resistance levels are at 48,000, 48,500, 49,000, and 50,000. Support is seen at 47,000, 46,500, 46,000, 45,730, and 45,500.

Japanese Stocks

The Nikkei gave back much of its recent gains after the Takaichi election win as investors reacted to the war in Iran. Higher oil prices could hurt Japanese company profits and reduce consumer demand, which has weighed on the market. The Nikkei is still higher this year and the weaker yen has helped exporters, but the yen may not weaken much further due to the risk of currency intervention. The 53,500 level looks important this week. If it breaks, the market could fall quickly as investors take profits. Resistance is seen at 56,000, 57,000, and 58,000, while support is at 53,500円, 53,000円, and 52,000円.

USD/JPY

USD/JPY continued to rise last week, testing the important 158 level several times. This has increased concern among Japanese officials. Finance Minister Satsuki Katayama said authorities are watching the yen closely and are ready to intervene if the currency continues to weaken. Further gains may be difficult because the risk of intervention is rising. However, the overall trend is still upward, so traders may prefer to sell on weakness rather than fight the current trend. Resistance is at 158, 159, and 160, while support is seen at 156.50, 155.50, 155, and 154.

Gold

Gold fell early in the week after failing to break above record highs despite rising tensions in the Middle East. However, the market held strong support at $5,000 and later closed higher, suggesting underlying demand remains strong. As long as gold stays above $5,000, traders may prefer to focus on buying opportunities, especially with geopolitical risks remaining high. Resistance is at $5,250, $5,400, $5,418, $5,500, and $5,600, while support is at $5,000, $4,900, and $4,850.

Crude Oil

After gapping higher at the start of the week, crude oil initially moved lower. However, once it became clear the war was unlikely to end quickly, buyers returned aggressively. Prices surged later in the week, with crude oil rising above $90 on Friday. As the conflict escalated, fears of global supply disruptions increased, which could lead to further buying this week. Volatility is likely to remain very high, creating many short-term trading opportunities. Traders may find better opportunities trading against panic moves rather than trying to predict the direction. Resistance is at $90, $95, $100, $105, and $110, while support is at $80, $75, $70, and $67.5.

Bitcoin

Bitcoin tested higher early in the week as many traders remain long-term believers in the asset. However, worsening risk sentiment later in the week as the Iran war continued caused resistance to hold, and prices closed the week close to unchanged. The market has become range-bound, with the 10-day moving average still pointing lower. Risks remain to the downside if the conflict continues and investors reduce risk positions. Resistance is at $75,000, $80,000, and $85,000, while support is at $65,000, $60,000, and $55,000.

This Week’s Focus

• Monday: Japan Current Account, China PPI and CPI
• Tuesday: Japan GDP, U.S. Existing Home Sales
• Wednesday: China Trade Balance, German CPI, U.S. CPI
• Thursday: U.S Trade Balance, Housing Starts and Building Permits
• Friday: U.K. GDP, Industrial Production and Trade Balance, U.S. GDP, Core PCE Price Index, Durable Goods and Michigan Consumer Sentiment

The worsening war in Iran will be the main focus for markets this week, as investors worry that higher oil prices could increase inflation and reduce risk appetite for equities. USD/JPY has also continued to rise, increasing the risk of possible currency intervention from the Bank of Japan and potentially pressure from U.S. authorities. Several major economic releases could add to volatility this week, including U.S. CPI on Wednesday and U.S. GDP, inflation, and industrial production data on Friday.

Gold: ⬆️ Buy

• Gold reversed from pivotal support level 5100,00
• Gold to rise to resistance level 5425.00

Gold recently reversed from the support zone between the pivotal support level 5100,00 (former top of wave A from February) and the 38.2% Fibonacci correction of the upward wave (B) from the start of February.

The upward reversal from the support level 5100,00 is likely to form the daily Bullish Engulfing candlesticks reversal pattern today.

Given the clear daily uptrend, Gold can be expected to rise to the next resistance level 5425.00 (which stopped the previous wave (B)).

USDCAD: ⬇️ Sell

• USDCAD reversed from resistance zone
• Likely to fall to support level 1.3500

USDCAD currency pair recently reversed down from the resistance zone between the resistance level 1.3725 (top of the previous impulse wave (1)), resistance trendline of the daily down channel from November and the 50% Fibonacci correction of the upward impulse from July.

The downward reversal from this resistance zone started the active short-term corrective wave 2.

Given the strong daily downtrend, USDCAD currency pair can be expected to fall further to the next support level 1.3500 (which stopped earlier waves C and (2)).

Ethereum: ⬇️ Sell

• Ethereum reversed from resistance level 2120,00
• Likely to fall to support level 1855.00

Ethereum cryptocurrency recently reversed down from the resistance zone between the resistance level 2120,00 (former strong support from June) and the upper daily Bollinger Band.

The resistance level 2120,00 is also the upper border of the sideways price range inside which the price has been trading from February.

Given the overriding daily downtrend, Ethereum cryptocurrency can be expected to fall to the next support level 1855.00 (lower border of the active sideways price range).

Global markets closed the week under the growing shadow of a rapidly escalating energy crisis. What began as a geopolitical confrontation in the Middle East has now evolved into a far broader macro shock, forcing investors to reassess everything from inflation risks and monetary policy to equity valuations and currency dynamics.

At the center of this shift is oil. The effective disruption of energy flows through the Strait of Hormuz has pushed crude prices sharply higher and injected a powerful new inflationary impulse into the global economy. Markets are increasingly grappling with the possibility that the conflict could evolve into a prolonged disruption to energy supply rather than a short-lived geopolitical flare-up.

The surge in oil prices is already reverberating through financial markets. Industrial equities have been among the hardest hit, with DOW leading the selloff as investors reassess the outlook for companies sensitive to fuel costs and global trade flows.

In the bond market, the picture is more complex. On one hand, rising oil prices threaten to reignite inflation pressures. On the other, surprisingly weak US labor market data has introduced doubts about the underlying strength of economic activity. The result is a Treasury market caught between inflation risk and growth uncertainty.

Dollar has benefited from this environment of heightened caution. As risk aversion intensifies and yields remain relatively stable, Dollar Index could soon be testing a key resistance levels that could determine whether a broader trend reversal is underway.

At the same time, the global energy divide is clearly visible in foreign exchange markets. Energy exporters such as Canada are gaining ground, while energy-importing regions like the Eurozone face growing pressure from rising fuel costs. The sharp decline in EUR/CAD has therefore emerged as one of the clearest market expressions of the widening economic divergence triggered by the oil shock.

Availability Crisis: Oil Markets Enter a New Regime

WTI crude oil closed the week above the USD 90 per barrel mark, capping a stunning 35% surge that marks the largest weekly gain since oil futures trading began in 1983. The speed and scale of the move highlights a dramatic shift in how the market is interpreting the current U.S.–Iran conflict. This is no longer simply a question of tight supply or demand recovery. Instead, traders are grappling with a much more unsettling reality: the availability of oil itself is now in doubt.

The effective shutdown of the Strait of Hormuz has transformed the geopolitical backdrop into a direct threat to the global energy system. Roughly one-fifth of the world’s oil consumption normally passes through the narrow waterway, and tanker traffic has largely halted since hostilities erupted. With ships unwilling to risk transiting the region amid the threat of missile and drone strikes, markets are being forced to price in a significant disruption to physical supply.

The latest leg higher in crude prices was triggered by comments from Qatar Energy Minister Saad al-Kaabi, who warned that Gulf exporters could soon declare force majeure. Such a move would legally release producers from their contractual delivery obligations. In practical terms, that would signal that the world is no longer facing a logistical bottleneck, but the potential evaporation of Middle Eastern supply.

Further fuel was added by rhetoric from Washington. U.S. President Donald Trump stated that the conflict with Iran would not end without an “unconditional surrender,” reinforcing expectations that the confrontation could become a prolonged campaign rather than a short-lived operation. Markets have interpreted such language as a signal that disruptions in the Gulf may persist for weeks or even months.

The administration attempted to calm nerves by announcing a USD 20 billion reinsurance program for oil tankers and maritime shipping. The initiative aims to encourage vessels to resume transit through the Strait of Hormuz by protecting owners from financial losses if ships are damaged or destroyed. Yet the market response was muted.

The reason is straightforward: insurance addresses financial risk, not physical danger. Shipowners may be compensated if a vessel is lost, but the threat of direct military strikes still makes transiting the Strait an unattractive proposition. As traders put it, you can insure a ship, but you cannot insure global energy supply.

Traders remain skeptical that insurance alone will persuade operators to “run the gauntlet” through one of the most volatile conflict zones in the world. Until the physical security of the waterway improves, supply disruptions are likely to persist.

Against this backdrop, technical analysis offers only limited guidance. The magnitude of the geopolitical shock has overwhelmed traditional models, making price patterns less reliable than usual. Nevertheless, the recent rally has triggered a number of notable technical developments.

WTI’s break above the key 78.87 resistance level suggests that the market may be reversing the broader downtrend that began after the 2022 peak at 131.82. Momentum indicators now point toward further upside as long as this former resistance holds as support.

The next major technical zone lies between 95.50 structural resistance and 61.8% retracement of 131.82 to 54.98 at 102.46 . This area could act as a temporary brake on the rally as traders reassess the sustainability of the move.

However, decisive break above 102.46 would open the door for a much more aggressive advance, potentially placing the 2022 high at 131.82 back within reach.

Rising Oil Prices Hammer DOW’s Industrial Core

While all major US equity indices ended the week lower, the Dow Jones Industrial Average bore the brunt of the selloff. The index dropped -3.01%, significantly underperforming broader benchmarks. The weakness highlights how the ongoing energy shock is affecting different parts of the market unevenly, with industrial and manufacturing-heavy sectors feeling the greatest strain.

Unlike technology-dominated indices such as Nasdaq, DOW is packed with companies whose profitability is tightly linked to fuel costs, global logistics, and capital spending cycles. Firms such as Caterpillar and Boeing sit directly at the intersection of rising energy prices and slowing global trade flows. When oil surges and geopolitical tensions disrupt supply chains, these businesses quickly come under pressure.

The effective closure of the Strait of Hormuz has therefore struck at the heart of DOW’s composition. Higher oil prices raise operating costs across transportation, manufacturing, and construction industries. At the same time, uncertainty around global trade discourages investment and capital spending—two key drivers of demand for many of the Dow’s largest constituents.

From a market psychology perspective, the selloff reflects more than just rising energy costs. Investors are beginning to contemplate the possibility that the Middle East conflict could evolve into a prolonged disruption to global supply chains. For industrial companies dependent on stable trade flows, such a scenario represents a meaningful deterioration in the macro outlook.

Technically, DOW's strong break of the medium term rising channel floor should have confirmed medium term topping at 50512.79, on bearish divergence condition in D MACD. Current decline is seen as correcting the whole up trend from 36,611.78 (2025 low). Risk will stay on the downside as long as 55 D EMA (now at 48,799.58) holds. Next target is 38.2% retracement of 36,611.78 to 50,512.79 at 45,202.60.

As seen in the weekly chart, that level coincides with 45,071.29 key resistance turned support (2024 high). This 45,000 region could become a major battleground for investors in the coming weeks. Strong support should emerge there to contain downside to bring rebound, at least on first attempt.

However, decisive break through 45,000 psychological level will argue that DOW is indeed reversing whole up trend from 36,611.78 rather than correcting it. That would open up further medium term fall towards long term channel floor (now at around 40,000.

Psychologically, 45,000 is massive. If the DOW breaks this, it signals that investors have moved from "this is a correction" to "we are entering a recessionary bear market."

10-Year Yield Rebounds but Jobs Shock Caps the Surge

US Treasury yields staged a notable rebound last week as markets reacted to the inflationary implications of the ongoing energy shock. The benchmark 10-year yield climbed as high as 4.187 before easing to close at 4.133.

Normally, such a dramatic rise in crude prices would have pushed yields even higher. Energy shocks tend to lift inflation expectations, forcing bond markets to price in tighter monetary policy. However, the upside move in yields was capped by a surprisingly weak US labor market report.

February’s non-farm payroll data showed a shocking contraction of -92k jobs, a result that sharply contrasted with expectations for moderate job growth. The report signaled that the US labor market may be losing momentum, providing an important counterweight to the inflation risks posed by the oil surge.

This development prevented the bond market from facing a full “double shock” scenario. Without the weak payroll print, investors might have been forced to simultaneously price in higher inflation and a stronger economy—an outcome that could have sent yields surging sharply higher. Instead, the jobs data introduced a degree of caution into rate expectations.

As a result, expectations for Fed policy have shifted modestly. The possibility of a rate cut by the end of the first half of the year has returned to the discussion, although such an outcome will ultimately depend on how persistent the oil-driven inflation pressures prove to be.

Technically, the medium-term outlook for the 10-year yield has shifted from mildly bearish to neutral. The yield remains trapped within the converging triangle pattern that has been developing since mid-last year, suggesting that range trading between roughly 3.956 and 4.311 may continue until a clearer macro catalyst emerges.

Rising Risk Aversion and Steady Yields Could Trigger Dollar Index Bullish Turn

Dollar Index staged a notable rebound last week as global markets turned increasingly defensive. The combination of risk aversion and stabilizing yields has created conditions for a potential bullish reversal in Dollar Index’s medium term trend. Additionally, Dollar Index is drawing support from the multi-decade channel floor, which could provide a base for a bull run.

Technically, the key lies in a critical resistance cluster that could determine the next medium-term move. This zone includes the 55 W EMA near 99.59, structural resistance around 100.39, and the 38.2% retracement of 110.17 to 95.55 at 101.13.

Decisive break through the 100–101 resistance region would provide strong confirmation that Dollar Index is entering a new bullish phase. Such a move would open the door for rally toward 61.8% retracement at 104.58.

Beyond that, Dollar could potentially extend its advance toward the upper boundary of its long-term descending channel, which currently lies near 108 region on the weekly chart.

For now, however, the bullish case remains conditional. Dollar must first break convincingly through the heavy resistance zone of 100-101 before a sustained uptrend can take hold.

Energy Exporter vs Importer Trade Hits EUR/CAD

Among the major currency moves of the week, EUR/CAD stood out as the clearest reflection of the global energy shock. The cross dropped around -2.25%, making it the Top Mover as markets rapidly repriced the divergent impact of surging oil prices on the Canadian and Eurozone economies.

The logic behind the move is straightforward. Canada is one of the world’s major energy exporters, and higher oil prices typically strengthen the Canadian Dollar as export revenues rise and the country’s terms of trade improve. In times of energy shocks, investors often treat the Loonie as a liquid proxy for oil itself.

The current geopolitical crisis has amplified this relationship. As WTI crude surged toward and beyond USD 90 per barrel, the value of Canada’s stable energy exports increased in relative terms. For global investors searching for exposure to energy-producing economies without the political risks of the Middle East, Canada stands out as a reliable alternative.

By contrast, the Eurozone sits on the opposite side of the energy equation. The region remains heavily dependent on imported energy, making it particularly vulnerable to sudden increases in oil and gas prices. When crude prices surge, the impact on Europe is similar to a broad-based tax on consumers and industrial producers.

Higher energy costs raise input prices for manufacturers, squeeze household spending power, and complicate the policy outlook for the ECB. In such an environment, investors begin to price in the risk that Europe could face a renewed bout of stagflation—slowing growth combined with persistent inflation.

The equity market reaction in Europe reinforced this narrative. Germany’s DAX, home to many of the continent’s largest industrial exporters, was among the worst-performing indices as investors assessed the potential impact of sustained energy disruptions on Europe’s industrial base.

This widening divergence between energy exporters and energy importers is now clearly visible in the EUR/CAD exchange rate. As oil prices climbed and risk aversion intensified, capital flowed toward Canadian Dollar while Euro struggled to find support.

Technically, after last week's steep decline, the immediate focus for EUR/CAD is now on 38.2% retracement of 1.4483 to 1.6465 at 1.5708. Some support could be found there to bring a near term recovery. Though, risk will stay on the downside as long as 1.6063 support turned resistance holds.

However, decisive break of 1.5708 will raise the chance that EUR/CAD is indeed correcting a larger scale up trend from 1.2867 (2022 low). That would happen if the Middle East conflicts prolong further, with WTI oil sustains at elevated levels above 100.

In this bearish scenario, that would setup EUR/CAD for a medium term decline to 1.5111 cluster support, with 38.2% retracement of 1.2867 to 1.6465 at 1.5091.

EUR/CHF Weekly Outlook

EUR/CHF's down trend resumed by late break of 0.9092 support last week. Initial bias is back on the downside. Next target is 61.8% projection of 0.9347 to 0.9092 from 0.9149 at 0.8991. For now, near term outlook will stay bearish as long as 0.9149 resistance holds, in case of recovery.

In the bigger picture, down trend from 0.9928 (2024 high) is still in progress. Next target is 61.8% projection of 1.1149 to 0.9407 from 0.9928 at 0.8851. Outlook will stay bearish as long as 0.9394 resistance holds, in case of rebound.

In the long term picture, EUR/CHF is also holding well inside long term falling trend channel. Down trend from 1.2004 (2018 high) is still in progress. Outlook will continue to stay bearish as long as falling 55 M EMA (now at 0.9739) holds.