Dollar drifts decrease as oil costs and bond yields slide on US-Iran hope

The start of the new week is seeing a more risk-on tilt in markets, as traders and investors are picking up on a more optimistic tone between US and Iran since the weekend. In particular, there was a New York Times report saying that Iran agreed to give up enriched uranium in an imminent deal to be announced by US president Trump.

That has since been played down, even by US secretary of state Rubio, with Tehran also suggesting that everything that is being lined up seems to be leaning towards a framework agreement instead. As a reminder, this framework agreement is one that is mainly to call for peace and some sort of reopening of the Strait of Hormuz. It is not one that will include a nuclear deal just yet, even if there might be some hints of what avenues that can be explored.

Still, the optimism surrounding the developments is enough to get markets moving. However, I’d like to caution that all of this is happening amid very thin liquidity conditions. UK and US markets are closed today and even in Europe, it is a major holiday in Germany and France even if the Euronext and Xetra bourses may still be open.

So, there is also some likelihood that lighter trading conditions are exacerbating the moves we’re seeing for the most part.

But for now at least, the direction is rather clear. Oil prices have dropped sharply with WTI crude sinking by over 5% to $91.10 while bond yields are also taking a dive today. 10-year yields in France are down near 11 bps to 3.73% while 10-year yields in Germany are down near 9 bps to 2.95%. Those levels are a far cry from the highs last week of 4.00% and 3.20% respectively.

In turn, we are seeing the dollar also slip across the board with a gap lower at the open today.

EUR/USD is up 0.3% to 1.1640 levels but hasn’t really done much outside of a 20-pip range following its opening gap higher:

The currency pair is hugging the 200-hour moving average (blue line) quite tightly, with some large option expiries also seen at 1.1635 today perhaps also acting as a bit of a pull factor. As such, buyers are yet to really reclaim a clear near-term bias just yet.

Besides that, USD/JPY is also down 0.2% today but that continues to just put it right below the 159.00 level. With Japan confirming a fresh round of debt to fund its extra budget, the yen will not find too much comfort so long as there continues to be a double hit to the economy and also its fiscal outlook in all of this.

The more notable movers today are GBP/USD and USD/CHF, with the pound and franc moving up to the highest levels since 14 May against the dollar. It is not too much but at least there is some traction to the moves with GBP/USD in particular breaking back above its 100-day moving average of 1.3473. The currency pair now trades up by 0.5% to 1.3490.

As for the more straightforward risk pair, AUD/USD is up 0.6% to 0.7167 on the day. But much like EUR/USD above, we’re only seeing buyers trying to shake off its own 200-hour moving average at 0.7163 currently. The currency pair does have some minor resistance around 0.7168-80 to deal with from last week.