Markets Tread Water Amid Middle East Tensions

Key Takeaways:

• The dollar index eases from the recent peak as profit-taking sentiment mounts.

• The market remains risk-averse as the Middle East conflict shows no sign of de-escalation.

Market Summary:

Most asset classes, including forex, commodities, and equities, traded relatively flat as market Most major asset classes—spanning forex, commodities, and equities—traded largely sideways as investors adopted a cautious stance amid deepening geopolitical turmoil in the Middle East. The Israel-Iran conflict, now in its eighth day with no tangible signs of de-escalation, has kept risk appetite subdued.

White House Decision Looms

Short-term clarity emerged after the White House signaled that President Trump will decide within two weeks whether to authorize military action against Iran. Markets are bracing for a potential U.S.-led intervention, which could escalate the regional conflict and ignite broader risk-off sentiment across global markets.

Dollar Pulls Back from Multi-Week Highs

The U.S. dollar extended its recent rally early in the session, breaching the 99.00 mark before slipping lower on profit-taking flows. While the greenback remains underpinned by safe-haven demand, its retreat eased pressure on competing assets, including gold.

Gold Fails to Shine Despite Rising Risks

Gold prices dipped to their lowest level this week, unable to capitalize on its traditional safe-haven status. The metals muted reaction has surprised markets, especially amid rising geopolitical volatility. However, should the crisis intensify or draw in Western allies, gold may swiftly regain momentum and trigger a sharp rally.

Market Outlook

Investors remain on edge, with attention squarely focused on geopolitical developments and potential shifts in U.S. foreign policy. A significant escalation could spark a flight to safety, benefiting gold and the Japanese yen. Conversely, signs of diplomatic resolution may restore risk appetite and lift equities and commodity currencies.

Technical Analysis

DXY, H4:

The U.S. dollar index (DXY) has decisively broken above its downtrend resistance level near 98.80, a key ceiling that had capped the index since early May. Prior to this breakout, the DXY had declined by over 4%, consolidating within a well-defined downtrend. However, the index has since shifted into an uptrend channel, and the recent breach of resistance suggests a potential bullish trend reversal.

Technical Indicators Support Upside Momentum

-RSI: The Relative Strength Index has surged toward overbought territory, reflecting strengthening bullish momentum.

-MACD: The Moving Average Convergence Divergence has crossed above the zero line, further confirming the shift in bias to the upside.

Implications:

The breakout, backed by bullish technical signals, suggests that the dollar could extend its gains in the near term. Traders will watch for a sustained hold above 98.80 to validate the reversal, with the next resistance levels likely near 99.50 (previous highs). However, overbought RSI conditions may prompt short-term consolidation before further upside.

Resistance level: 99.25, 100.60

Support level: 98.30, 97.31

Gold, H4

Gold prices fell below the critical 61.8% Fibonacci retracement level at 3368.20 in the last session, breaking the prior bullish structure and suggesting a shift toward bearish bias. The precious metal has declined over 2% this week, though it has yet to fully erase the previous weeks gains. A rebound remains possible if prices hold above $3346.50, a key support level that could reignite bullish interest.

Technical Indicators Show Weakening Momentum

-RSI: Dropped below the midline (50), signaling fading bullish momentum.

-MACD: On the verge of crossing below the zero line, indicating potential bearish momentum ahead.

While the breakdown suggests near-term downside risk, golds ability to defend $3346.50 will determine whether the sell-off deepens or stabilizes. A confirmed MACD cross below zero and sustained RSI weakness would reinforce bearish control. However, escalating geopolitical tensions (e.g., Middle East risks) could quickly revive safe-haven demand.

Resistance level: 3381.80, 3483.75

Support level: 3300.00, 3225.00