Price action was hard-hitting on Monday. Energy markets were the epicentre, with WTI Oil breaching the psychologically meaningful US$100 mark - a 31% spike from the open - before reversing sharply to close near US$85, down nearly 7% on the day.
It was quite a move from top to bottom and demonstrates the influence a handful of headlines from US President Donald Trump have on the markets. He suggested that the war with Iran is 'very complete, pretty much' when speaking with CBS News on Monday.
Although markets have clearly moved on these words, I feel his comments were ambiguous at best - the conflict is either over or it is not. In my opinion, this is unlikely to be the end of the operation, and caution remains warranted.
Over in Stocks, major US benchmarks rebounded higher on Trump's comments, delivering textbook bullish engulfing candles across the board. Albeit down a little more than 1% at the opening bell, the S&P 500 added 56 points at the close (0.8%) at 6,795, chalking up a final-hour recovery that underscored the market's underlying bid.
Despite uncertainty remaining elevated - particularly regarding the duration of the war, and, of course, the situation regarding the Strait of Hormuz - the VIX pulled back from its 30.19 high to around 23.00.
Market breadth for the S&P 500 was broadly neutral, despite sector performance showing more winners than losers, with technology leading the way, up 1.8%, and financials and energy down around 0.5%, respectively.
In FX, the US dollar surrendered earlier upside, finishing the session off its best levels, down 0.1%; the pullback mirrored the broader de-escalation narrative. While an end to the conflict would certainly weigh on the USD and US Treasury yields, as I noted above, I feel this is far from over.
The CAD ended Monday modestly lower versus the buck, tracking the retreat seen in Oil. Meanwhile, the JPY gained modest ground, with the USD/JPY pencilling in a high of ¥158.90 - levels not seen since late January. As you would expect, procyclical currencies fared well yesterday, with both AUD and NZD ending the session higher against their G10 peers.
The economic data docket remains thin today, with US February CPI inflation eyed tomorrow. As a result, most of the market's attention will be on any updates from the White House. Further commentary on de-escalation will add to yesterday's risk-on environment, meaning an extension to bullish engulfing candles across US Stock market indexes and a continuation lower in USD.
Technically, this makes sense in both markets given bullish surroundings in Stocks right now and US Dollar Index fading clear-cut 'alternate' AB=CD resistance at 99.69 as shown in daily chart below. Traders often target 38.2% and 61.8% Fibonacci retracement ratios of legs A-D at 98.09 and 97.12 respectively.