Hello everyone. As you know, we have seen a nice rebound in stocks and a drop in oil so far this week after Iran and the US agreed on a ceasefire. However, the latest reports suggest there were some violations of the ceasefire, and Trump also mentioned that the US military will remain positioned around Iran until a real agreement is reached.
Another important point is that despite news that the Strait of Hormuz has reopened, only a few ships have passed through so far, so it is still not clear if the situation is truly improving. This uncertainty could keep oil prices supported, even though we are currently seeing a temporary pullback. When looking at crude oil wave structure, after that very sharp selloff, we still expect the weakness to resume once the current A-B-C recovery completes. Prices are now approaching a very important psychological level around 100, from where we could see a new turn lower. A break out of the A-B-C channel would be another indication that bears are coming back, with energy potentially heading back toward 80.
This could be positive for stocks, and some may expect the USD to weaken, but the real driver for the dollar will be US CPI data tomorrow, as correlations can shift. If inflation comes in higher, stocks could come under pressure while the dollar strengthens. On the other hand, a lower CPI print than the 3.4 expectation could keep stocks sideways, while the dollar continues to consolidate.
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