Global markets remain firmly locked in risk-off mode as investors grapple with a renewed escalation in the Iran conflict and the growing risk of prolonged disruptions to global energy supply. Asian equity markets traded broadly lower today, following a weak lead from Wall Street where DOW dragged major U.S. indexes down overnight. The deteriorating sentiment has triggered a renewed flight to safety in currency markets. Dollar is strengthening broadly, pushing to fresh highs against both Euro and Yen amid rising geopolitical uncertainty and inflation risks.
The latest catalyst came from Iran’s newly installed supreme leader, Mojtaba Khamenei, who issued his first major statement since succeeding his father. In a televised message, Khamenei declared that the Strait of Hormuz should remain closed and warned that Iran would continue attacks on Persian Gulf neighbors.
Such rhetoric has reinforced fears that the conflict could persist for longer than previously expected. The Strait of Hormuz remains one of the world’s most critical energy chokepoints, handling roughly a fifth of global oil shipments, and any prolonged disruption would have significant implications for global supply.
Oil markets have responded accordingly. Brent crude remains firmly above $100 per barrel mark. Although prices briefly eased toward $100 after the US issued a second waiver allowing certain Russian oil cargoes to move forward, the broader war premium remains deeply embedded in energy markets.
Meanwhile, inflation concerns are now feeding directly into interest rate expectations. Markets are rapidly scaling back bets that the Fed will be able to resume its easing cycle this year. The probability of a 25-basis-point rate cut in June has fallen sharply to around 20%, compared with roughly 50% just one month ago. More strikingly, the probability of even a single rate cut by the end of the year has slipped to around 55%. This suggests investors are increasingly uncertain whether the Fed will have sufficient room to ease policy at all in 2026 if energy prices remain elevated.
Against this backdrop, a trio of key market indicators should be closely monitored: DOW, U.S. 10-year Treasury yield, and oil prices. Together, these assets form a critical barometer of how markets are pricing the inflation shock triggered by the war.
- For equities, the immediate focus is on DOW’s weekly low of 46,615.52. A decisive break below this level would signal that sellers have regained control, opening the door for a deeper correction toward 45,000 psychological mark.
- Meanwhile, the bond market is also flashing warning signs. The 10-year Treasury yield has extended its climb and is now approaching the 4.3% level. A sustained move above that threshold would indicate that markets are increasingly worried that the energy shock could reignite persistent inflation pressures.
- Ultimately, both equities and bond yields remain heavily dependent on oil prices. Should WTI decisively break above the $100 level, it would likely reinforce inflation fears, push yields higher, and intensify the broader risk-off dynamic currently sweeping global markets.
In the currency markets, Aussie remains the strongest performer for the week so fa. However, the currency is beginning to show signs of vulnerability as risk aversion intensifies. The Dollar now sits firmly in second place and could soon take the lead if the defensive mood deepens further.
In Asia, at the time of writing, Nikkei is down -1.14%. Hong Kong HSI is down -0.46%. China Shanghai SSE is down -0.23%. Singapore Strait Times is down -0.06%. Japan 10-year JGB yield is up 0.051 at 2.240. Overnight, DOW fell -1.56%. S&P 500 fell -1.52%. NASDAQ fell -1.78%. 10-year yield rose 0.065 to 4.273.
GBP/CAD eyes major break below 1.80 ahead of UK GDP and Canada jobs
GBP/CAD is entering a decisive moment as markets prepare for two key economic releases today: UK January GDP and Canada’s February employment report. The data arrives just days before the BoC’s policy decision on March 18 and the BoC’s meeting on March 19, making the numbers particularly influential for near-term policy expectations.
Additionally, these events are unfolding against an unusually volatile global backdrop. The Iran war continues to drag on while oil prices have surged back toward the $100 level, as traders increasingly price the risk of prolonged supply disruptions. For central banks, this environment complicates the policy outlook by raising inflation risks even as growth remains fragile.
For the BoE, market expectations have already shifted dramatically over the past two weeks. Investors previously anticipated a 25bps rate cut from the current 3.75% policy rate. However, the energy shock and renewed inflation fears have pushed consensus toward a hold at next week’s meeting.
That shift places even greater emphasis on today’s UK GDP report. Expectations are already modest, with forecasts centered around a monthly gain of roughly 0.1% to 0.2%. A result in line with those estimates would likely provide relief for BoE policymakers by confirming that the economy is at least maintaining modest growth.
Such an outcome would allow the BoE to keep policy steady while waiting to see how the oil shock affects inflation dynamics. In that scenario, the central bank could delay easing until later in the year once the immediate energy volatility subsides.
However, a negative GDP print would represent a far more troubling outcome. Contraction even before the recent oil surge would strengthen the argument that the UK economy is drifting toward stagflation—an environment where growth weakens while inflation rises due to external energy shocks.
In such a situation, the BoE could find itself effectively paralyzed. Cutting rates to support growth would risk pushing Sterling lower, which would further raise the cost of energy imports and intensify inflation pressures.
On the other hand, the BoC faces a different but equally complex challenge. Markets widely expect the BoC to remain on hold at 2.25% for an extended period, but the oil shock adds a unique twist for Canada as a major energy exporter.
Higher oil prices tend to support Canada’s national income and strengthen the currency, even though they can simultaneously hurt household purchasing power through higher fuel costs. This dual effect makes interpreting economic data particularly important for policymakers.
Expectations for today’s employment report point to job gains of roughly 10,000 to 15,000, with the unemployment rate edging up from 6.5% to 6.6%. Stronger-than-expected employment would reinforce the case for the BoC to maintain its pause while allowing the oil-driven boost to support the economy.
Conversely, a sharp deterioration—particularly if unemployment climbs toward 6.7% or even 6.8%—could force policymakers to reconsider whether an additional “insurance” rate cut might be necessary to support the labor market.
In terms of immediate market reaction, the more volatile and relatively unpredictable Canadian employment report is likely to be the main volatile driver for GBP/CAD. Additionally, the directional bias leans slightly toward further downside in GBP/CAD. If Canadian data holds up, Loonie is well positioned to ride the wave of high oil prices.
Technically, GBP/CAD is approaching a critical inflection point. The pair is now testing the major psychological and structural support zone around 1.80, near the 1.7980 level 1.382% projection of 1.8912 to 1.8322 from 1.8816 at 1.8001.
The importance of this level is amplified by broader technical signals. GBP/CAD has already broken below its 55 W EMA and the lower boundary of a multi-year rising channel, while bearish divergence has appeared on the weekly MACD indicator.
A decisive break below 1.80 would suggest that the decline from 1.8912 is evolving into a deeper correction of the entire uptrend from 1.4069 (2022 low). Such a move would open the door to a slide toward 38.2% retracement of 1.4069 to 1.8912 at 1.7062 in the medium term.
However, if the pair manages to hold above the 1.80 region and stage a strong rebound, the current move could instead be interpreted as a near term sideway consolidation within the broader uptrend that has defined GBP/CAD since 2022.
New Zealand BNZ manufacturing holds firm at 55 in February
New Zealand’s manufacturing sector continued to expand in February, with BusinessNZ Performance of Manufacturing Index edging slightly lower from 55.1 to 55.0. While the headline reading dipped marginally, the index remains comfortably above the 50 breakeven level, signaling ongoing growth in the sector.
Underlying components showed mixed but generally positive trends. Production rose modestly from 56.5 to 56.7, while new orders strengthened from 56.6 to 57.6, indicating improving demand conditions. Employment, on the other hand, fell notably from 52.6 to 50.4.
Survey responses pointed to improving business sentiment, with the share of positive comments rising to 55.5% in February from 47.7% in January. Manufacturers reported stronger orders, enquiries, and sales, helped by firmer export demand and improving conditions across certain sectors.
BNZ Senior Economist Doug Steel noted that while geopolitical tensions in the Middle East are dominating market attention, February’s PMI reading provides a solid starting point for the manufacturing sector heading into an uncertain global environment.
EUR/USD Daily Outlook
Daily Pivots: (S1) 1.1488; (P) 1.1533; (R1) 1.1556; More….
EUR/USD’s fall from 1.2081 resumed by breaking 1.1506 temporary low and intraday bias is back on the downside. Deeper decline should be seen to 38.2% retracement of 1.0176 to 1.2081 at 1.1353 next. Overall, near term outlook will stay cautiously bearish as long as 1.1666 resistance holds, in case of another recovery.
In the bigger picture, a medium term top should be in place at 1.2081 on bearish divergence condition in D MACD. Sustained trading below 55 W EMA (now at 1.1500) should confirm rejection by 1.2 key cluster resistance level. That would also raise the chance that whole up trend from 0.9534 (2022 low) has completed as a three wave corrective bounce too. For now, medium term outlook is neutral at best as long as 1.2081 holds, even in case of rebound.
