📰 On 28 February 2026, the United States and Israel launched strikes on Iran under "Operation Epic Fury," assassinating Iran's Supreme Leader. Iran's response? Shut the door on one of the world's most critical oil corridors: the Strait of Hormuz. Nearly 20% of the world's daily oil passes through that narrow stretch of water. Closing it was the economic equivalent of cutting a major artery.
Since then, oil has spiked to $126 a barrel. Gold hit an all-time record of $5,626. Equity markets gyrated. The dollar surged. And the world held its breath.
Fast forward to today — and something interesting is happening. Optimism is creeping back in. President Trump said the US is in the "final stages" of negotiations with Iran. A peace proposal came through Pakistani mediators. There's talk of a possible deal by year-end.
📝 But here's the catch: Iran's Supreme Leader just ordered the country's enriched uranium stockpile to stay inside Iran — which is directly at odds with the US demand to dismantle the nuclear programme. And Iran is reportedly trying to formalise a toll system on Strait traffic, which Trump flatly rejected. So we have diplomacy on one hand, and deal-breakers on the other.
Prediction markets give only a 6% chance the Strait reopens by end of May. 74% odds a deal gets done by December 31.
The Strait is still functionally closed. The war is still on. And markets are threading a very fine needle. Let’s take a look at how our selected assets are reacting.
⚠️ Bank Holiday Note: Monday 25 May is Memorial Day in the US and a public holiday in the UK. This means major markets — New York and London — are closed. Expect thin volumes and choppy price action to start the week. Don't read too much into Monday moves. The real action begins Tuesday.
🛢️ OIL : WTI & BRENT
Here's the simplest way to understand oil right now: every price tick is a vote on whether a peace deal happens. When Trump says "we're close to a deal," oil falls. When Iran's Supreme Leader says the uranium stays in Iran, oil rises. The market is essentially running a live poll on diplomacy.
[Left] WTI (USOIL) & BRENT (UKOIL) [Right] H Chart
Where we are:
WTI (US oil benchmark): ~$96.60/barrel
Brent (global benchmark): ~$104.05/barrel
Both fell over 4–6% last week on peace deal optimism
Both are still up roughly 60% from a year ago
What it means:
The Hormuz crisis pushed Brent as high as $126 in March. It's now pulled back ~17% from that peak — not because more oil is flowing, but because markets hope it will.
The Strait is still closed. That geopolitical "floor" under prices is real. A deal collapse would likely push Brent back above $115 fast.
Iran is trying to negotiate a permanent toll system on Hormuz traffic. Trump said no. That standoff alone could keep a lid on any lasting price drop.
What to watch this week:
Any diplomatic statement from Iran or the US — oil will react immediately.
Thursday’s PCE data — if inflation is hot, it reinforces the case that energy is still the economy's pressure point.
The $100 level on Brent is the psychological line in the sand. A sustained break below it would signal the market genuinely believes a deal is imminent.
⚜️ GOLD (XAU/USD)
Gold is supposed to go up when the world is on fire. And yet it's sitting 14% below its January all-time high — even as an active conflict disrupts global energy markets. How does that happen?
Here's the story: War → Oil spike → Inflation surges → Fed raises interest rates → Gold falls.
XAUUSD (Gold) Daily Chart
Where we are:
Gold: ~$4,523/oz
All-time high (January 2026): $5,626
Down ~$1,100 from its peak, despite the war
What it means:
When interest rates rise, gold becomes less attractive (it pays no yield, so a high-rate environment penalises it)
Markets now price a 55% chance the Fed raises rates before year-end — driven by energy inflation
The same war that should boost gold is also triggering rate hike fears that are suppressing it
Think of gold as being pulled in two directions: geopolitical fear (bullish) vs rate hike risk (bearish). Right now, rates are winning.
What to watch this week:
Thursday PCE data is the biggest event for gold. A hotter-than-expected print = more rate hike fear = gold struggles.
A credible peace deal breakthrough would initially hurt gold (risk-on mood) but eventually help it if rate cut expectations return.
From a technical perspective, our bias remains bearish, with 4,350 still in focus as downside momentum continues to build.
📈 Nasdaq (NQ) | S&P 500 (ES) Futures
US stock markets have been remarkably composed for a world at war. The S&P 500 has risen for eight consecutive weeks — the longest streak since late 2023. The Dow hit an intraday all-time record on Friday. By most measures, Wall Street is acting as if the Iran crisis is a problem being solved, not a crisis getting worse.
[Left] Nasdaq Futures, S&P 500 Futures [Right] Weekly Chart
Where we are:
S&P 500 (ES): ~7,473 — 8 straight weeks higher
Nasdaq 100 (NQ): ~26,344 — 7 of last 8 weeks higher
Technicals:
Weekly structure remains bullish on both NQ and ES.
Price reacted sharply from a weekly FVG, showing strong buyer defence.
What it means:
The market's base case is that a peace deal happens. Stocks are pricing in de-escalation, lower oil, lower inflation, and no Fed rate hike.
Beneath the surface, the rotation tells an interesting story: value stocks (banks, energy, industrials) are beating growth stocks (tech, AI names). Nvidia was actually down nearly 2% on Friday. This is classic "late-cycle" behaviour — investors hedging their bets.
Here's the concern: VIX at 16.7 is dangerously complacent. If the Iran talks collapse, or if a major escalation occurs, the market has very little protection priced in. A 5–8% selloff on ES could happen fast.
What to watch this week:
GDP + Jobless Claims (Thursday) — Weak numbers = stagflation fears = bad for NQ
Any Iran headline can gap the market open — especially coming off a low-volume Monday
🇪🇺 EURUSD
The euro has been quietly losing ground to the dollar. Not dramatically, but consistently. And the reason sits at the intersection of geopolitics and central bank divergence.
[Left] EURUSD & DXY (Dollar Price Index)[Right] Daily Chart
Where we are:
EUR/USD: ~1.1605
Dollar Index (DXY): ~99.27
Dollar near 6-week highs
What it means:
When the world gets scary, money flows into the US dollar as a safe haven. That's been supporting the dollar throughout the Iran crisis.
But there's a second force: the European Central Bank (ECB) has been cutting rates more aggressively, while the US Fed is being pushed toward raising them. Higher rates in the US = stronger dollar = weaker euro.
The silver lining for Europe: since 2022, the EU has massively expanded its LNG terminals and renewable energy capacity. This means the Hormuz crisis hurts Europe less than it would have four years ago — which is why the euro hasn't collapsed.
Some smart money is already building short-dollar positions (bets that the dollar will fall) against the euro. The reasoning: if a peace deal comes through, the dollar's safe-haven premium evaporates.
What to watch this week:
PCE Thursday — hot inflation = stronger dollar = EUR/USD lower
Any Iran deal progress = dollar weakens = EUR/USD higher
The pair is in a tug-of-war. The 1.15–1.17 range is the current battlefield
🇯🇵 USD/JPY
If there's one currency that has the most to gain from a peace deal, it's the Japanese yen. And if talks collapse, the yen could be in serious trouble.
USDJPY H4 Chart
Where we are:
USD/JPY: ~159.10 (higher = weaker yen)
The "danger zone" that triggers Japanese government intervention: 160
What it means:
Japan imports almost all of its oil. Expensive oil = expensive imports = trade deficit = weak yen. The Hormuz crisis has been a slow bleed for Japan's currency.
At the same time, the US Fed is stuck on hold (or potentially hiking), while Japan's central bank (the Bank of Japan) has kept rates at just 0.5% — creating a massive gap that makes the yen unattractive to hold.
The Japanese government has already intervened in markets twice to support the yen (in late April and early May). They've signalled there's no limit to how many times they'll step in. That makes the 160 level a tripwire.
But there's a twist: Japan's GDP came in strong, and there's now serious speculation the Bank of Japan could raise rates in June. If that happens, the yen could snap back sharply — catching many traders off guard.
What to watch this week:
Any signal from Bank of Japan officials about June rates
If USD/JPY pushes above 160 — expect intervention
A peace deal breakthrough = oil falls = yen recovers = potential sharp move toward 155–156
🧩 Final Word
The Iran peace deal is the market's single biggest variable. Every asset — oil, gold, stocks, currencies — is pricing a version of the future where that deal either happens or it doesn't. Right now, markets are leaning toward optimism, but the optimism is fragile.
The week's data — GDP, jobless claims, and especially Friday's PCE inflation — will tell us whether the Fed has the breathing room to stay patient, or whether energy-driven inflation is forcing their hand. That answer will move gold, bonds, and the dollar in a big way.
📝 Remember: the Strait of Hormuz is still closed. An active war is still being fought. And markets open Tuesday into a world where a single diplomatic headline can change everything by breakfast. Don't confuse a calm surface with calm waters.
Stay Informed, Stay Patient, and as always…. Happy Trading!
— The UE Market Letter Team 👁️🗨️
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