Dollar Eases, Oil Cools, Gold Rebounds as Diplomatic Hopes Return – Comments from Century Financial

On the data front, the ISM Services PMI eased to 53.6 in April from 54.0 previously, indicating slower but still-expanding activity in the services sector. Signals of softening activity, more widespread price pressures, and lingering employment weakness add to evidence of two-sided risks to the Fed’s objectives. That reinforces the view that policymakers will remain on hold in the near term, despite persistent inflation pressures driven by elevated energy prices. Markets will now watch out for today’s ADP employment data and Friday’s key Nonfarm Payrolls report for further direction. Any sign of labour market deterioration could weigh on the U.S. Dollar against its rivals.

The USD/JPY currency spiked to 157.94, its highest level since Thursday’s reported intervention, before falling back 1% to 156.29. Meanwhile, EUR/USD is holding firm near 1.173 as easing geopolitical risks and softer dollar sentiment provide support to the euro.

President Trump also halted the Operation Freedom that was launched on Monday to reduce the probability of further hostilities between the US and Iran. This is likely done to give both parties breathing room to work out a potential deal. However, the blockade on Iranian oil exports remains, and ship traffic through the Strait is still constrained. This indicates there is no meaningful change in the ongoing supply disruption, and oil prices are lower, mostly on positive sentiment around possible de-escalation. Even if there are some de-escalation headlines, the supply recovery is inherently delayed. In the US, API data showed crude inventories fell 8.1 million barrels last week, which would be the biggest draw since mid-February if confirmed by official EIA data due later today.

Technically, WTI faces $104-$106 as initial resistance on the upside. A break higher from here could lead to a test of the $110 level. On the other hand, support appears likely at the $98-$100 level (including the 20-day EMA). This zone is important because it is in close proximity to both the 38.2% and 50% Fib retracement levels, drawn from the close of 17th April to 29th April. A break lower from here could open the door to $95.

The metals have staged a price recovery amid easing Middle East tensions, with President Trump announcing a temporary pause on Project Freedom, a plan to provide a safe passage for vessels through the Strait of Hormuz to allow for some time for a diplomatic breakthrough with Iran. Oil prices have fallen about 2% today, easing concerns about rising inflation and higher-for-longer interest rates. Additionally, tailwinds for prices were added by the drop in the odds of a 25-bps rate hike by the end of the year, from 28.9% to 20.6% within a day, as per the CME FedWatch Tool, benefiting non-yielding metals.

Technically, gold prices have broken out above a downward-sloping trendline formed by connecting the highs of 17th April, 21st April, 24th April, and 1st May, along with the 100-EMA line on the daily and 4-hour charts. Additionally, prices were supported by bullish RSI divergence on the 4-hour charts and have broken above the recent $4660 highs from 1st May. On the upside, potential resistance could come near the $4712 level from the 200-EMA on the 4-hour chart. Meanwhile, silver prices are currently near the 200-EMA on the 4-hour chart, and a break above the $76.08 level could see a test of the 50-day EMA around the $76.55 level in the short term.