07/05/2026 Daily Reports
FX Daily – Markets Testing the “This Is It” Trade
- Risk-on momentum accelerated as optimism around a potential US–Iran agreement increased. Markets are increasingly pricing in a reopening of the Strait of Hormuz and a broader de-escalation scenario.
- The US dollar weakened sharply as investors rotated into equities and emerging market currencies. However, volatility remains extremely high and markets still need a finalized agreement before fully committing to a sustained USD selloff.
- Oil prices remain above $100/bbl and continue to trade with extreme sensitivity to geopolitical headlines. Any delay or collapse in negotiations could quickly reverse current market optimism.
- Equity markets are becoming the dominant driver for FX. For major pairs like EUR/USD, stock market performance is currently having a stronger influence than oil prices.
- DXY may revisit pre-war levels below 97.50 if negotiations progress further and global equities continue rallying.
- EUR/USD is approaching a major psychological zone near 1.1800. A confirmed US–Iran deal could trigger a breakout above this level in the coming days.
- ECB expectations are shifting. Markets are reducing aggressive rate hike pricing as a possible peace agreement may give the ECB more flexibility in assessing inflation risks from energy prices.
- GBP faces political risks today as the UK heads into local elections. Markets are closely watching Prime Minister Keir Starmer’s position and the performance of opposition parties.
- Sterling and UK bonds currently show little political risk premium, leaving room for larger downside moves if election results create uncertainty around fiscal policy.
- EUR/GBP continues to look constructive, with markets increasingly favoring the euro over sterling amid UK political uncertainty.
What’s Next?
- This feels like one of those rare macro moments where markets are trying to price the end of a geopolitical shock before the actual resolution is confirmed. The rally in risk assets is powerful, but it is also fragile. If diplomacy succeeds, we could see a major extension in the dollar decline and a strong move higher in global equities. But if negotiations stall, the reversal could be just as violent. Right now, markets are trading hope — not certainty
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Global Stocks Surge to Record Highs as Iran Peace Hopes Trigger Oil Collapse
- The Nasdaq Composite surged 2.0% to a record high of 25,838.94, joining the S&P 500 and Dow Jones in setting all-time highs. Investor sentiment was heavily boosted by reports of a potential United States-Iran peace agreement and stronger-than-expected corporate earnings. In other news, Microsoft is reportedly reconsidering its 2030 green energy targets due to the massive electricity demands required to power its expanding artificial intelligence data centers.
- German equities found solid support today following the release of highly positive domestic economic data. Official figures showed Germany’s real new manufacturing orders jumped 5.0% in March, far exceeding the market forecast of a 1.0% increase. This data signals a robust recovery in industrial demand. The strong manufacturing numbers, combined with a sharp overnight plunge in global crude oil prices, provided substantial immediate relief to the region’s energy-intensive industrial sectors.
- Japan’s Nikkei 225 index posted a historic performance as trading resumed following the extended Golden Week holiday. The benchmark recorded its largest single-day gain ever, surging 5.57% to close at an all-time high of 62,833.84. The massive rally was directly fueled by Wall Street’s overnight advances and the sudden collapse in global energy prices. Hopes for an imminent diplomatic resolution in the Middle East significantly alleviated severe energy supply fears for the import-dependent nation.
- Brent crude oil futures plummeted overnight, dropping 7.8% to settle at $101.27 per barrel after briefly falling below $97. The steep price decline was triggered by optimism regarding a potential diplomatic deal between the United States and Iran. Authorities stated the vital Strait of Hormuz could be completely reopened to commercial maritime shipping if Iran accepts a newly proposed framework agreement, heavily reducing the severe geopolitical risk premium in the global energy market.
