The Morning Update

The USD advanced, oil prices firmed, and equity markets and US yields were mixed amid escalating Middle East tensions. The USD firmed in early trading as risk sentiment faded, with investors stepping to the sidelines following Iran's promise of payback, keeping global markets on edge. US futures rose, while other international markets were mixed on speculation that Iran's immediate response to the US bombing of its nuclear sites is unlikely to disrupt oil traffic from the Middle East significantly. Oil prices hold relatively steady as markets see no interruption to traffic through the Strait of Hormuz, a major artery for 20% of global crude. Iran's Foreign Minister Araghchi said the country reserved all options for a response, but there haven't been any signs of disruption of physical flows. If Iran were to close the Strait of Hormuz, "a stagflation scenario with lower growth and higher inflation due to elevated oil prices is the main market risk," Said Ulrich Urbahn, at Berenberg. "It would also curb central banks' abilities to support markets." Elsewhere, Bitcoin rallies over 2.5% to $101.5k, silver prices firmed, and gold prices remain flat. Today's focus will be on Iran updates., US S&P Manufacturing & Services PMI, Existing Home Sales, Feds, Bowman, Goolsbee, Kugler, and ECB President Lagarde speeches will help drive intraday direction to currency markets.

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In the news. Trump taunts Iran with prospect of 'regime change' after strike on nuclear sites. Stocks futures tick higher as oil wavers following the US bombing of Iran. Iran's parliament backs blocking the Strait of Hormuz; its closure will alienate Tehran further. The EU and Canada are preparing to sign a Security Pact ahead of the NATO summit. Iran issues warning to 'gambler' Trump; we will end this war. Airlines weigh Middle East cancellations after US strikes on Iran. The EU should use trade deals to send back migrants, says Belgian minister. Canadian ambassador says there's a 'good path forward' to a trade deal with the US.

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In currency markets. The fear of a spike in oil prices overpowers the safe-haven appeal for JPY, while the USD advances as investors brace for Iran's response to the US attacks. AUD & NZD slip to near three-week lows as oil prices remain insecure following the US airstrikes against Iran. CNY fell 0.4%, while Asian currencies weakened on average by 0.6% against the USD. Trading currencies come under selling pressure, with JPY & NOK tumbling 1.2%, AUD, NZD, & SEK weakening 1%, DKK falling 0.4%, ZAR, MXN & CHF down 0.3%, and KWD is flat against the USD.

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In commodity markets. Oil and silver prices firmed by 0.5%. Natural Gas prices strengthened by 0.8%. Gold and Soybean prices slipped by 0.1%. Copper prices weakened by 0.7%, and wheat prices eased by 0.3%.

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CAD comes under early selling pressure towards 1.3800 as the USD advances, as risk sentiment wanes following the air attacks by the US on Iran. Markets remain in a wait-and-see mode for Iran's response, but the potential of higher oil prices could provide an underlying support to the loonie. This week, the focus will be on the Canadian inflation report on Tuesday, with forecasts expecting CPI to hold at 1.7%. Intraday will focus on Iran's response to the US attacks and US PMI reports to help guide the loonie.

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EURCAD advances as investors favour the EU with its improving economic growth and steady inflation levels.

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EUR slips below 1.1500 amid waning risk sentiment and a strengthening USD. The euro eased in early trading, caused by a stronger USD and disappointing EU PMI results. The EU Composite and services PMI slipped to neutral 50, while Manufacturing PMI fell to bearish levels at 49.4%. French PMI Levels weakened below 50 into bearish territory, while German PMI levels marginally beat expectations. We expect the euro to remain on the back foot amid Middle  East uncertainty, and caution ahead of the US PMI reports and ECB Lagarde comments.

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GBPEUR holds steady as both currencies are sidelined amid a strengthening USD.

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GBP weakened in early trading as investors favoured the USD amid Iran's next steps. The pound slipped through 1.3400 as investors remained cautious ahead of a possible escalation in tensions if Iran retaliates against the US. Domestically, the UK PMI reports were all positive, which has helped support the pound. Intraday, we expect investors to remain cautious and continue to favour the USD amid ongoing Iran/US uncertainty. Intraday, US PMI & Fed speakers will help guide markets.

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