Gold rallied sharply after Trump halted Iran strikes and signaled a deal, easing geopolitical tensions and reducing Fed rate hike expectations.
Market Reacts to Geopolitical De-escalation
Gold prices surged on Thursday after former President Donald Trump announced the suspension of planned military strikes on Iran and indicated an agreement in principle for a memorandum of understanding (MoU) to be finalized in the coming days. The de-escalation in Middle East tensions triggered a swift unwinding of safe-haven trades, with the US dollar and Treasury yields retreating as investors pivoted toward riskier assets.
While market optimism grew over the potential deal, skepticism lingered given Trump's history of making unsubstantiated claims. However, traders began scaling back aggressive positions, signaling a shift from fear-driven pricing to cautious optimism.
Fed Rate Outlook and Yield Dynamics
The geopolitical relief immediately dampened expectations for near-term Federal Reserve rate hikes. US Treasury yields fell across the curve, with the 10-year note dropping to 4.25%, while the dollar index slipped 0.8% intraday. Markets now price in a 60% probability of a July rate cut, down from 75% prior to the announcement.
If the Iran deal materializes, oil prices could decline further, potentially reverting to pre-conflict levels. This scenario poses a dual risk: a negative supply shock turning into a positive demand shock, which may reignite inflationary pressures and necessitate tighter monetary policy despite current dovish pricing.
Technical Analysis: XAUUSD Key Levels
Daily Timeframe: Gold retested a previously broken trendline near $1,930/oz, with sellers likely to defend this zone. A sustained break above could target the $1,985 level, while support remains at $1,890.
4-Hour Timeframe: A minor downward trendline continues to cap bullish momentum. Sellers maintain control above $1,920, with potential for fresh lows if the trendline holds. Buyers require a decisive break above to signal a trend reversal.
1-Hour Timeframe: An upward trendline near $1,905 may act as immediate support. A break below could accelerate downside momentum, while a bounce might open the door for a retest of the 4-hour trendline.
Upcoming Catalysts
Market focus shifts to the University of Michigan consumer sentiment survey due Friday, which could provide further clarity on inflation expectations and rate outlook. Traders will also monitor developments on the Iran deal and its impact on energy markets.
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