US-Iran Deal Sparks Oil Price Drop, Equity Rally as ECB Warns on Second-Round Effects

Market Reaction to US-Iran Agreement

Global markets opened the week on a bullish note as the US and Iran confirmed plans to sign a memorandum of understanding (MOU) by week-end, easing geopolitical tensions. Oil prices plunged, with WTI crude falling 5.5% to $80.22, while European indices surged, led by the DAX (+1.3%) and CAC 40 (+1.2%). S&P 500 and Nasdaq futures extended gains, up 1.3% and 2.1% respectively, buoyed by tech shares following SpaceX's successful IPO debut.

Currency Markets and Risk Sentiment

The US dollar weakened broadly as bond yields cooled, with the 10-year Treasury yield dropping 2.5 basis points to 4.46%. EUR/USD climbed 0.4% to 1.1600, and AUD/USD rose to 0.7070, reflecting improved risk appetite. However, USD/JPY held near 160.00 ahead of the Bank of Japan's policy meeting. Gold rallied 2.8% to $4,335, underscoring safe-haven demand amid lingering uncertainties.

ECB Signals Caution Despite Deal Optimism

European Central Bank President Christine Lagarde welcomed the US-Iran agreement but cautioned about potential second-round effects on inflation and growth. ECB policymaker Janis Nagel emphasized flexibility for July's meeting, while Robert Kazaks noted readiness to act if required. The eurozone's trade deficit widened in April due to higher energy imports, and German wholesale prices eased slightly in May amid energy tax adjustments.

Technical and Strategic Outlook

Traders will monitor the Strait of Hormuz for further de-escalation signals, with an Indian LNG tanker successfully crossing the waterway. The BOJ's policy decision and US inflation data later this week could sway risk sentiment. EUR/USD faces resistance near 1.1650, while USD/JPY traders await BOJ guidance. Gold's rally suggests sustained safe-haven flows despite equity gains.

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