Morning Note: Geopolitical Risks Persist; Major Central Bank & Economic Data Week Ahead

Iran-Israel conflict remains

Tensions between Iran and Israel continue to escalate. The two nations continued to exchange rockets over the weekend. Let us remind our readers that Israel decided to strike Iran on the 12th of June, despite the ongoing talks between the US and Iran. Such a move now sets the countries apart, with any possible agreement being put on hold.

• Demand for perceived safe-havens increased, as geopolitical tensions continue to remain elevated. Gold is attracting investor interest, together with currencies such as the Swiss franc and the Japanese yen.
• WTI oil eased off from its recent highs and remains currently below the 75-dollar mark.
• The US dollar is not acting as a safe-haven, as it is more concerned about Fed actions this week.

For now, it is unclear if the Iran-Israel conflict will escalate into a full war, with the use of ground troops. Such a scenario could be out of the question, for now, as we wait for responses from Iran’s allies, such as Russia and China. But, given that the two countries are preoccupied with their own internal issues, like the Ukraine war for Russia and China’s strategic interest in Taiwan, there may not be much response from the two. On the other hand, losing Iran’s friendship would raise concerns of a possible instability in the political arena, meaning that Russia and China could become more vulnerable in relation to the West.

AUDJPY technical outlook

The technical picture of AUDJPY, which is considered to be a risk-on/risk-off monitor, shows that the pair is currently stuck, as it waits for the next big economic, or political, shock. The rate is oscillating around our 50 and 100-day EMAs, but remains above a broken downside resistance line, drawn from the highest point of 2024.

In order to get comfortable with higher areas, we prefer to wait for a push above the 200-day EMA and the 95.74 barrier, marked by the high of 18th of March. This way, AUDJPY would confirm a forthcoming higher high and could travel to its next potential resistance areas, at 97.32 and 99.16.

To shift our attention to the downside, a drop somewhere below the 92.00 territory might increase the bearish case scenario. The rate may then fall to the 89.68 obstacle, or even the 86.05 zone, which is near the lowest points of March 2023 and April 2025.

Important economic events this week

This week will be a busy one, as politics will remain the key subject and possibly an important driving force behind various asset classes. The G7 meeting in Canada officially kicked off on Sunday; however, some leaders will arrive on Monday and Tuesday. The event could be seen as a platform for many leaders to raise concerns over the ongoing issues, such as tensions in the Middle East and trade wars.

• On the economic data side, Japan is set to release its interest rate decision (03:00 GMT), where the Bank is scheduled to keep rates unchanged. Although the Japanese inflation remains relatively high to the Bank’s target, the BoJ will not go for hikes, as it might damage future exports, due to the yen strengthening.
• The Federal Reserve will be heavily watched, especially the press conference (18:30 GMT) of Jerome Powell after the rate decision (18:00 GMT). Investors will try to understand which path the Bank will take in relation to future cuts.
• On the same day, the UK (06:00 GMT) and the EU (09:00 GMT) will release their inflation figures for May. Both are forecasted to slide slightly.
• The Swiss National Bank is expected to drop its rate to zero on Thursday (07:30 GMT), as it continues to battle economic slowdown.

EURCHF technical outlook

Despite a recent rebound back up in the beginning of April, EURCHF remains on a downtrend overall, as it trades below a medium-term downside line, taken from the highest point of May 2024. That said, to shift our attention to some lower areas, a break of a key support area near the 0.9210 zone would be needed.

If, eventually, that break happens, this move would confirm a forthcoming lower low, possibly clearing the path towards levels last seen in 2015. We will for hurdles near the 0.9100 and 0.9000 levels.

For us to get positive with the near-term outlook, a break of the aforementioned downside line is needed. This move could change the direction of the current short-term trend, possibly opening the door towards higher areas. USDCHF could then travel to the 0.9576 obstacle, or even to the current highest point of 2025, at 0.9661. If that barrier fails, the pair could create a new high for this year, possibly travelling to the 0.9773 zone, marked by the highest point of July 2024.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.