Markets Today: Oil surges 6% as sentiment sours, Nikkei rises. US-Iran developments in focus

• Geopolitical tensions between the US and Iran escalated over the weekend, causing market sentiment to dive
• The US dollar reclaimed its footing, hitting a one-week high as the optimistic "peace deal" narrative crumbled
• The immediate market direction hinges on diplomatic efforts ahead of Tuesday’s ceasefire deadline
• The overall outlook anticipates the DXY to maintain a defensive posture

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Market sentiment took a dive this morning after weekend tensions between Iran and the US reared its head once more.

The ceasefire remains fragile and will be tested at the start of the week after the US seized an Iranian cargo ship and traffic through the Strait of Hormuz remained largely halted. President Donald Trump struck a cautiously optimistic tone, suggesting that Iran has committed to keeping the Strait of Hormuz open.

Despite the "completely open" announcement made on Friday, market sentiment was quickly dampened by reports of the Islamic Revolutionary Guard Corps (IRGC) targeting tankers within 24 hours of the statement. This immediate escalation serves as a grim reminder that while political agreements provide a temporary reprieve, the operational risks in the region remain elevated.

The impact from these developments saw oil prices rise more than 6% in early Monday trade. GOld on the other hand opened around $40 down from its Friday close before dropping to a daily low around the 4737 mark. The precious metal ground its way back toward the $4800/oz mark which seems to be the immediate hurdle to cross and gain acceptance above for a move higher.

All in all risk assets are lower, one of the few exceptions being Japan's Nikkei share average which rose on the day. The benchmark Nikkei 225 Index rose 0.60% to close at 58,824.89 compared with its record intraday level of 59,688.10 touched on Thursday. The broader Topix climbed 0.43% to 3,777.02.

The US dollar reclaimed its footing on Monday, hitting a one-week high against a basket of major peers as the optimistic "peace deal" narrative began to crumble.

The catalyst for the greenback's resurgence stems from Tehran’s refusal to participate in a second round of negotiations, casting significant doubt on the longevity of the two-week ceasefire set to expire this Tuesday.

The shift in sentiment was felt across the G10 space, with high-beta and risk-sensitive currencies bearing the brunt of the move:

Euro (EUR/USD): The single currency slipped 0.05% to $1.1754, having earlier touched a weekly low of $1.1729.

Sterling (GBP/USD): Cable followed suit, trading 0.15% lower at $1.3497 as the broader "risk-off" mood took hold.

Aussie (AUD/USD): The most sensitive to shifts in global stability, the Australian dollar dropped 0.3% to $0.7145.

Currency Power Balance

European equities began the week on a negative note, with the STOXX 50 down 1.3% and the STOXX 600 falling 0.9%.

Travel and leisure stocks fell sharply, with Ryanair tumbling 3.5% while energy outperformed, including Shell (2.5%).

US stock index futures inched lower while the CBOE Volatility Index .VIX, known as Wall Street's "fear gauge", gained after falling for the last eight sessions and was last up 2.25 points at 19.73, a one-week high.

Read More:

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• A real peace process or a fantasy? – Markets Weekly Outlook
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The immediate market direction hinges on whether the diplomatic efforts in Pakistan yield a breakthrough or if the "tough talk" escalates ahead of tomorrow’s ceasefire deadline. The key barometer for progress will be the physical presence of Iranian negotiators. While the current "market mood music" remains anxious, there is a subtle undercurrent of hope for a resolution that could spark a relief rally in risk assets.

Tuesday’s Triple Threat: Warsh, Ceasefires, and Retail Sales Tomorrow stands as the pivotal session for the week, defined by three key catalysts:

1. The Ceasefire Deadline: Expiration without a deal could reignite a sharp flight to safety.
2. Kevin Warsh’s Confirmation: His Senate hearing for the Fed Chair role will be scrutinized. Expect a "split personality" approach: dovish on interest rates but hawkish on shrinking the Fed's balance sheet.
3. US Retail Sales (March): Expected to remain resilient despite the energy tax on consumers, reinforcing the "higher for longer" narrative.

The US Dollar Index (DXY) is currently attempting to claw back recent losses, trading near the 98.24 handle after a sharp decline earlier this month. On the H4 chart, the index has found strong structural support around the 97.70 level, where a series of "BULL" signals and RSI divergence suggest a near-term bottom may be in place.

Key Levels to Watch:

• Resistance: Immediate upside pressure faces a stern test at 98.73 (red horizontal). A break above this could see the index rally toward the 99.21 (100-SMA) and 99.35 (200-SMA) confluence zone.
• Support: The 97.70 area remains the critical floor. A daily close below this pivot would invalidate the current recovery and open the door for a move toward the 97.00 psychological mark.

With the RSI (14) rising from oversold territory and currently at 48.65, momentum is shifting back to the bulls. However, until the DXY reclaims its moving averages, the broader bias remains neutral to bearish.

USD Index Four-Hour Chart, April 20, 2026

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