Written by US offers a way out of the current crisis
With the Middle East conflict continuing for the fourth week, there seems to be light at the end of the tunnel despite the continued bombardments from both sides. Following US President Trump’s commentary about a five-day pause on targeting Iranian nuclear and energy installations and indirect discussions with the Iranian regime, the wheels are apparently in motion for a one-month ceasefire brokered by the US administration.
The US has put forward a 15-point plan to be discussed during the ceasefire and, eventually, to lead to the end of the current hostilities, with Iran’s nuclear capabilities and current enriched uranium at the core of this plan, which was the main target set by Trump in this conflict.
The Iranian side is supposed to send a response on Thursday – with decent chances of a face-to-face meeting with US representatives in Pakistan – to the proposed ceasefire, and whether it accepts the 15-point plan as a basis for negotiations. The initial reaction was not overly warm after reports that a sizeable number of US troops will be transferred to the Middle East. However, since the new spiritual leader apparently approves efforts to end the conflict, the current process might actually succeed.
Markets in defensive mode
Markets hold a defensive stance amidst the latest newsflow, as both Israel and Iran might not be yet ready for a ceasefire. Since the start of the conflict, Israel has set different objectives to the US, while Iran might fear that the US is just stalling as it prepares for a likely ground assault.
Oil dropped on news about a likely ceasefire, but it is evident that any positive reaction to the announcement of a temporary truce might not last as – using the various Israel-Hamas ceasefires as an example – these agreements are easily broken. Gold appears to be the primary beneficiary of the current improved sentiment as it is currently experiencing two consecutive green candles for the first time since March 2. The first test of the 100-day simple moving average (SMA) failed, but further positive news from the Middle East might unlock another upleg.
Futures point to a positive open for US stocks, matching today’s improved performance of Asian stock markets. That said, the Nikkei 225 index is still down 10% from its pre-conflict level, meaning that it might be a while for momentum to turn genuinely positive.
Treasury auctions in focus; dollar stabilizes
Notably, one of the main lessons of this crisis is to keep a closer eye on sovereign bond yields. The 10-year US Treasury yield is currently hovering around 4.4%, near its highest level since August 2025, boosted by the ballooning inflation expectations and the pricing out of Fed rate cuts.
Yesterday’s 2-year Treasury auction was indicative of the current sentiment for bonds. Short-term note auctions rarely disappoint, but yesterday’s one did, with the Treasury being forced to offer a higher yield to complete the sale, and US Treasury dealers doubling their allocation to cover the lower competitive demand from foreigners. A 5-year auction is scheduled for today, although most eyes are on tomorrow’s, usually unimpressive, 7-year auction.
Meanwhile, the dollar is slightly on the back foot this week, but it is maintaining the biggest chunk of its gains since February 27. Further positive news from the Middle East could result in further unwinding of the dollar’s strength, with central bank expectations taking charge then. Interestingly, the current hawkish Fedspeak might pause as Fed’s Miran is scheduled to speak later today.
Finally, dollar/yen is bucking the trend as any attempt to push it lower appears to fail. This pair is hovering just north of 159 today, maintaining the pressure on Japanese authorities and the BoJ to actually intervene. All eyes are on next week’s Tokyo CPI print and the Shunto wage negotiations newsflow, which, coupled with next week’s numerous key US data releases, would dictate the next leg in dollar/yen.
By XM.com
