Written by Stocks rally as oil stabilizes
The lack of a persistent oil rally, with the front WTI contract hovering around the $95 level and its one-month volatility dropping from recent highs, has rejuvenated risk appetite. US equities had a satisfactory session yesterday, with S&P 500 futures rising again today and setting the scene for the third consecutive green candle since testing the support set by the key 200-day simple moving average (SMA).
Corporate newsflow helped momentum as both Amazon and Nvidia generated positive headlines – the former about AWS revenues doubling in the next decade, and the latter about finally gaining approvals from Chinese authorities to sell Nvidia H200 chips to its Chinese clients. Additionally, several key investment houses appear to be more upbeat about the stock market prospects, despite the unfolding events in the Middle East. Are they too complacent, or do they believe that the oil and gas supply flows via the Strait of Hormuz will soon normalize, allowing investors to focus elsewhere?
Following the removal of Iran’s second-in-command – who was always seen as the mediator between the army, the spiritual leader and the hardliners in the Iranian regime – hostilities continue at full force from both sides. While US President Trump once again appeared confident about ending this conflict, with an overwhelming victory for the US, in a couple of weeks, reality could prove different.
The Strait of Hormuz remains closed except for Indian and Chinese vessels, which means that market attention remains firmly on this region. Solutions like easing sanctions on Venezuela’s oil exports and Iraq restarting its oil exports using the Kirkuk-Ceyhan pipeline are positive but merely a drop in the ocean when compared to the millions of oil barrels not going through the Strait of Hormuz since the start of the current regional conflict.
Dollar weakens as risk-off sentiment eases
Unsurprisingly, the US dollar has been weakening, with euro/dollar rising to the 1.1540 area after dropping to the lowest level since August 2025. The pair has quickly returned inside the 10-month old rectangle, with the next key resistance at the 1.1572 level.
Meanwhile, gold continues to raise concerns as, at the time of writing, sideways trending persists following two consecutive daily doji candles, a tad above the 50-day SMA. Today’s Fed meeting could potentially offer a way out of the current market indecision regarding the next move of this precious metal.
Fed and BoC meetings in focus
At 18:00 GMT, the Fed is expected to keep rates unchanged at 3.5%-3.75%, with both the statement and the quarterly projections (SEP) confirming the somewhat firmer short-term inflation path, most likely without altering the medium-term outlook.
The main focus, though, will be on the usual press conference and the dot plot. Chair Powell is unlikely to make a noticeable hawkish tilt at his penultimate meeting as Fed Chair, keeping all options on the table but clearly calling for increased vigilance regarding the impact of developments in the Middle East and tariffs. Following the latest shift in rate expectations, one rate cut is priced in for 2026, matching the December 2025 dot plot. While there is a considerable risk of no rate cut being pencilled in the updated dot plot, it would not be surprising for the December projection to be maintained, potentially disappointing the dollar bulls.
Finally, with the loonie surviving the robust US dollar strength, at 13:45, the BoC is expected to keep its main policy rate at 2.25%. Governor Macklem and his colleagues will try to balance the bouts of economic weakness, partly due to the US tariff policy, the expectations for stronger short-term inflation, and the boost from the higher oil prices. A possible lack of hawkish hints could open the door to a rally in dollar/loonie above the November 21, 2025 trendline, currently acting as a ceiling.
By XM.com
