After the intense geopolitical panic that dominated the energy markets over the weekend, Monday’s session delivered a sharp reversal as traders took the opportunity to reassess their positions. Despite the temporary pause, the broader macro environment remains highly uncertain.

As geopolitical headlines temporarily step out of the spotlight, market attention is shifting back toward economic fundamentals. In particular, upcoming inflation data is expected to play a crucial role in shaping the next phase of market sentiment.

The explosive rally in crude oil paused after comments from President Trump suggesting the conflict could end soon, alongside a coordinated move by G7 nations to release strategic oil reserves. These developments helped remove part of the geopolitical risk premium that had rapidly pushed energy prices higher.

Although oil prices have pulled back from their recent surge, markets remain highly sensitive to geopolitical headlines. The structural risk surrounding the Strait of Hormuz continues to provide a strong floor beneath energy prices.

Brent crude (UKOUSD) has pulled back from its recent surge, bringing prices back toward the $92.00 region, which aligns closely with the highs recorded in 2024. From a technical perspective, this move represents a mean reversion, with $92.00 now emerging as an important resistance level.

In the near term, traders may see a technical rebound around this zone. Immediate support sits near $88.00, while the broader structural support level remains around $80.00. Given the lingering geopolitical risks, oil prices are likely to remain elevated above the $80.00 level, with short-term movements leaning toward consolidation.

The US Dollar Index (USDX) surged at the start of the week, driven primarily by safe-haven demand. However, as geopolitical tensions ease slightly, the Dollar will require a new catalyst to sustain its strength. That catalyst is likely to arrive in the form of upcoming US inflation data.

Following last Friday’s unexpectedly weak Non-Farm Payrolls report, which showed a loss of 92,000 jobs, markets have begun to price in the risk of stagflation. If CPI and PPI data confirm that inflation remains stubbornly high despite a weakening labour market, the Federal Reserve could face a difficult policy dilemma.

Technically, the 98.80 level has once again established itself as a major resistance after Monday’s failed breakout attempt. Should geopolitical tensions continue to ease, safe-haven demand for the Dollar may fade, limiting further upside momentum.

If upcoming inflation data raises concerns about the US economic outlook, the Dollar could come under renewed pressure below the 98.80 resistance level. As a result, the Dollar’s near-term outlook remains vulnerable from both technical and macro perspectives.

For US equities, the easing of geopolitical tensions offers only limited relief. The broader macro backdrop remains challenging for risk assets.

Even if the immediate threat of wider conflict diminishes, equity markets still face several headwinds, including a weakening labour market, rising energy prices, and the potential for global tariff escalation. Should inflation data surprise to the upside this week, it could further undermine investor confidence and reinforce bearish sentiment across major indices.

The Dow Jones recently rebounded sharply near the 46,600 level, which aligns with the 200-day moving average and provides strong technical support. However, the 47,900 to 48,000 region - previously acting as support - has now turned into a key resistance zone.

This level will be critical in determining the Dow’s next direction. Unless bulls can secure a daily close above this resistance area, the index remains vulnerable to renewed selling pressure. While support currently holds, traders should remain cautious of another potential leg lower.

Geopolitical Developments:

Although tensions have slightly eased, the Middle East remains highly volatile. Any new military developments, retaliatory actions, or disruptions to shipping routes could quickly shift market sentiment and trigger renewed demand for oil and the US Dollar.

Pre-Inflation Positioning:

With limited economic data scheduled for today, institutional investors are likely to spend the session adjusting positions ahead of the key US inflation releases later this week. As a result, markets may experience choppy and range-bound trading as focus transitions from geopolitical concerns to the evolving stagflation narrative.

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