Israel launched an airstrike on Iran in the early hours of Friday (June 13), targeting its nuclear facilities, ballistic missile factories and senior military commanders, once again escalating tensions in the region. The head of Iran's Revolutionary Guard was reportedly killed, and the military leader was not the only target. Six Iranian nuclear scientists were also killed in the attack.
Iran has responded by launching more than 100 drones, some of which may have been intercepted by Israel's "Iron Dome" air defense system.
The attack came as the United States and Iran were negotiating a new deal that could have allowed Iran to maintain a limited nuclear program in exchange for reduced sanctions on its oil exports. The next round of talks, originally scheduled for Sunday, has been canceled by Iran, although the United States claims that it was not involved in the night attack.
Crude oil futures give up some early gains
Oil prices soared after news of the attack broke. WTI and Brent crude futures initially jumped more than 10% before retreating, narrowing gains to nearly 6% during European trading hours.
While there are no signs that Israel attacked any Iranian oil facilities, this major escalation has the potential to turn into something more nasty, such as a wider and more prolonged regional conflict. At the very least, the recent nuclear deal has been put on hold, which provides a floor for oil prices even if tensions ease in the coming days.
Dollar rebounds from three-year low
Safe haven assets, including the battered dollar, also rose, while stocks fell sharply. The dollar regained some of its appeal today and rebounded as geopolitical risks intensified. The dollar outperformed other safe haven currencies, including the yen and Swiss franc, despite rising expectations of a Fed rate cut after weak U.S. CPI and PPI data this week.
However, the dollar may still face pressure in the long run: the trade war is not going to end in the short term, while Trump has again raised the possibility of intervening in Fed policy.
On Thursday, Trump expressed his dissatisfaction with the government's annual $600 billion debt interest payments due to high interest rates, saying "I may have to take some coercive measures."
His cryptic comments heightened market anxiety, coming a day after he said on Wednesday that countries would unilaterally set tariffs if no trade deal was reached by the July 9 deadline.
Later today, the focus will turn to the University of Michigan's preliminary consumer confidence survey. Ahead of the data, the dollar rose about 0.3% against a basket of currencies, recovering from a more than three-year low hit yesterday.
Yen edged higher ahead of Bank of Japan decision
The yen was also positive today (except against the dollar), further boosted by a Bloomberg report that Bank of Japan officials expect inflation to be slightly higher than expected this year, even though markets expect no rate hike at next week's meeting.
The June decision is likely to focus on the Bank of Japan's bond-buying program as markets worry that long-term yields have risen too quickly. But any slowdown in the reduction of bond purchases is likely to be accompanied by a more hawkish outlook on short-term rates.
Gold shines as stocks avoid a sharp sell-off
Meanwhile, gold prices broke through the $3,400 mark, heading towards April's all-time high of $3,500. If military tensions between Israel and Iran escalate further, the precious metal could well hit new records. In addition, heightened doubts about whether the U.S. can sign new trade deals with major trading partners in time for the next deadline also provide significant support for gold prices in the short term.
The only surprise is that despite all the uncertainty, stock markets have been relatively resilient: Asian stocks fell less than 1% on Friday, while European stocks and U.S. futures are currently down 1%-1.5%.
XAUUSD GOLD GOLD XAUUSD GOLD XAUUSD
Iran has responded by launching more than 100 drones, some of which may have been intercepted by Israel's "Iron Dome" air defense system.
The attack came as the United States and Iran were negotiating a new deal that could have allowed Iran to maintain a limited nuclear program in exchange for reduced sanctions on its oil exports. The next round of talks, originally scheduled for Sunday, has been canceled by Iran, although the United States claims that it was not involved in the night attack.
Crude oil futures give up some early gains
Oil prices soared after news of the attack broke. WTI and Brent crude futures initially jumped more than 10% before retreating, narrowing gains to nearly 6% during European trading hours.
While there are no signs that Israel attacked any Iranian oil facilities, this major escalation has the potential to turn into something more nasty, such as a wider and more prolonged regional conflict. At the very least, the recent nuclear deal has been put on hold, which provides a floor for oil prices even if tensions ease in the coming days.
Dollar rebounds from three-year low
Safe haven assets, including the battered dollar, also rose, while stocks fell sharply. The dollar regained some of its appeal today and rebounded as geopolitical risks intensified. The dollar outperformed other safe haven currencies, including the yen and Swiss franc, despite rising expectations of a Fed rate cut after weak U.S. CPI and PPI data this week.
However, the dollar may still face pressure in the long run: the trade war is not going to end in the short term, while Trump has again raised the possibility of intervening in Fed policy.
On Thursday, Trump expressed his dissatisfaction with the government's annual $600 billion debt interest payments due to high interest rates, saying "I may have to take some coercive measures."
His cryptic comments heightened market anxiety, coming a day after he said on Wednesday that countries would unilaterally set tariffs if no trade deal was reached by the July 9 deadline.
Later today, the focus will turn to the University of Michigan's preliminary consumer confidence survey. Ahead of the data, the dollar rose about 0.3% against a basket of currencies, recovering from a more than three-year low hit yesterday.
Yen edged higher ahead of Bank of Japan decision
The yen was also positive today (except against the dollar), further boosted by a Bloomberg report that Bank of Japan officials expect inflation to be slightly higher than expected this year, even though markets expect no rate hike at next week's meeting.
The June decision is likely to focus on the Bank of Japan's bond-buying program as markets worry that long-term yields have risen too quickly. But any slowdown in the reduction of bond purchases is likely to be accompanied by a more hawkish outlook on short-term rates.
Gold shines as stocks avoid a sharp sell-off
Meanwhile, gold prices broke through the $3,400 mark, heading towards April's all-time high of $3,500. If military tensions between Israel and Iran escalate further, the precious metal could well hit new records. In addition, heightened doubts about whether the U.S. can sign new trade deals with major trading partners in time for the next deadline also provide significant support for gold prices in the short term.
The only surprise is that despite all the uncertainty, stock markets have been relatively resilient: Asian stocks fell less than 1% on Friday, while European stocks and U.S. futures are currently down 1%-1.5%.
XAUUSD GOLD GOLD XAUUSD GOLD XAUUSD 
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Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Senior market strategy analyst | CFA® charter holder | Builder of a profit system with millions of members. "Don't be a market forecaster, just a profit engineer. If you want to join, please click 🚀🚀🚀:t.me/EagleEyePrecisionAnalysis
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.