Forex Today: Deal / Extension Expected, but Ceasefire Expires Today

The outcome of the USA / Israel / Iran war is the main market driver and the two-week ceasefire expires in a few hours. Markets expect a peaceful resolution but war could resume within hours, endagering risk sentiment and potentially spiking crude oil higher.

1. It has been a relatively slow open to the new week, but things will likely come to a head today and spark market action as the USA / Iran ceasefire will expire later today. No deal has been agreed yet to end the war, and it is hard to see how a compromise could be found which is acceptable to both sides. However, Pakistan as a mediator is hosting potential talks today between the parties, although Iran has not committed to attend. Pakistan is also trying to get President Trump to declare an extension to the ceasefire, which he has refused to do so far. Markets face the following scenarios over the next 24 hours, with varying likely outcomes:
   1. A peace deal is agreed. Stock markets will soar, while crude oil and the US Dollar will fall. This should be great for the S&P 500 Index and the NASDAQ 100 Index which both closed at new record highs last Friday.
   2. President Trump declares another extension of the ceasefire. The effect this will have will probably depend upon the rhetoric used by both sides in public and whether Iran attends the talks in Pakistan, but it will likely be mildly positive for stocks and mildly negative for the prices of crude oil and the US Dollar.
   3. President Trump does not extend the ceasefire but talks continue without military action. This will have a similar effect to b) but will probably be a little more risk-off.
   4. President Trump does not extend the ceasefire and talks either break down or never start. This will likely trigger a decline in stock markets and see the price of crude oil and the US Dollar jump.
   5. The ceasefire expires and the war resumes. This will trigger an outcome like d) but even stronger, especially in US stocks (lower) and Brent crude (much higher).
2. I believe a surprise to the downside is much more likely than market expectations, as I do not see how the Iranians could offer enough that Trump could present as a victory. President Trump politically needs to be able to say Iran's nuclear program is completely over. Polymarket is still showing implied probabilities indicating that the ceasefire will be extended, a permanent deal to end the war is likely to happen in May, and Iran will agree to surrender its enriched uranium by the end of 2026. I doubt that the crowd is correct about this, I believe Iran will play games and try to wait Trump out by prolonging the conflict while giving either minor or fabricated concessions.
3. Gold and Silver are moving lower today after a period of looking weakly bullish, but the continuing recovery in precious metals does not look very impulsive. I think short-term long trades are very risky here.
4. Bitcoin is consolidating after making a failed bullish breakout beyond $75,000 last week. Bitcoin's failure to rise strongly while US stock markets have been soaring is telling us that this cryptocurrency, and maybe crypto in general, does not shine as a speculative opportunity any more in the eyes of most.
5. In the Forex market, the New Zealand Dollar has been the strongest major currency since today's Tokyo open, while the Australian Dollar has again been the weakest. The USD/JPY currency pair is consolidating quietly after finding support below ¥158. Trend traders will still be long of USD/JPY in many cases, although it is hard to feel very optimistic about that trade.
6. New Zealand saw a slightly stronger than expected increase in its CPI, showing a quarterly higher reading of a 0.9% increase, which has helped strengthen the Kiwi.