Oil Was the Main Character
Oil won the week. Not because prices broke out in one direction, but because every headline moved them. Peace hopes, then strikes, then de-escalation. The whipsaw left traders guessing whether a deal is days away or months away.
The answer matters for the dollar, for gold, for equities, and for central bank expectations.
Here is what we said on Sunday, what actually happened, and what to watch next week.
What We Said on Sunday
As we outlined in our Sunday preview, we called two main themes for the week. First, the Reserve Bank of Australia would deliver a hawkish hike. Second, US jobs data would slow, but the bigger driver would be the Strait of Hormuz.
We warned that markets were pricing a clean resolution too aggressively. We used the phrase “no-war, no-peace” to describe the fragile floor under oil. We said equities were driven by momentum and positioning, not current conditions, and that disconnect was fragile.
That framework held up well.
What Actually Happened This Week
Here is a quick recap of the week’s key developments.
RBA Delivered – But AUD Sold Off
The RBA raised rates for the third consecutive time to 4.35%, fully reversing all 2025 easing. However, the statement signaled a “data-dependent pause” is coming. Markets interpreted this as the end of the tightening cycle, sending the Australian dollar down.
US-Iran Peace Hopes Surged – Then Faded
Midweek, markets rallied sharply on reports that the US and Iran were discussing a potential memorandum of understanding to end the war. President Trump said chances of a deal were “very high.” Oil sold off. The S&P 500 hit fresh record highs.
But the optimism did not last. By Thursday and Friday, military skirmishes in the Strait of Hormuz reversed the move. The US conducted strikes. Iran fired missiles at US destroyers. The US insisted the ceasefire still holds. Iran has not yet responded to the latest proposal.
US Jobs Data Arrived
The April payrolls report showed job growth slowing, as expected. But the headline number mattered less than the Gulf headlines. As one analyst put it, “news from the Gulf remains simply more important for both Fed pricing and the dollar at this stage than jobs figures.”
ECB and BOE Held Steady
The ECB left rates unchanged. President Lagarde expressed skepticism about euro stablecoins but did not provide new guidance on interest rates. In the UK, local election results showed heavy losses for the ruling Labour Party, adding political uncertainty to the pound’s outlook.
Oil: The Main Event
Oil prices remained mostly rangebound, but the bearish pressure since Wednesday followed several positive news reports on the US-Iran front.
Oil sold off after Trump paused “Project Freedom” so the US could work to finalize a deal with Iran. The pause was interpreted as another step toward a deal. An Axios report then said the US and Iran were getting close to a one-page memo to end the war. US officials were expecting Iran’s response. Iran had not yet responded.
Late yesterday, we saw some upside in oil on renewed tensions. The US and Iran exchanged fire in the most serious test of their month-long ceasefire. Iranian forces attacked three US Navy destroyers in the Strait of Hormuz using missiles, drones, and small boats. The US responded with strikes on Bandar Abbas and Qeshm Island.
The escalation was followed by quick de-escalation. A US official described the strikes as not an act of war and said the ceasefire remained in effect. Trump later told ABC the strikes were a “light blow” and a “love tap,” confirming that ceasefire negotiations with Iran are continuing.
The constant push for a diplomatic resolution instead of another full-fledged war has been capping the upside. Markets keep expecting a deal, even as physical supply disruption continues.
For a deeper look at how oil drives currency markets, we have a full guide that breaks down the transmission channels from energy prices to the dollar and risk sentiment.
FX: Dollar’s Binary Outcome
The dollar rose back as optimism over an imminent US-Iran deal faded. The WSJ also reported the US is ready to restart military escorts in the Strait of Hormuz (“Project Freedom”) as early as this week, as Saudi Arabia and Kuwait lifted restrictions on airspace access.
If this proves to be another episode of misplaced optimism, the dollar has plenty of upside room to recover. Investors may also prove more cautious and will not jump as aggressively into de-escalation trades without concrete progress in negotiations.
The hope for risk bulls is still that China is adding pressure on the US to reach some kind of deal in the Gulf before the 14–15 May Trump-Xi summit. The outlook is quite binary from here for the dollar, with the reaction in equities still likely to have a bigger bearing than oil volatility on DXY.
EUR/USD held up relatively well in the crosses, despite losing some ground against the dollar. The euro did not seem to suffer from Trump’s 4 July ultimatum to the EU to ratify its trade deal. However, if the Gulf conflict heads toward a resolution, trade may well be next on Trump’s agenda.
GBP weakened on local election fallout. The ruling Labour Party suffered heavy losses. Investors are watching the cabinet closely for signs of pressure or even resignations, as markets weigh up the possibility of an increase in borrowing later this year.
For a full breakdown of how the Fed shapes the dollar, our guide covers the interest rate and safe-haven channels that matter most right now.
Gold and Equities
Gold remained in a range, hovering near four-week lows. It is waiting for a catalyst. A dovish Fed outcome would break it higher. A hawkish tone would send it lower.
The S&P 500 pushed to fresh record highs this week. But the rally remains narrow. AI and tech names are leading. The rest of the market is struggling to keep pace. That is fragility, not strength.
Our guide on gold trading strategies explains the levels we are watching and how to position for the Fed’s next move.
What We Got Right vs What Surprised Us
What We Got Right:
- The RBA delivered a hawkish hike.
- Oil held a floor under $90, even on peace hopes.
- Gold stayed range-bound, waiting for a catalyst.
- The equity rally was fragile and narrow.
What Surprised Us:
- The speed of the peace hopes rally midweek was faster than expected.
- The market priced a deal before any confirmation, then reversed just as quickly.
- Oil’s 7% drop on peace hopes did not break the physical supply floor.
Overall, our Sunday framework performed well. The “no-war, no-peace” description of the oil market was accurate. The warning that markets were pricing resolution too cleanly was validated by the whipsaw.
The Verdict for Next Week
Watch the Strait of Hormuz. Watch the 14–15 May US-China summit. Oil is still the main character.
If a deal comes together, expect a sharp risk rally, a weaker dollar, and higher gold. If talks stall or escalate, the dollar will bid up, equities will struggle, and oil will stay supported.
Either way, the market will remain reactive. Every headline will move price. That is not a trend-following environment. It is a waiting environment.
As we covered in our risk management guide, discipline matters more than conviction right now. Avoid forcing trades. Let the headlines settle. The opportunity will come when the gap between momentum and reality closes.
Have a great weekend.
Disclaimer: This article is for educational and informational purposes only. It does not constitute financial advice, trading recommendations, or an offer to buy or sell any asset. Trading forex, commodities, cryptocurrencies, and prop firm challenges carries significant risk and may not be suitable for all investors. Past performance does not guarantee future results. I only recommend brokers, prop firms, and platforms I have researched. Always read the full terms, rules, and risk disclosures before making any trading decision. Do your own research.