Weekly Market Outlook: Navigating Volatility in The Middle East

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Opening Thoughts

Good morning, traders and investors. As I sit down to write this week's market outlook, I'm reminded once again why I've always emphasised the importance of risk management and staying nimble in these markets. What started as a relatively calm week with some encouraging economic data quickly transformed into a stark reminder that geopolitical events can shift market sentiment in the blink of an eye.

This past week has been a masterclass in how quickly market dynamics can change. We began Monday with optimism following better-than-expected inflation data, saw the FTSE 100 flirting with new record highs, and watched as investors seemed to be finding their footing after months of uncertainty. Then Friday happened. The escalation of tensions between Israel and Iran sent shockwaves through global markets, reminding us all that in today's interconnected world, events thousands of miles away can instantly impact our portfolios.

The VIX, our market's fear gauge, told the story perfectly. From a relatively comfortable 19 level, it spiked over 15% to above 22, signalling that the calm we'd been enjoying was perhaps more fragile than many realised. As someone who has been trading through multiple market cycles, I can tell you that these moments of sudden volatility are both perilous and opportunistic. The key is knowing how to position yourself before they happen and how to react when they do.

What struck me most about this week wasn't just the magnitude of the moves we saw in oil, gold, and equities, but the speed at which risk sentiment shifted. One moment we were discussing whether the FTSE 100 could push through to new all-time highs, the next we were watching the Dow Jones shed 770 points in a single session. This is the reality of modern markets, and it's why I constantly stress the importance of having a plan for every scenario.

Market Volatility & Risk Assessment: The Fear Gauge Awakens

Let me start with what I consider the most important indicator for understanding current market sentiment: the VIX. At the close on Friday, the volatility index stood at 22.82, representing a significant 13.54% spike from the previous day's close. For those who follow my analysis regularly, you'll know I pay close attention to VIX levels because they often provide the clearest picture of what's really happening beneath the surface of market movements.

The intraday action was even more telling. We saw the VIX surge from around 20 to over 23 during Friday's session, with the day's range spanning from 20 to 23.00. This wasn't just a gentle rise in volatility; this was a sharp, decisive move that caught many off guard. When I see this kind of spike, especially one that breaks above the 20 level, it tells me that institutional investors are scrambling to hedge their positions and that the market's underlying confidence has been shaken.

What makes this move particularly significant is the context in which it occurred. We've been in a relatively high-volatility environment for much of 2025, with the VIX spending considerable time in the mid-20s, even reaching above 40 in April. The YTD range of 15.7 to 43.90 indicates that, although we're not yet at crisis levels, we're moving towards continuously elevated fear levels.

From a technical perspective, the VIX breaking above 20 is often a signal that we're transitioning from a risk-on to a risk-off environment. I've learned over the years that these transitions don't happen gradually; they happen in sharp, decisive moves exactly like what we witnessed on Friday. The question now becomes whether this is a temporary spike that will fade as quickly as it appeared, or whether we're entering a more sustained period of elevated volatility.

Looking at the broader market reaction, the correlation between VIX and equity performance played out precisely as expected. The S&P 500 tumbled 1.1%, the Dow Jones Industrial Average fell 1.7%, and the Nasdaq dropped 1.3%. This wasn't sector-specific weakness; this was broad-based risk aversion driven by uncertainty about how far the geopolitical situation might escalate.

What I find particularly interesting is how quickly the narrative shifted. Earlier in the week, we were discussing whether the better-than-expected CPI data might give the Federal Reserve more flexibility in its policy decisions. Consumer sentiment had actually improved for the first time in six months as tariff fears began to ease. Then, in a matter of hours, all of that optimism was overshadowed by concerns about potential supply disruptions and the broader implications of Middle Eastern conflict.

This is why I always tell my students that risk management isn't just about position sizing or stop losses; it's about understanding that market sentiment can change faster than most people can react. The traders and investors who performed best during Friday's selloff were those who had already positioned themselves defensively or who had hedging strategies in place.

Geopolitical Shockwaves: When Markets Meet Reality

The catalyst for Friday's market turmoil was the escalation of tensions between Israel and Iran, and I want to spend some time analysing not just what happened, but what it means for markets going forward. As traders, we often get caught up in technical analysis and economic data, but geopolitical events like this remind us that sometimes the most critical market drivers come from completely outside the financial sphere.

The sequence of events unfolded rapidly. Israel conducted strikes on what they described as "dozens" of sites across Iran, including military and nuclear facilities. Iran's subsequent retaliation created exactly the kind of uncertainty that markets despise. What made this particularly concerning from a market perspective wasn't just the immediate military action, but the potential for escalation and the strategic importance of the region to global energy supplies.

President Trump's rhetoric added another layer of complexity to the situation. His warning that Iran must "make a deal" or face more "death and destruction" certainly didn't help calm market nerves. As someone who has traded through multiple geopolitical crises, I can tell you that markets dislike uncertainty, and they particularly dislike uncertainty when it involves regions critical to global supply chains.

The immediate market reaction was swift and decisive. Airlines began suspending flights to Tel Aviv, Tehran, and other regional airports. Shipping companies increased caution in Gulf waters, and regulatory agencies scrambled to assess the potential impact on trade routes. This wasn't just about the immediate conflict; it was about the broader implications for global commerce.

What really caught my attention was how quickly the focus shifted to the Strait of Hormuz. This narrow waterway, through which roughly 20% of the world's oil output travels, became the focal point of market concerns. Iran has previously threatened to close this critical trade route in response to Western pressure, and even the suggestion of such a move sent shockwaves through energy markets.

The shipping industry's response was telling. Countries including Greece and the United Kingdom advised ships to avoid the Gulf of Aden and to log all voyages through the Strait. When you see this kind of precautionary behaviour from the shipping industry, you know that the risks are being taken seriously by those who understand them best.

From a market psychology perspective, what we witnessed was a classic flight to safety. Investors didn't wait to see how the situation would develop; they acted immediately to reduce risk exposure. This is precisely the kind of behaviour that creates the sharp, decisive moves we saw across asset classes.

The broader implications extend beyond just the immediate conflict. As one geopolitical strategist noted, if the United States is perceived to be involved in any attacks, the risk of escalation increases significantly. This creates a complex web of potential scenarios, each with different implications for markets. The uncertainty around these scenarios is what drove the volatility we saw, and it's what will likely continue to influence market behaviour in the coming weeks.

What concerns me most is the potential for this situation to disrupt the relatively positive momentum we have been building in the markets. The better-than-expected inflation data, the improvement in consumer sentiment, and the easing of tariff fears had created a more constructive environment for risk assets. Now, all of that progress is at risk of being overshadowed by geopolitical concerns that are largely outside the control of central banks or policymakers.

Commodity Markets: Safe Havens and Supply Disruptions

Gold: The Ultimate Safe Haven Shines Bright

If there's one asset that perfectly captured the market's mood this week, it’s gold. As I write this, gold is trading at $3,440 per ounce, and the story behind this price level is one that every serious investor needs to understand. This isn't just about a weekly move; it's about a fundamental shift in how investors view risk and portfolio protection.

Let me put the current gold price in perspective. One year ago, gold was trading at $2,333 per ounce. Today's level represents a staggering 32.18% gain over that period. But even more impressive is the performance we've seen just since the beginning of 2025, with gold climbing over 25% in less than six months. These aren't the kind of moves we typically see in what many consider a "boring" asset.

The daily action on Friday was particularly telling. Gold gained from the previous day's close, representing a significant single-day move that coincided perfectly with the escalation of geopolitical tensions. This kind of immediate response to risk events is precisely why I've always advocated for having some gold exposure in portfolios, regardless of one's overall investment strategy.

What makes gold's current performance even more remarkable is that it's occurring against a backdrop of a relatively strong dollar and rising interest rates. Traditionally, these conditions would be headwinds for gold, yet the metal continues to reach new highs. This tells me that the safe-haven demand is so strong that it's overwhelming these traditional negative factors.

The technical picture for gold is equally compelling. JPMorgan's analysts are projecting that gold could average $3,675 per ounce by the fourth quarter of 2025, with a bullish outlook extending into 2026. When major investment banks make these kinds of projections, it's worth paying attention. Their analysis suggests that the current environment of economic uncertainty, persistent inflation concerns, and geopolitical tensions creates a perfect storm for continued gold strength.

From a portfolio perspective, gold is serving exactly the function it's supposed to serve. While equity markets were selling off sharply on Friday, gold was providing a hedge against that volatility. This negative correlation during times of stress is precisely why I recommend that investors maintain some allocation to precious metals, even when they seem expensive on an absolute basis.

Looking ahead, I believe gold's performance will continue to be driven by the same factors that have propelled it to current levels: persistent inflation concerns, economic uncertainty, and geopolitical tensions. As long as these factors remain in play, gold should continue to find support, even if we see some short-term volatility.

Oil: Geopolitical Premium Returns with a Vengeance

The oil market's reaction to this week's events was nothing short of dramatic, serving as a perfect example of how geopolitical events can instantly reshape commodity markets. Brent crude, the international benchmark, surged 5% from the previous day's close, while oil futures spiked more than 13% at one point during Friday's session, reaching their highest levels since January.

The numbers tell the story clearly. Oil prices jumped to the $73-78 range, representing a significant move from recent levels. What made this particularly striking was the speed of the move. We went from a relatively stable oil market to one pricing in a significant geopolitical risk premium in a matter of hours.

The catalyst, of course, was the Israel-Iran conflict and the potential implications for oil supply routes. The Strait of Hormuz, through which 20% of the world's oil output passes, has become the focal point of market concerns. Iran's previous threats to close this critical waterway in response to Western pressure suddenly seemed much more relevant, and markets reacted accordingly.

What I find particularly concerning is the potential for this situation to escalate further. As one analyst noted, if Iran were to attack Iraqi oil infrastructure to reduce global supply and escalate tensions, we could see 5-7 million barrels per day taken offline. To put that in perspective, the world consumes about 100 million barrels per day, so we're talking about a potential 5-7% reduction in global supply.

The market's reaction reflects these concerns. As one expert put it, if the situation escalates to the point of closing the Strait of Hormuz, "that's going to be the biggest oil shock of all time." These aren't words that oil market participants take lightly, and the price action reflects the seriousness of these potential scenarios.

From a broader economic perspective, the oil price surge comes at a particularly sensitive time. We had just received better-than-expected inflation data, with the CPI showing only a 0.1% monthly increase versus expectations of 0.2%. Energy costs remain a key inflation driver, and sustained higher oil prices could quickly reverse the progress we've been making on the inflation front.

JPMorgan's commodity researchers captured this concern perfectly in their analysis: "Sustained gains in energy prices could have a dire impact on inflation, reversing the months-long trend of cooling consumer prices in the US." This creates a complex dynamic where geopolitical events could undermine the Federal Reserve's efforts to manage inflation through monetary policy.

The International Energy Agency has indicated that it's prepared to release strategic reserves if needed, with 1.2 billion barrels available. However, as they noted, this comes with the risk of depletion, and given that the world uses about 100 million barrels per day, these reserves, while substantial, are not unlimited.

OPEC's response has been interesting to watch. The organisation recently agreed to increase production by 411,000 barrels for July, but OPEC Secretary-General Haitham al-Ghais criticised the IEA's statements about potential reserve releases, saying they "raise false alarms and project a sense of market fear." This tension between different oil market participants adds another layer of complexity to an already complicated situation.

Equity Markets: Tale of Two Stories

US Markets: From Optimism to Reality Check

The US equity markets provided a perfect illustration of how quickly sentiment can shift in today's environment. What started as a week with renewed optimism following better-than-expected economic data ended with a stark reminder that external events can quickly overwhelm domestic fundamentals.

The Dow Jones Industrial Average's 770-point decline on Friday was the kind of move that gets everyone's attention. This wasn't a gradual drift lower; this was a decisive, broad-based selloff that reflected genuine concern about the potential implications of escalating geopolitical tensions. The S&P 500's 1.1% decline and the Nasdaq's 1.3% drop showed that this wasn't sector-specific weakness but rather a broad-based flight from risk assets.

What made this selloff particularly significant was the context in which it occurred. Earlier in the week, markets had been building on a three-day winning streak, buoyed by the better-than-expected CPI data and improving consumer sentiment. The inflation report showed headline CPI rising just 0.1% monthly versus expectations of 0.2%, while core CPI also came in below expectations at 0.1% versus the anticipated 0.3%. This was the kind of data that markets wanted to see, suggesting that the Federal Reserve's efforts to combat inflation were bearing fruit.

Consumer sentiment had jumped for the first time in six months as tariff fears began to ease, and a growing sense emerged that perhaps the worst of the economic uncertainty was behind us. Bond markets rallied on the inflation data, and there was cautious optimism that we might be entering a more stable period for both monetary policy and market performance.

Then Friday happened, and all of that optimism was quickly overshadowed by concerns about geopolitical risk and its potential economic implications. The speed of this reversal is what I find most instructive. It demonstrates how fragile market confidence can be, even when underlying economic fundamentals appear to be improving.

From a sector perspective, the selloff was broad-based, but energy stocks actually managed to outperform as oil prices surged. This created an interesting dynamic where the same geopolitical events that were weighing on the broader market were actually benefiting energy companies. It's a reminder that in complex market environments, there are always winners and losers, and understanding these cross-currents is crucial for effective portfolio management.

The technology sector, which had been one of the leaders during the week's earlier gains, was among the hardest hit during Friday's decline. This sector rotation from growth to defensive assets is typical during periods of increased uncertainty, and it's something I watch closely as an indicator of overall market sentiment.

Looking ahead, the key question for US markets is whether Friday's decline represents a temporary setback or the beginning of a more sustained period of weakness. Much will depend on how the geopolitical situation develops and whether the positive economic momentum we've been seeing can withstand external shocks.

UK Markets: Resilience in the Face of Global Uncertainty

The UK market's performance this week provided an interesting contrast to what we saw in the US. The FTSE 100's journey to near-record highs, reaching 8,885 points on Thursday before pulling back slightly to around 8,850 by week's end, demonstrates the index's remarkable resilience in 2025.

What I find particularly impressive about the FTSE 100's performance is that it has actually outperformed the S&P 500 this year, something that would have seemed unlikely to many investors at the beginning of 2025. The index's all-time high of 8,885 points, achieved on June 10th, represents a significant milestone and suggests that international investors are beginning to view UK assets more favourably.

The composition of the FTSE 100 has actually worked in its favour during this period of geopolitical uncertainty. The index's heavy weighting in energy companies like Shell and BP, along with mining and commodity-focused businesses, has benefited from the surge in commodity prices. When oil prices spike due to geopolitical concerns, these companies see their valuations increase, providing a natural hedge for the index against certain types of global uncertainty.

The export-heavy nature of the FTSE 100 has also been a positive factor. As tariff concerns have eased and global trade sentiment has improved, companies with significant international exposure have benefited. The index's performance has been supported by the fact that many of its constituent companies generate substantial revenues outside the UK, making them less dependent on domestic economic conditions.

From a technical perspective, the FTSE 100's ability to reach new highs while other major indices have struggled is noteworthy. It suggests that there are specific factors supporting UK equities that go beyond just global risk sentiment. The combination of attractive valuations, strong dividend yields, and exposure to sectors that are benefiting from current market conditions has created a compelling investment case.

However, it's important to note that the FTSE 100 wasn't immune to Friday's global selloff. The index declined from its recent highs, indicating that even the most resilient markets can be affected by broad-based risk aversion. The key difference was the magnitude of the decline, which was more modest than what we saw in US markets.

The currency factor has also played a role in the FTSE 100's performance. With many of the index's companies reporting earnings in dollars or other foreign currencies, the relative weakness of the pound has provided a translation benefit that has supported reported earnings and valuations.

Looking ahead, the FTSE 100's ability to maintain its momentum will depend on several key factors, including the continued strength in commodity prices, the stability of global trade relationships, and the index's capacity to attract international investment flows. The fact that it has reached new highs during a period of global uncertainty suggests that there are fundamental strengths supporting UK equities that all investors may not fully appreciate.

Currency Analysis: Sterling's Technical Crossroads

The currency markets provided their own unique perspective on this week's events, with the GBP/USD pair offering fascinating insights into how forex traders are positioning themselves amid the current uncertainty. As I write this, Cable is trading around 1.3578, down slightly from recent levels, but the technical setup and broader context deserve careful analysis.

From a year-to-date perspective, GBP/USD has been one of the stronger major currency pairs, with sterling "on a tear" against the greenback for much of 2025, similar to what we've seen with EUR/USD. A combination of factors has driven this strength: easing Brexit-related concerns, relatively resilient UK economic data, and periods of dollar weakness as markets reassessed expectations for Federal Reserve policy.

However, the recent price action suggests that this bullish momentum may be encountering some headwinds. The pair has been trading in a range between 1.3550 and 1.3613 over the past week, with technical analysts noting the formation of a rising wedge pattern that could signal a potential pullback. This type of pattern often indicates that the upward momentum is losing steam and that a correction may be due. (but after all it’s a technical pattern haha).

The technical picture becomes more concerning when we consider the bearish divergence that some analysts are identifying. While the price has been making higher highs, momentum indicators have been showing signs of weakness, suggesting that the underlying strength of the uptrend may be diminishing. Key support is being watched at the 1.34 level, which would represent a significant retracement from current levels.

What makes the current setup particularly interesting is how it's being influenced by broader dollar dynamics. The US dollar has been gradually regaining strength in recent sessions, partly due to the better-than-expected economic data we received earlier in the week, but also due to safe-haven flows as geopolitical tensions have escalated. This creates a complex environment for sterling, which must contend with both domestic factors and broader dollar strength.

The Bank of England's policy stance remains a key factor in determining sterling's performance. With UK inflation showing signs of persistence and the labour market remaining relatively tight, there are expectations that the BoE may need to maintain a more hawkish stance than some other central banks. However, this must be balanced against concerns about economic growth and the potential impact of global uncertainty on the UK economy.

From a fundamental perspective, the UK's economic data has been mixed but generally supportive of sterling. GDP growth has been modest but positive, and while there are concerns about certain sectors, the overall picture has been more resilient than many expected. The services sector, which dominates the UK economy, has shown particular strength, helping to offset weakness in manufacturing and other areas.

The Brexit factor, while less prominent than in previous years, continues to play a role in sterling's performance. The relative stability in UK-EU relations and the absence of major trade disruptions have removed a significant source of uncertainty that had weighed on the currency in previous years. This has allowed sterling to trade more on economic fundamentals rather than political developments.

However, the current geopolitical environment creates new challenges for sterling. As a risk-sensitive currency, the pound tends to underperform during periods of global uncertainty, and the escalation of Middle Eastern tensions could weigh on the currency even if UK-specific fundamentals remain supportive.

The technical setup suggests that traders should be prepared for increased volatility in the coming weeks. The rising wedge pattern, combined with the broader geopolitical uncertainty, creates conditions where sharp moves in either direction are possible. A break below key support levels could trigger a more significant correction, while a successful defense of current levels could set the stage for another leg higher.

From a positioning perspective, the recent strength in sterling has attracted significant international investment flows, but this also means that the currency could be vulnerable to profit-taking if sentiment shifts. The combination of strong year-to-date performance and current technical warning signs suggests that risk management will be crucial for those with sterling exposure.

Looking ahead, the key factors to watch for GBP/USD will be the evolution of the geopolitical situation, US economic data and Federal Reserve policy signals, UK economic performance, and technical developments around key support and resistance levels. The currency pair's ability to maintain its 2025 gains will depend on how these various factors interact in the coming weeks.

Economic Data Spotlight: Inflation's Encouraging Signal

This week's economic calendar was dominated by the release of the May Consumer Price Index data, and I want to spend some time analysing not just the numbers themselves, but what they mean for monetary policy and market expectations going forward. In a week that ended with geopolitical turmoil, it's important not to lose sight of the fact that we received some genuinely encouraging news on the inflation front.

The headline numbers were better than expected across the board. The monthly CPI increase came in at just 0.1%, significantly below the consensus expectation of 0.2%. This represents a meaningful deceleration from previous months and suggests that the disinflationary process that the Federal Reserve has been working to achieve may be gaining traction. The annual inflation rate increased to 2.4% from 2.3% in April, in line with expectations and representing a relatively modest rise.

What was even more encouraging was the core CPI data, which excludes the more volatile components of food and energy. The monthly core CPI increase of 0.1% was significantly below the expected 0.3%, representing one of the most notable positive surprises in this data series in recent months. The annual core CPI remained steady at 2.8%, below the expected 2.9%, providing further evidence that underlying inflation pressures may be moderating.

From a Federal Reserve policy perspective, this data couldn't have come at a better time. The central bank has been walking a delicate balance between maintaining a restrictive monetary policy to combat inflation while avoiding unnecessary damage to the economy. The better-than-expected CPI data provides them with evidence that their approach is working and may give them more flexibility in their future policy decisions.

The market reaction to the data was immediate and positive. Bond markets rallied strongly, with yields declining across the curve as investors reduced their expectations for future rate hikes. Equity markets initially responded positively as well, with investors interpreting the data as reducing the likelihood of overly aggressive monetary policy that could damage economic growth.

Consumer sentiment also showed improvement, jumping for the first time in six months. This is particularly significant because consumer sentiment has been one of the more persistent weak spots in the economic data. The improvement suggests that consumers are becoming more confident about the economic outlook, which could translate into stronger spending patterns in the coming months.

The breakdown of the inflation data provides additional insights into what's driving the overall trends. Energy costs, which have been a significant contributor to inflation volatility, actually declined by 2.6% during the period. This was before the recent spike in oil prices due to geopolitical tensions, so it will be interesting to see how energy costs evolve in future reports.

Housing costs, which represent the largest component of the CPI, continued to show moderation, though they remain elevated relative to historical norms. The gradual cooling in housing inflation has been one of the key factors supporting the overall disinflationary trend, and continued progress in this area will be crucial for achieving the Federal Reserve's inflation targets.

Services inflation, excluding housing, also showed signs of moderation, which is particularly encouraging given that services inflation has been one of the more persistent components of the overall inflation picture. This suggests that the tight labor market conditions that have been driving services inflation may be beginning to ease.

However, it's important to put this positive data in the context of the broader economic and geopolitical environment. The spike in oil prices that we saw on Friday could quickly reverse some of the progress we've made on energy costs, and sustained higher energy prices could feed through to other components of the inflation basket.

The Federal Reserve's challenge now is to interpret this data in the context of their dual mandate of price stability and full employment. The better-than-expected inflation data provides them with more flexibility, but they must also consider the potential impact of geopolitical events on future inflation dynamics.

From a market perspective, the inflation data had been providing support for risk assets by reducing concerns about overly aggressive monetary policy. However, the geopolitical events that unfolded later in the week serve as a reminder that inflation dynamics can be influenced by factors well beyond the control of central banks.

Looking ahead, the key question is whether the disinflationary progress we've seen can be sustained in the face of potential energy price shocks and other external factors. The Federal Reserve will be watching closely to see whether the recent improvement in inflation data represents a sustainable trend or a temporary pause in what has been a challenging inflation environment.

Looking Ahead: Key Events and Levels to Watch

As we move into the coming week, I want to outline the key events, data releases, and technical levels that I'll be monitoring closely. The intersection of geopolitical developments, economic data, and technical analysis will be crucial for understanding how markets evolve from here.

Geopolitical Developments

The most important factor to watch will be the evolution of the Israel-Iran situation. Any escalation that threatens oil supply routes, particularly the Strait of Hormuz, could trigger another wave of risk-off sentiment and commodity price spikes. Conversely, any signs of de-escalation could provide relief to markets and allow focus to return to economic fundamentals.

I'll be particularly watching for any developments that could draw the United States more directly into the conflict, as this would significantly increase the potential for broader escalation. President Trump's rhetoric and policy responses will be key factors in determining how this situation develops.

Economic Data Calendar

While geopolitical events may dominate headlines, we shouldn't lose sight of the economic data calendar. Key releases to watch include:

•UK GDP data, which will provide insights into the resilience of the British economy

•US Producer Price Index (PPI) data, which could provide additional insights into inflation trends

•Consumer sentiment and confidence measures, which will show how recent events are affecting consumer psychology

•Any Federal Reserve communications that might provide guidance on policy direction

Technical Levels and Market Positioning

From a technical perspective, several key levels will be crucial to monitor:

VIX: The 20 level has proven to be significant resistance/support in the past. A sustained move above this level would suggest that we're entering a more volatile environment, while a return below 18 would indicate that the recent spike was temporary.

S&P 500: Key support levels around 5800 will be essential to watch. A break below these levels could trigger additional selling, while a successful defence could set the stage for a recovery.

FTSE 100: The index's ability to maintain levels above 8,800 will be crucial for determining whether it can continue its outperformance relative to other major indices.

Gold: The 3,400 level has become important support. A break below this level could trigger profit-taking, while a move above the 3,400 level has become a key level of support. A break below this level could trigger profit-taking, while a move above the 3,400 level has become important support. A break below this level could trigger profit-taking, while a move above 3,500 could target the JPMorgan projection of $3,675.

Oil: Brent crude's ability to hold above 70 will be key. This would suggest that geopolitical premiums are becoming entrenched, while a return below $65 would indicate that supply concerns are easing.

GBP/USD: The 1.3515 support level will be crucial. A break below this level could trigger a more significant correction, while a successful defence could set the stage for another attempt at higher levels.

Central Bank Communications

Any communications from major central banks, particularly the Federal Reserve and the Bank of England, will be closely watched for insights into how policymakers are interpreting recent economic data and geopolitical developments. The balance between addressing inflation concerns and supporting economic growth will be crucial.

Risk Scenarios

I'm also monitoring several risk scenarios that could significantly impact markets:

Escalation Scenario: Further military action that threatens major oil infrastructure or draws additional countries into the conflict could trigger a significant risk-off move across all asset classes.

Supply Disruption Scenario: Any actual disruption to oil supplies through the Strait of Hormuz could cause oil prices to spike well above current levels, with significant implications for inflation and economic growth. This will help my paid newsletter stock buy we recently discussed massively.

De-escalation Scenario: Diplomatic progress or a cessation of hostilities could lead to a rapid reversal of recent moves, with oil prices declining and risk assets recovering.

Economic Surprise Scenario: Significantly better or worse economic data could shift focus back to domestic fundamentals and away from geopolitical concerns.

Trading Perspective: Navigating Uncertainty with Discipline

As someone who has navigated multiple market cycles and geopolitical crises, I would like to share some thoughts on how to approach the current environment. The combination of improving economic fundamentals and escalating geopolitical tensions creates a complex backdrop that requires careful navigation.

First and foremost, risk management must be the top priority. The speed with which sentiment shifted this week is a reminder that markets can move faster than most people can react. This means having predetermined exit strategies, appropriate position sizing, and hedging strategies in place before they're needed.

From a positioning perspective, I believe the current environment favours a barbell approach: maintaining exposure to assets that benefit from economic improvement while also holding positions that protect against geopolitical escalation. This might include a combination of quality equities, precious metals, and defensive assets.

The energy sector presents both opportunities and risks. While oil prices have surged on geopolitical concerns, the sustainability of these levels will depend on whether supply disruptions actually materialise. Energy stocks may continue to outperform in the near term; however, investors should be prepared for potential volatility.

Gold's performance this week reinforces my long-held view that precious metals should be included in most portfolios. The metal's ability to rally even in an environment of dollar strength and rising rates demonstrates its value as a hedge against uncertainty.

For currency traders, the current environment requires particular caution. The combination of changing central bank policies, geopolitical tensions, and shifting risk sentiment creates conditions where sharp moves are possible in either direction. Focus on risk management and avoid overleveraging positions.

From a sector rotation perspective, I expect to see continued movement from growth to defensive assets as long as geopolitical tensions remain elevated. Healthcare, utilities, and consumer staples may outperform, while technology and other growth sectors could face headwinds.

The key to navigating this environment successfully is maintaining flexibility and avoiding the temptation to make large directional bets based on short-term developments. Markets have a way of surprising even the most experienced participants, and the current environment is particularly prone to unexpected developments.

Closing Thoughts: Opportunity in Uncertainty

As I conclude this week's analysis, I'm reminded of one of the fundamental truths about markets: they are constantly evolving, and the ability to adapt to changing conditions is what separates successful traders and investors from those who struggle.

This week provided a perfect example of how quickly market narratives can change. We began with optimism about improving inflation data and ended with concerns about geopolitical escalation. Both narratives contain essential truths, and successful market participants must be able to hold multiple scenarios in their minds simultaneously.

The better-than-expected inflation data shouldn't be dismissed simply because geopolitical events dominated Friday's trading. This data represents real progress in the fight against inflation and provides central banks with more flexibility in their policy decisions. At the same time, the geopolitical developments remind us that external shocks can quickly overwhelm domestic fundamentals.

What I find most encouraging is the resilience that markets have shown in the face of multiple challenges throughout 2025. While we've seen volatility and uncertainty, we haven't seen the kind of systemic breakdown that characterised some previous crisis periods. This suggests that the underlying structure of markets and the global economy may be more robust than many feared.

The FTSE 100's ability to reach new highs while other markets have struggled demonstrates that there are always opportunities for those who know where to look. The key is maintaining a global perspective and being willing to look beyond the most obvious narratives.

Over the coming week, I'll be closely watching for any developments that could shift the current balance between economic optimism and geopolitical concerns. The market's ability to digest both positive economic data and external shocks will be crucial for determining the direction of risk assets.

My advice to readers is to stay informed, maintain discipline, and remember that periods of uncertainty often create the best opportunities for those who are prepared to act when others are paralysed by fear. The current environment may be challenging, but it's also rich with potential for those who approach it with the right mindset and preparation.

As always, I'll continue to monitor developments closely and provide updates as the situation evolves. The intersection of economics, geopolitics, and market psychology consistently offers valuable lessons for those willing to learn from it.

Stay safe, stay disciplined, and remember that in markets, as in life, the only constant is change.

Samuel Leach

Founder of Samuelandcotrading.com