FTSE 100, EUR/USD rally as WTI drops on US-Iran deal hopes 

Macro update

Global markets rally on hopes of a US-Iran peace agreement: Risk sentiment improved sharply after the US and Iran announced a preliminary deal over the weekend aimed at ending the conflict and reopening the Straits of Hormuz, with a memorandum of understanding expected to be signed in Switzerland on Friday followed by a 60-day ceasefire period.

Brent crude tumbles to a two-month low: Brent futures dropped to below $83 a barrel, their weakest level since mid-April, as investors unwound the geopolitical risk premium built up following the closure of the Straits of Hormuz in late February, while US crude fell to $80.50.

Asian equities post strong gains as risk appetite returns: Japan's Nikkei advanced 4.9% and South Korea's Kospi climbed 5.4%, while European markets were set for a higher open with DAX futures up 1.7%, FTSE futures gaining 0.7% and S&P 500 futures rising 1.2%.

Dollar weakens as inflation concerns recede: The euro strengthened to $1.16 and sterling rose to $1.3440 as easing inflation expectations weighed on the US dollar, while the yen traded close to ¥160 ahead of an anticipated Bank of Japan interest rate increase to 1%.

Gold extends its recovery despite improved risk sentiment: Spot gold gained 2% to $4,300 an ounce, on track for a third consecutive day of gains, as lower oil prices and a softer dollar improved the outlook for the precious metal.

Attention turns to major central bank decisions: The Federal Reserve is widely expected to leave interest rates unchanged at 3.50%-3.75% at Kevin Warsh's first meeting as chair on Wednesday, with markets reducing the probability of a December rate hike to around 48% from 69% a week earlier, while the Bank of England is also expected to keep rates on hold at 3.75% on Thursday.

FTSE 100 rallies to May peak

The FTSE 100 gapped higher and practically reached its May peak at 10,573 before losing upside momentum.

A rise and daily chart close above this level will likely lead to the 10,700 region being revisited.

A slip through Monday's 40,495 intraday low may close the gap with Friday's 10,481 high. Below this level minor support may be found around the 5 June high at 10,415.

Short-term outlook: bullish while above the 10 June low at 10,125

Medium-term outlook: neutral with a bullish bias while above the 18 May low at 10,113

FTSE 100 daily candlestick chart

EUR/USD recovery is ongoing

EUR/USD's move through its May-to-June downtrend line at $1.1596 is encouraging for the bulls with Thursday's high at $1.1645 being in sight, a rise above which may lead to the 200-day simple moving average (SMA) at $1.1675 being reached, together with the late May high at $1.1685.

Potential support may no be spotted between the late May lows at $1.1586-to-$1.1576.

Short-term outlook: bullish while above $1.1500

Medium-term outlook: neutral with a bearish undertone while below the late May high at $1.1645

EUR/USD daily candlestick chart

WTI slips amid de-escalation

WTI is fast approaching its mid-April low at $78.97 per barrel, a slip through which would open the way for the 10 March low at $76.73  to be reached, ahead of the 200-day simple moving average (SMA) at $73.41.

Minor resistance may be found at Friday's $83.20 low and around the 23 March low at $84.37.

Short-term outlook: bearish while below the 3 June high at $97.00

Medium-term outlook: neutral with a bearish bias while below the 3 June peak at $97.00 but above the April low at $78.97, a fall through and daily chart close below which would turn our forecast to a bearish one

WTI daily candlestick chart