Geopolitical Shock Absorbed: Yen Sinks, Equities Recover

Hello, traders! Welcome to a new trading week following a dramatic and geopolitically charged weekend.

Over the past 48 hours, tensions in the Middle East escalated sharply with the United States entering the conflict between Israel and Iran. Initial fears of a prolonged U.S. involvement gripped the markets. However, it now appears that the American strike was a limited, one-time action—pending any potential response from Iran. This added a layer of uncertainty going into the open, but also laid the groundwork for a fast-paced turnaround.

Markets opened on Sunday evening with a classic risk-off reaction. Gold surged, indices gapped lower, and safe haven currencies like the CHF briefly spiked. But the bearish sentiment didn’t last. By the time Monday’s European session approached, markets had flipped the script. The overnight risk-off gap was rapidly covered: indices started climbing higher, gold gave back all its gains and then some, and surprisingly, the Yen turned into the weakest major currency on the board.

In fact, the rebound is painting a surprisingly optimistic picture. After the initial panic, risk appetite seems to have reasserted itself, and we’re heading into the European open with a broadly positive sentiment across equity markets. Traders seem to be pricing in the idea that the conflict won’t escalate much further—at least for now.

Looking at currencies, the American dollar and Swiss franc are showing strength this morning, while the Yen—despite its traditional role as a safe haven—is falling sharply. Among the weakest in the G10 group are the Australian and New Zealand dollars, continuing last week’s softness.

Oil, which also opened with a bullish gap, is showing a similar reversal pattern. Prices surged initially on renewed concerns about potential disruptions in the Strait of Hormuz. But as the market gauges the likelihood of a broader regional blockade, enthusiasm has cooled. Oil remains elevated, but it’s retreating from the weekend’s highs and failing to break significantly higher.

On the crypto side, the weekend was nothing short of dramatic. Bitcoin and other major cryptocurrencies plunged sharply during the height of the geopolitical uncertainty. However, Monday morning has brought a V-shaped recovery. Bitcoin, Ethereum, and others are bouncing strongly, mirroring the broader market’s sudden shift in sentiment.

On the macro front, today’s calendar is focused on flash PMIs from major global economies. Expectations are split—European PMIs are likely to stay below the 50 threshold, pointing to ongoing stagnation, while the U.S. figures are expected to remain in expansionary territory. These reports could add another layer of momentum—or hesitation—depending on how they print.

After a tense and uncertain weekend, the markets are beginning the new week with cautious optimism and an eye on further developments in the Middle East. Let’s see if this positive mood holds through the sessions ahead.

Source: https://www.axiory.com/analytics/market-news/geopolitical-shock-absorbed-yen-sinks-equities-rec