Stocks and Oil Rise Amid Middle East Tensions; Dollar Firms

U.S. Markets

U.S. equity markets declined about 1.90% last week after a weak labour market report rattled investor confidence. The February Non-Farm Payrolls (NFP) data showed the U.S. economy lost 92,000 jobs, compared with expectations of a gain of 58,000, signalling an unexpected slowdown in employment growth. Following the data, the Dow Jones Industrial Average and Nasdaq each declined more then 1% on Friday, while the VIX surged 24%, reflecting a sharp rise in market volatility and growing investor caution toward the economic outlook.

Today, U.S. markets are trading lower as geopolitical tensions and surging energy prices continue to weigh on sentiment. The S&P 500 is currently down about 1.39% at $6,642, and the Nasdaq is down by 1.57% at $24,282, as today marks the ninth day of the conflict, keeping investors cautious about the broader macro impact.

Energy markets are adding pressure. WTI crude has gapped up and gained more then 20% today to around $119 per barrel, highlighting the scale of the supply shock. The surge in oil prices is damaging the outlook for global inflation and growth, forcing investors to adjust expectations toward a much harsher macro environment. Higher energy prices are likely to ripple across economies for months, creating sustained pressure on equities.

Stress in the private credit market is also emerging as another bearish signal for U.S. equities. Private credit funds that heavily financed software companies are now facing rising risks as AI disruption weakens parts of the software sector, while a spike in oil prices is pushing global borrowing costs higher. As loan valuations fall and liquidity concerns rise, investors are beginning to pull capital from private credit and reduce exposure to riskier assets. This tightening in credit conditions could further pressure growth-oriented sectors and add another headwind for broader U.S. equity markets.

Markets will now focus on this week’s CPI and PCE inflation readings for directional cues, along with earnings from Oracle, Adobe, and Hewlett Packard Enterprise, among the key firms reporting.

Technically, SPX is currently trading above its 200 Day SMA, which is acting as its immediate support at $6,606, followed by $6,508 (horizontal line resistance). Immediate resistance is at last week’s low at $6,710, followed by Friday’s high at $6,847.

U.S. Dollar Index 

In early trading hours, the DXY reached $99.75 but later fell to $99.38. This modest pullback occurred as WTI reached a high of $112 before retreating to around $100, easing some pressure on the dollar.

On a fundamental level, we are now entering the 10th day of the war. During this period, oil prices have surged nearly 50%, rising from $64 to $100. As oil prices increase, inflationary pressures typically follow. A study by the Federal Reserve suggests that every $10 increase in oil can raise inflation by roughly 20 basis points. With oil moving from $64 to $100, this implies around 72 basis points of additional inflation, potentially pushing inflation close to 3%. This could remove the possibility of rate cuts, which is generally bullish for the dollar. However, the dollar could face a short-term pullback as major economies discuss releasing strategic oil reserves to stabilize energy prices. Despite this, the dollar remains supported as the scale of the oil rally is significant. Moreover, the US is a net energy exporter, and higher energy prices tend to support the dollar during such conflicts.

On a technical level, the dollar is trading above its 9, 21, 50, 100, and 200-day SMAs, reinforcing bullish momentum. However, it faces strong resistance around $99.70, a level it failed to break on March 2 and again in early trading today. A move above $99.75 could open the path toward the psychological level of $100. Currently, the dollar is respecting an ascending parallel channel connecting the lows of January 30, February 16, and February 27, while the upper boundary connects the highs of January 26, February 6, March 3, and March 6. The daily RSI is rising toward 66, supporting bullish momentum, while the MACD has increased from 0.007 to 0.36, further reinforcing the positive trend. On the downside, the next support potentially lies at $98.54, which coincides with 100 day SMA.

Crude Oil 

Crude Oil prices have gained a momentous 35% in the last trading week, marked by the significant escalations in the US/Israel and Iran tensions. Friday itself saw prices rise more than 15% by the close. Meanwhile, Monday’s early trading session saw WTI prices cross the $100 mark and briefly touch $119.5, before trading around $107, up 17%. 

The primary driver behind oil’s rally has been Iran’s effective closure of the Strait of Hormuz, which handles roughly 20% of the world’s daily oil shipments. As the war enters its second week, investors are pricing in a sustained supply disruption in the Middle East. As the route for oil shipments remains shut, inventory levels are reaching capacity, forcing producers such as Iraq, Kuwait, and the UAE to further reduce output. The only threat to prices could come from the recently announced release of emergency oil reserves by the G-7 countries to counter the soaring energy prices.

Crude oil prices are now trading near the levels last seen in 2022. In particular, prices are now encountering resistance at the highs from March and June 2022, near the 119.55 level. The 4-hour charts show the 9-EMA near the $95 level, which could act as the potential support. On the daily charts, WTI prices are trading significantly above all key moving averages, suggesting a bullish market structure.

Gold and Silver  

Gold tumbled sharply today and currently trading at 1.40% lower at $5,100, while silver fell by 1.36% to $83.31.

WTI's surge is fuelling US inflation fears, strengthening the dollar, and lowering the odds of near-term Fed rate cuts, all negatives for non-yielding gold. Meanwhile the Israel-Iran war is fuelling commodity volatility, and the interruption of Persian Gulf energy flows is sending crude soaring, while war-driven fear is prompting some investors to raise cash by selling gold even though heightened geopolitical uncertainty is typically supportive of haven allocations. The yellow metal is still up 18% year-to-date, buoyed by central bank buying. 

Meanwhile, the next major directional catalyst will be the likely duration of the Israel-Iran war, If it de-escalates quickly, a weaker dollar should lift gold. However, if the war drags on, inflation fears will remain elevated, further pressuring the asset. 

Gold is finding a floor around $5,100 after plunging to around the psychological level of $5,000. Momentum indicators have reset to neutral however, volatility is high, implying a big directional move will soon unfold. Holding above $5,100 maintains a near-term bullish bias, with resistance at $5,213, but a break back below $5,000 would open the door to a re-test of $4,900 near the 50- day SMA. 

Silver, currently trading near $83.31 and down 1.36% on the day, but remains trapped in a $82-$85 consolidation range between the 50 and 21-day EMA's. A sustained break above $85 is required to open the door to a re-test of $86-87, while a close below $81 puts $78.60 in play.