Friday Chart Book

Wars, Bonds & US-Dollar

Friday the 13th it is, and I was woken up by the news that Israel conducted an operation and launched air strikes on Iran overnight. This followed days of speculation and Israel’s growing frustration regarding a potential US-Iran nuclear agreement. Markets have reacted as one would expect, but less violently than anticipated. Why is that? Generally, I believe the risk is now a reality, and markets have already anticipated a possible escalation.

Geopolitically, it is unlikely that Iran will respond due to limited means, which opens the door for a quick de-escalation. Oil prices jumped 5%, rendering the recent rally in bonds now less potent for portfolio diversification following more benign inflation prints (see detailed analysis further below) and solid treasury auctions this week. The Israeli Shekel paints my assumptions and conclusion nicely so far, as we are unwinding a lot of the initial weakness, suggesting markets were prepared for some of this to occur. It’s still early doors, however.

We are seeing similar moves in Crude this morning, which has already undone half of the initial move (early London trading hours). Again, this might change as the day progresses.

In conclusion, I wouldn’t be surprised if we see some mean reversion of the initial moves across asset markets. Notably, the USD has seen some strength after the hammering yesterday, which was seemingly driven by barrier structures (RKO’s) being taken out. Below is the Bloomberg USD Index.

In those structures, the buyer of the option is increasingly short delta as the barrier (knock-out) approaches, forcing them to replace it with Spot (buying EURUSD in that case). Once the barrier is hit, his position is gone while the dealer is buying back his short, cascading the move higher, likely triggering other barriers in the process. Read my free educational primer on FX options below for context.

Aside from today, markets felt like trading for a quiet summer ahead. If recent history has taught us something, there is nothing like it, as there are tons of opportunities knocking. Those who fall for wishful thinking to take the summer off will probably come to regret it.

My 2025 buy-and-hold portfolio hit a new high watermark yesterday, being up more than 12% YTD in USD, outperforming US indices comfortably, driven by some of the macro roadmap ideas I laid out for readers a few months ago. Nothing has changed in my mind.

A few reversal signals have been firing up this week in my models, most notably in FX and across some commodities, which has somehow warned us that some risk-off sequence is unfolding. So far, so good.

What’s next is possibly a bit of an unwind of a very popular macro narrative, namely US 30-year treasuries, which saw a solid auction yesterday. Stabilising long-dated yields in Japan and the UK has settled the fiscal tragedy narrative for now. 30-year US yields stand at 4.84% with real yields of 2.6%, offering pretty compelling entry points. Now that some real-money bond gurus are proclaiming the end of the US long bond, I can see a scenario unfolding where we can potentially rally a bit. I have nothing crazy in mind. 25-30 bps from here should do the trick.

A reminder that you can now also use my models in TradingView scripts, which I made available for subscribers to use on their charts. This is not for free and incurs an additional cost.

If you are interested, ping me an email with your TV username. Note that only paying subscribers will be granted access. No exceptions.

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Let’s now read some of Macro D’s latest thoughts on the US, China, Europe and what’s next for inflation before we go through all 250+ chart setups across Rates, FX, Commodities, Crypto, Stocks, and ETFs.

Have a great weekend, everyone!