Soft inflation data should have been the story this week. It was not. By Friday close, the market had stopped pricing central banks and started pricing Bahrain, Jordan, Kuwait, Oman, Qatar and Syria, all six of them hit by Iranian retaliation this week while the US completed a sixth consecutive night of strikes. Gold posted its worst week since June. Oil ripped. And the dollar spent five sessions trying to decide whether it wanted to fall on rate cut hope or rise on war premium, and never fully committed to either.
Let me walk you through it.
Iran: Six Nights, Six Countries, No Ceiling in Sight
Start here, because everything else this week is downstream of it. Kuwait confirmed Iranian strikes hit one of its power and desalination plants, calling the damage severe. Iran also struck US targets or interests across Bahrain, Jordan, Oman, Qatar and Syria over the course of the week, and the US answered with a sixth straight night of strikes into Friday. This is not a skirmish anymore. This is a running war that the market keeps trying to price as a temporary risk event, and it keeps refusing to stay temporary.
The mechanism to understand is simple and it is the same one that has been running since February. War in the Gulf threatens the Strait of Hormuz. Threats to the Strait threaten oil supply. Oil supply threats are inflationary. Inflation keeps Warsh's Fed from cutting, and can even put hikes back on the table. That is a headwind for gold in the near term even though gold is historically a safe haven, because right now the market is trading the inflation channel harder than the fear channel. Know which one is driving the price before you trade the headline.
Gold: Worst Week in Six, Defending the Floor
Gold closed the week trading down roughly three percent, its steepest weekly decline in six weeks, changing hands in the $3,990 to $4,015 area. That is a meaningful reversal from where the week started, and it happened almost entirely on the back half as the Iran escalation accelerated.
Here is what actually moved the metal, and it is not what most casual observers assume. June CPI came in soft, 3.5 percent year over year against a 3.8 percent forecast, with core at 2.6 percent against 2.8 percent expected. PPI fell 0.3 percent month over month. Jobless claims dropped to 208,000, the lowest read in over two months. On paper, that is a disinflationary set of numbers that should have supported gold and pressured the dollar. It did, for about two days.
Then the Iran story took back the wheel. Oil spiking on war risk reintroduced the inflation narrative that the soft CPI print had just started to dismantle, and the market shifted its attention from what the data says to what six nights of strikes on six countries implies about the next print. Support sits at $3,950. Resistance is stacked around $4,060. Neither has broken cleanly, which tells you the market has not made up its mind either, it is just leaning bearish for now.
Oil: The Number That Explains Everything Else
WTI crude gained more than ten percent this week, closing near $82.50 after a Friday session alone that added roughly four and a half percent. Brent settled near $88.10, also up sharply on the day. This is the move that dragged gold lower, kept the dollar from falling as hard as the CPI print suggested it should, and is going to define next week's positioning across every asset class tied to inflation expectations.
The driver is not complicated. Kuwait's oil and desalination infrastructure took a direct hit. Six nights of US strikes with no resolution in sight. A market that spent June pricing a ceasefire and is now unwinding that trade in real time. When oil moves ten percent in a week off a geopolitical catalyst, every other market becomes a derivative of that move until the catalyst resolves one way or another. That is where we are.
Forex: The Dollar That Could Not Decide
The dollar was set up for a genuinely soft week. Traders cut rate hike bets hard on Tuesday and Wednesday after the CPI and PPI prints, and the DXY was tracking toward a clean weekly decline. Then the Middle East reasserted itself and clawed most of that move back by Friday, leaving the index roughly flat to marginally lower around 100.70 to 100.90 for the week, a far cry from the decisive drop that looked likely midweek.
EUR/USD closed essentially flat at 1.1437, capped the same way it has been for weeks. GBP/USD slipped about a quarter percent to 1.3456, still range bound and waiting on a catalyst neither side of the Atlantic has delivered yet. USD/JPY pushed back to 162.40, a level that keeps drawing attention because it sits inside the zone Tokyo has previously described as uncomfortable, without yet forcing anyone's hand.
Warsh testified before the House Financial Services Committee on Tuesday, his first appearance before Congress since being sworn in as Fed Chair on May 22. The message was the one you would expect from him by now: inflation is not beaten, the labour market has room to absorb tighter policy, and nothing about geopolitics changes that calculus except to make the case for patience stronger. Markets are currently pricing an 85.6 percent probability the Fed holds at its July 29 meeting, with September hike odds ticking up to roughly 53 percent from 47 percent earlier in the week. That move alone tells you which narrative won by Friday.
The Week in Summary
Soft CPI, soft PPI, a two month low in jobless claims, and none of it mattered by Friday afternoon. Gold fell roughly three percent on its worst week in six. Oil rose more than ten percent on six consecutive nights of US strikes against a widening Iranian target list. The dollar essentially flat after nearly breaking lower. September rate hike odds rising, not falling, in a week where the domestic data argued for the opposite.
That is the tell for next week. When geopolitics can override a genuinely disinflationary data set inside of three trading days, geopolitics is the trade until it is not. Watch the Strait of Hormuz headlines before you watch the calendar. The calendar did not move this market this week. Six nights of strikes did.
Levels into next week: gold $3,950 support, $4,060 resistance. Oil, no clean technical level matters right now, only headline risk. EUR/USD 1.1400 the pivot. USD/JPY 162 to 163 the zone everyone is watching. Set your risk before Sunday night, not Monday morning.