Market sentiment remains cautious early Friday despite mild optimism surrounding progress in the U.S.-Iran peace negotiations. Traders stay divided as Washington signals meaningful movement toward a deal framework, while Tehran continues to resist direct talks with the U.S., insisting on Pakistan-mediated discussions under strict conditions and showing no willingness to loosen control over the Strait of Hormuz.
Iran-related developments dominated market sentiment throughout the session. Initial risk aversion emerged after reports claimed Iran’s Supreme Leader opposed uranium removal, fueling fears of a prolonged diplomatic deadlock. Sentiment later improved when Iranian officials dismissed the report as anti-deal propaganda.
Risk appetite strengthened further after Al-Arabiya reported that the U.S. and Iran had reached a draft agreement guaranteeing free navigation across the Gulf, Strait of Hormuz, and Sea of Oman. The report pushed equities to session highs, pressured oil prices, and erased earlier gains in the USD and Treasury yields.
However, optimism faded slightly after Iran’s President reiterated that Tehran would not retreat in negotiations, while reports also suggested Pakistan’s Army Chief would delay a planned Tehran visit. Markets later stabilized after Al Jazeera reported intense mediation efforts, with negotiators said to be close to preparing a draft agreement, though uncertainty over a final breakthrough remains.
Central bank commentary offered little surprise. Fed’s Austan Goolsbee maintained a relatively hawkish tone by emphasizing inflation concerns. Fed official Thomas Barkin also warned about risks on both sides of the policy mandate but said current settings remain appropriate for handling economic shocks.
U.S. economic data painted a mostly resilient picture. Initial jobless claims held near expectations at 209K, reinforcing labor market strength. Housing starts and building permits also exceeded forecasts despite elevated Treasury yields and mortgage costs.
The U.S. Flash Purchasing Managers Index (PMI) showed stronger manufacturing activity offset by softer services data. Survey details indicated factory output continued to benefit from temporary inventory accumulation, while Middle East tensions weighed on export demand and broader business confidence.
In currency markets, the U.S. Dollar Index (DXY) holds onto recent gains despite remaining on track for a weekly decline. The firmer USD continues to pressure EURUSD, GBPUSD, AUDUSD, and NZDUSD, while USDCAD extends its winning streak near six-week highs and USDJPY edges toward a second straight weekly advance.
Gold remains under pressure after Thursday’s Doji candlestick pattern, heading toward a second consecutive weekly loss as USD strength limits demand. Crude oil also stays weak after back-to-back declines, while Bitcoin (BTC) and Ethereum (ETH) continue to trade without a clear short-term direction despite their recent recovery attempts.
The U.S. Dollar trades mildly higher in quiet Friday conditions, with no major data or events to drive momentum. As a result, EURUSD and GBPUSD extend Thursday’s losses with a cautious tone, while USDJPY stays mildly bid within its two-day uptrend and moves toward a second straight weekly gain. EURUSD remains under pressure for a second consecutive week, while GBPUSD still holds weekly gains despite the latest pullback and softer domestic data.
Germany confirmed Q1 2026 GDP growth at 0.3% q/q, while the GfK consumer sentiment index improved slightly into June, though overall confidence remains fragile.
Japan’s Nikkei surged more than 2%, outperforming peers despite weaker inflation data. Core CPI slowed to 1.4% y/y, the lowest since March 2022, while the BoJ’s preferred core-core measure eased to 1.9%. The slowdown was largely seen as subsidy-driven, keeping expectations of a June BoJ rate hike intact.
UK consumer confidence rose to -23 in May from -25, while Ireland’s sentiment rebounded sharply to 59.4 from 53.3. Despite the improvement, households in both regions remain cautious due to geopolitical and energy risks.
UK retail sales disappointed in April, falling 1.3% m/m versus -0.6% expected, while ex-auto sales also declined more than forecast.
BoE policymaker Taylor said further rate hikes may still be justified under the current outlook.
AUDUSD and NZDUSD both decline on the day. AUDUSD remains on track for a weekly loss, while NZDUSD is only trimming its weekly decline. USDCAD extends its four-day uptrend and is heading for a third straight weekly gain, supported by firmer USD, weak crude oil, and a mixed outlook for Canada. Despite generally supportive trade headlines from China, AUD, NZD, and CAD fail to attract buying interest in an otherwise quiet session.
Beijing softened its stance on foreign investment in China’s technology sector, offering a mild boost to regional sentiment. New Zealand retail sales also beat expectations in Q1 2026, showing stronger quarterly and annual growth.
The spot Gold (XAUUSD) extends losses for a second straight day and is set for a second weekly decline, pressured by Thursday’s Doji formation, a firmer U.S. Dollar, and weak sentiment around key physical buyers such as India and China. Despite continued central bank accumulation, hawkish major central banks signal tighter liquidity conditions, limiting support for gold demand amid geopolitical uncertainty linked to Iran and USD strength.
The metal also ignores ongoing official sector buying, as tighter policy expectations weigh on overall liquidity and risk appetite. Technically, gold has broken below a 7.5-month support zone, now acting as resistance near $4,560, shifting focus toward the 200-day SMA around $4,370 as the next key support level for bearish momentum.
Market caution is visible across major asset classes, with limited momentum in crude oil, cryptocurrencies, and equities. WTI crude oil struggles to extend its two-day losing streak amid ongoing Iran-related uncertainty. Bitcoin (BTC) and Ethereum (ETH) also lack clear direction after a brief two-day rebound, while Asia-Pacific equities fail to fully track Thursday’s mildly positive Wall Street tone.
OPEC+ is expected to approve an oil output increase of 188,000 barrels per day (bpd) at its June 7 meeting, adding further supply-side focus to the oil outlook.
Asian equities closed slightly higher in calm trading, while Wall Street finished mixed. Semiconductor and consumer defensive stocks underperformed, with Nvidia (NVDA), Intel (INTC), Walmart (WMT), and Costco (COST) among the weakest names. Despite this, the Dow Jones Industrial Average (DJI30), S&P 500, and Nasdaq still ended the session with modest gains.
Canada Retail Sales and Germany’s IFO Sentiment will steer early trading, alongside the second readings of U.S. University of Michigan (UoM) Consumer Confidence and Inflation Expectations. Markets will also watch the swearing-in of Kevin Warsh as Federal Reserve (Fed) Chair, plus any updates on U.S.-Iran peace talks.
Optimism around U.S.-Iran negotiations via Pakistan, combined with a light data calendar, may keep pressure on the U.S. Dollar (USD). This could allow EURUSD, GBPUSD, AUDUSD, and NZDUSD to attempt recovery moves, while USDJPY and USDCAD remain relatively supported. Crude Oil may stay under downside pressure.
Gold (XAUUSD) could remain under strain despite possible USD softness, with bearish candlestick signals still capping upside near key resistance. Cryptocurrencies are likely to extend weekly gains, while equities may edge higher unless risk sentiment weakens sharply.
Markets are also positioned around the U.S. Memorial Day holiday, making Friday the final major trading session before liquidity thins. U.S. stock and bond markets will be closed on Monday, with bonds closing early at 2:00 p.m. ET on Friday and futures operating under adjusted CME and Cboe schedules.
May the trading luck be with you!
