US Iran tensions have markets on edge
US Retail Sales on tap
Nikkei -0.40% Dax -0.61%
UST 10Y 2.06%
Oil $52/bbl
Gold $1352/oz.

Europe and Asia:
CNY Industrail Production 5.0% vs. 5.4%

North America:
USD Retail Sales 8:30

Markets were on edge at the end of the week with USD and yen gaining in overnight trade on safe harbor flows as tensions between the US and Iran continued to escalate over the sabotage of oil tankers in the Gulf.

US accused Iran of masterminding the attacks on oil tankers in the Strait of Hormuz producing a grainy video of what US officials purported to be an Iranian navy ship removing an unexploded mine off the hull of a Japanese tanker. US officials quickly stated that they have no intentions to escalate the conflict - but the tension in the Gulf clearly demonstrates Iran's frustration at the US led effort to isolate its economy.

Faced with near ironclad sanctions and seeing its economy hemorrhage, the Iranians may be resorting to state-sponsored terrorism in the Gulf to disrupt the vital oil shipping lanes. The US/Iran conflict has been simmering for quite some time and if it escalates it could present the isolationist Trump administration with an inevitable choice of engaging in yet another Middle East conflict.

All of this has put the capital markets on guard with US 10 year yield now at an astounding 2.06% rate as safe harbor flow are relentless. The drop in yields revived risk off flows into the buck and the yen with both topping the leaderboard in overnight trade as high beta currencies drift back to multi week lows. The Aussie has given up the .6900 figure, kiwi broke below .6550 and cable is once again flirting with the 1.2600 level.

Today's US Retail Sales numbers could change the narrative if they print better than expected - and the market is projecting a big rebound to 0.7% from -0.2% the period prior - but if we learned anything over the past six months it's that the US consumer has been far more cautious than the surveys indicate, so any miss in the data would only amplify the calls for a Fed cut by July.

For now USDJPY remains above its key spike lows of 10.65 from the start of the year and if it can hold this level for the rest of the day, it may begin to form a hint of a double bottom. Negative sentiment in the market is near hysterical levels, but for now it shows no signs of abating.

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