North American traders back in action as oil rises on Mideast tensions

The US dollar is moving in a mixed direction against major currencies, with minimal changes, as traders in North America come back after the Labor Day break.

Currency markets remained open on Monday, but equity and bond markets in the US and Canada were shut. That made for thinner liquidity and lower activity. The situation shifts now as traders in both countries resume work.

The biggest FX move so far is in the NZD/USD pair, which has fallen about 0.60%. The rest of the major pairs are trading within 0.30% of their Monday closing levels.

The USD/JPY is edging lower following a steep drop on Monday. That selloff was set off by a technical breakdown through last week's lows and the early August support zone around 155.20-155.29. After that level failed, buying momentum dried up and sellers drove the pair significantly lower.

Selling has persisted on Tuesday, pushing the USD/JPY to a session low of 152.90 before it bounced back toward 154.28. The recovery has pulled the price far from the low, but the technical damage from the break below 155.20-155.29 remains.

Here is a snapshot of the major currency pairs:

• EURUSD: 1.1615, down 0.05%
• USDJPY: 154.23, down 0.08%
• GBPUSD: 1.3532, down 0.04%
• USDCHF: 0.8113, up 0.26%
• USDCAD: 1.3806, down 0.05%
• AUDUSD: 0.7213, down 0.03%
• NZDUSD: 0.5843, down 0.60%

US bond yields are climbing as the Treasury market comes back online after the holiday.

Treasury yields are up as bond traders resume trading after the long weekend:

• 2-year yield: 4.381%, up 0.2 basis points
• 5-year yield: 4.565%, up 1.5 basis points
• 10-year yield: 4.796%, up 1.2 basis points
• 30-year yield: 5.253%, up 0.8 basis points

The biggest rises are at the long end of the yield curve. While higher yields can offer support to the US dollar, market participants still require price action to confirm the underlying bias.

US equity futures are showing a weaker opening

Stock index futures are indicating a negative start as traders come back from the extended weekend:

• Dow Industrial Average futures: down -462 points
• S&P 500 futures: down -27 points
• Nasdaq futures: down -34 points

The drop in futures comes as market participants react to rising yields and the fresh uptick in Middle East tensions.

Crude oil rallying sharply on Middle East conflict

Oil is the standout market mover on Tuesday. West Texas Intermediate crude futures have advanced $2.28, or 2.49%, to trade at $93.76.

Crude prices are underpinned by a fresh rise in geopolitical tensions. Houthi rebels, backed by Iran, carried out missile and drone strikes on multiple cities in southern Saudi Arabia, hitting energy infrastructure and other sites.

The strikes ignited fires and briefly paused operations at certain energy locations. Saudi officials reported that 73 people sustained injuries. The Saudi-led coalition has pledged to retaliate, heightening the chance that the conflict expands.

The attacks inject more uncertainty into a market already worried about lower tanker movements via the Strait of Hormuz. Iran has imposed stricter controls on shipping through that waterway and cautioned that US energy assets in the Gulf are still at risk.

For crude traders, the concern goes beyond output that may already have been affected. The market must also factor in the potential for reprisals, more strikes on energy infrastructure, and further shipping interruptions.

This geopolitical risk premium is contributing to the rise in crude oil.

Other markets are moving in the opposite direction:

• Gold: down $34.19, or 0.74%, at $4,394.71
• Silver: down $0.27, or 0.40%, at $65.89
• Bitcoin: down $1005, or 1.27%, at $78,245

Gold and bitcoin are both declining even with the fresh geopolitical worries. This indicates that the primary response to the Middle East developments is focused on the energy sector, not a general rush into traditional safe havens.

A look at the economic data from the overnight session

Japan's revised Q2 GDP growth came in at 0.4%, meeting forecasts and marginally higher than the preliminary reading of 0.3%. The GDP price index remained steady at 2.6%.

The bigger surprise was in wage data. Average cash earnings rose 4.7% from a year earlier, beating the 3.8% consensus and accelerating from the prior 4.0%.

Faster wage gains are significant for the Bank of Japan. Stronger pay can bolster consumer spending and maintain upward pressure on prices, giving the BOJ greater assurance that inflation is on a sustainable path.

Japan's Economy Watchers Sentiment rose to 46.4 from 45.7, slightly exceeding the 46.3 forecast. But the reading remains under the 50 threshold, meaning survey participants still see the economy as more negative than positive.

In Australia, the Westpac consumer sentiment index dropped 5.2% after a 6.0% gain in the prior month. NAB business confidence slipped to -8 from -7.

China's trade surplus expanded to CNY809 billion from CNY767 billion, a hair above the CNY805 billion forecast. In dollar terms, the surplus grew to $119.1 billion from $112.5 billion, also a touch above estimates. That outcome is unlikely to please President Trump. Chinese President Xi Jinping is scheduled for a visit later this month.

In Europe, Germany reported a trade surplus of €21.3 billion, comfortably above the €16.0 billion consensus and higher than the prior €15.4 billion.

France's trade deficit increased to €6.7 billion, versus a forecast of €6.0 billion and a previous shortfall of €5.8 billion.

In the US, the NFIB Small Business Optimism Index declined to 98.7 from 99.8, missing the 99.4 expectation.

The rest of Tuesday's US economic schedule is fairly sparse. That will keep trader attention on the normalization of North American liquidity, the uptick in bond yields, the softness in equity futures, and the ongoing impact of Middle East events on crude prices.