Morning Note: Oil Bounces Back; ECB's Digital Currency Timeline; UK Economic Surge

Oil Prices Rebound, Eyes on Iran and OPEC Output

Oil prices inched higher during the early Asian trading session today, recovering from the previous session’s sharp decline and on track for a weekly gain of over 1%. The market was buoyed by renewed optimism over U.S.-China trade relations, which overshadowed concerns about a potential return of Iranian crude supply. Earlier in the week, prices had rallied after the U.S. and China, the two largest oil-consuming nations, agreed to a 90-day ceasefire in their trade dispute, pausing further tariff hikes and easing fears of a significant global economic slowdown.

Despite the positive trade developments, oil markets remain sensitive to shifting supply conditions. A potential agreement between Washington and Tehran could pave the way for Iranian oil to re-enter the global market, adding to existing supply pressures. This possibility, coupled with ongoing concerns about rising production from other OPEC members, continues to weigh on investor sentiment, despite a temporary easing in geopolitical tensions.

(Crude Oil Futures Daily Chart, Source: Trading View)

From a technical analysis perspective, crude oil futures have rebounded from the support zone of 55.30 – 56.10, forming a significant double bottom candlestick pattern. Recently, it has been rejected from the resistance zone of 63.00 – 63.80 but was supported by bullish momentum, as can be observed by the previous daily candlestick, which closed with a long lower wick. Therefore, it may potentially move higher to retest the resistance zone again in the near term.

ECB Targets 2026 for Digital Euro Launch

According to ECB board member Piero Cipollone, the European Central Bank (ECB) aims to finalise all necessary political decisions by early next year to pave the way for the launch of a digital euro. Once the legal framework is in place, the ECB expects it will take an additional two to three years to roll out the digital currency. The central bank has been exploring a digital euro for several years, but the process has been delayed primarily due to the absence of supporting legislation.

Recent financial instability following Donald Trump’s election has added urgency to the project. It highlights Europe’s dependence on major U.S. payment companies like Visa and Mastercard, a potential vulnerability in the digital payment ecosystem. Cipollone emphasised that, unlike traditional card payments, digital euro transactions would offer consumers a direct claim on the central bank, providing a level of security and functionality akin to physical cash.

(EUR/USD Daily Chart, Source: Trading View)

From a technical analysis perspective, the EUR/USD currency pair has been rejected from the resistance zone of 1.1530 – 1.1560 since April 21, 2025. The pair has been under bearish pressure, as reflected by the formation of lower highs and lower lows. It is currently retesting the previously broken swap zone of 1.1170 – 1.1210. If it fails to close above this zone, the pair may potentially move lower and retest the support zone of 1.0910 – 1.0950.

UK Economy Surges, but Trade and Tax Risks Build

The UK economy delivered stronger-than-expected growth in early 2025, offering a political lift to Finance Minister Rachel Reeves and the government. According to official figures released Thursday, GDP rose by 0.7% between January and March, a marked improvement from the modest 0.1% increase in the final quarter of 2024. Reeves hailed the data as evidence of economic resilience, noting that Britain outpaced other major economies like the U.S., Canada, France, Italy, and Germany during the first quarter.

Despite the upbeat figures, challenges loom. The Bank of England has cautioned that the early-year momentum may not last, projecting GDP growth of just 1% for the full year and only a modest rise to 1.5% by 2027. Businesses have voiced concerns over higher employment costs, driven by Reeves’ recent hikes in social security contributions and the minimum wage. Additionally, escalating global trade tensions stemming from Donald Trump's tariffs are expected to weigh on the outlook, posing further risks to sustained recovery.

(GBP/USD Daily Chart, Source: Trading View)

From a technical analysis perspective, the GBP/USD currency pair has been rejected from the resistance zone of 1.3380 – 1.3420 since April 28, 2025. The pair has been under bearish pressure, as reflected by the formation of lower highs and lower lows within the descending channel. Such valid bearish structure may suggest the pair may potentially move lower and retest the swap zone of 1.3060 – 1.3100.