The week started on an ugly note except for those who have a long exposure to energy related assets. The crumbling dovish Federal Reserve (Fed) expectations at the wake of a blowout jobs report from the US and the mounting geopolitical tensions in the Middle East give investors a hard time at the start of this week. The US 2-year yield advanced to 4% for the first time since August and consolidates near 3.95% this morning, while the 10-year yield advanced and stayed at 4%. The barrel of US crude traded past the $78pb, and Brent crude traded past the $80pb mark. Some profit taking is taking place right now as Chinese authorities announced no new stimulus measures as expected today, but given the rising tensions and the lack of visibility on how the complex geopolitical situation could resolve, oil prices have a further room to run toward the upside. US crude currently sees resistance near the 200-DMA (near $78pb), but a rise to and above the 200-DMA and to and above $80pb is possible and probable, especially if the Iranian oil facilities become targeted by the US-backed Israel. In the long run, regardless of how messy the Middle East picture gets, oil prices will end up giving back the geopolitically-led gains, but the severity of the conflict could prolong the correction timeline. That, combined to the Chinese stimulus measures and lower rate prospects could have a material impact on inflation expectations globally and bring the Fed members’ attention back to the inflation leg of their mandate.

As such, the unalarming nature of the US jobs numbers and the spike in oil prices get investors to question whether the US needs another rate cut in the November meeting. That idea has been maturing since Monday as the ‘no landing’ scenario is gently creeping in, suggesting that the US economy will continue to grow, inflation will remain sticky and the Fed will be stuck with its rate policy in the coming months. The probability of a 50bp cut fell to 0% post-US jobs data, the probability of no November cut was standing just around 2% yesterday and  is up to 12% today.

The sharp retreat in Fed expectations gives support to the greenback which has been weakening since summer. The US dollar index surged and stabilized near a major Fibonacci level after last week’s jobs data, the 38.2% retracement on summer retreat, the 102.50 level, that should distinguish – later this week when the US CPI update lands - between the latest bearish trend and a medium-term bullish reversal. Likewise, the EURUSD bears are waiting in ambush near the 1.0980 level, the major 38.2% Fibonacci retracement on the summer rebound, to decide whether to send the euro into the medium-term bearish consolidation zone against the greenback. And even the Aussie – which sees the positive vibes from the Chinese stimulus measures, an open-minded Reserve Bank of Australia (RBA) regarding both rate cuts and rate hikes depending on the economic situation and where the consumer mood hit the highest levels in 2.5 years, is testing its own major Fibonacci support this morning, near 0.6720 level.

One thing that will help traders decide what direction to take is the US CPI, due to be released on Thursday. If soft enough, Thursday’s CPI update could eventually help calming the Fed doves nerves and prevent the US dollar from stepping into the medium-term bullish consolidation zone against many majors. If not, the no November cut pricing could take off, and that would mean higher yields, a stronger US dollar across the board, weaker other currencies, and some negative pressure on equity valuations as the US indices continue to wait near ATH levels.

The S&P500 gave back around 1% yesterday. Tech stocks were heavily hit, oil stocks gained. The VIX index is rising, suggesting that a lack of appetite could encourage investors to take profit and move to the sidelines.