Financial markets headed into Friday with renewed optimism after President Trump announced that planned military strikes against Iran had been called off amid signs of progress in negotiations.

Risk assets embraced the news.
The Nasdaq 100 surged 3.3%, while the S&P 500 gained 1.8%, reflecting a broad improvement in investor sentiment. Meanwhile, traditional safe havens lost some appeal as the US Dollar weakened against major currencies and US Treasury yields declined.
However, investors should remain cautious.

Why Markets Are Celebrating
Trump's decision to step back from further military action reduced fears of an immediate escalation in the Middle East. Oil prices, which had initially spiked on geopolitical headlines, retreated as traders concluded that a full-scale disruption remained unlikely.
The market's reaction suggests investors increasingly view aggressive rhetoric as part of a negotiating strategy rather than an inevitable path toward conflict.

But Risks Haven't Disappeared
Despite the relief rally, Iran stated that no final agreement has yet been approved by its leadership. This uncertainty means geopolitical risks remain firmly on the table.

For traders, the environment remains challenging:
⚠️ Headlines can rapidly reverse sentiment.
🛢️ Oil remains vulnerable to supply concerns.
🏅 Gold continues to attract buyers on dips.
💵 The US Dollar could regain safe-haven demand if tensions escalate again.
The current optimism is built on expectations—not confirmed outcomes.
ECB Delivers a Hawkish Surprise
Attention also turned to Europe, where the European Central Bank raised interest rates by 25 basis points, lifting its deposit rate to 2.25%.
More important than the hike itself was ECB President Christine Lagarde's tone.
While she avoided committing to a specific policy path, Lagarde rejected the idea that this was merely a one-off "insurance hike," leaving the door open for additional tightening if inflation pressures persist.
This cautious but hawkish stance provided support for the Euro and reinforced the ECB's data-dependent approach.

Market Outlook
Markets have chosen to embrace Trump's diplomatic pivot, but the situation remains fragile.
As long as negotiations continue and tensions stay contained, risk assets could extend gains. However, any setback in talks or renewed escalation could quickly revive volatility across equities, currencies, oil, and precious metals.
In today's environment, traders should remain flexible, disciplined, and prepared for sudden shifts in sentiment.