Futures are up sharply following an after-hours reset in oil prices and VIX.

continued for members…

Note that CL’s reversal leaves it in breakout mode. And, last I checked, there was still a war between Israel and Iran. So, caution is still warranted.

VIX is nearing an 8% plunge ahead of the open – back below the SMA200 which we noted on Friday was an important line in the sand for algos.CL’s breakout is still in force as long as it remains above 71.

Gas is also still in breakout mode.

So, it’s notable that TNX is barely higher. It speaks to the safety trade, money moving into treasuries.The breakdown in the 2s10s purple channel is beginning to show. There is horizontal support at 40 bps, which might attract more attention than the purple channel.Remember our maxim: breakdowns cause corrections; breakouts cause crashes. So, bears need 2Y yields to crater. something they just haven’t done yet.

The failure of yields to follow oil prices higher, combined with the likelihood of the FOMC not cutting rates later this week, certainly hasn’t helped DXY.

It’s largely due to EURUSD’s continuing rally.

The war is obviously a wild card. If oil prices remain at this level, inflation will become even more of a problem. Some Fed watchers were already calling for rate hikes before the war began.

Inflation has been able to decline so much largely due to oil/gas price declines. So, CL dropping and remaining below the red TL is crucial to CPI continuing to decline. The chart below assumes gas prices remain at their May price level of 3.022 (per EIA.)

Look what happens if gas prices jumped just 10%, the level seen last August. CPI would easily return to 3%. Combined with tariff price hikes (due to resume on July 9), a rate hike starts to look quite possible.

Stay tuned…