In European markets, stocks saw small declines as investors reviewed US job data and tariff news. Eurozone retail sales in June increased by 0.3%, falling short of the expected 0.4% rise. Germany’s industrial orders dropped by 1.0%, contrary to the expected increase of 1.0%. However, Germany’s construction PMI for July improved to 46.3, while the UK’s PMI fell to 44.3, below the estimated 48.8. In the US, mortgage applications rose by 3.1% for the week ending August 1, reversing a previous decline of 3.8%. Concerns about US economic data arose again, affecting market sentiment. The Australian dollar (AUD) and New Zealand dollar (NZD) were the top performers, while the US dollar (USD) lagged. European stocks edged slightly upward, with S&P 500 futures taking a 0.2% gain. In the bond market, US 10-year yields climbed by 3.2 basis points to 4.227%. Gold fell by 0.5% to $3,365.13, reversing gains made on Monday and Tuesday. Meanwhile, WTI crude oil rose 1.5% to $66.13, rebounding from earlier losses. Bitcoin increased by 0.5% to $114,215. With no major news or data releases to come, market focus is shifting to the upcoming US CPI report next week.

Market Holding Pattern

The market is currently in a waiting phase, caught between disappointing US labor and service reports and new trade agreements. This mixed, calm environment suggests traders are cautious about making strong moves until clarity emerges. As a result, be careful about chasing small price movements in the short term. Next week’s US Consumer Price Index (CPI) report is the key event everyone is watching. Following a slight easing in the annual inflation rate to 3.1% in July, this upcoming report is crucial to determine if disinflation continues or stalls. Until then, expect major assets to trade within tight ranges as investor confidence remains low. This quiet period before the CPI data is a perfect opportunity for buying volatility. We suggest that derivative traders consider strategies such as long straddles or strangles on major indices like the S&P 500 or currency pairs like EUR/USD. These strategies benefit from significant price moves in either direction, which is likely once the inflation data is released.

European Economic Concerns

The economic data coming from Europe is quite alarming. Germany’s industrial orders fell by 1.0% instead of the expected increase, and the UK construction PMI dropped sharply. This suggests a negative outlook for European markets and weakness in the Euro and British Pound. We saw a similar trend between 2012-2014, where weak industrial data from Europe led to significant Euro underperformance. The current situation with Germany’s industrial sector, a key player in Europe’s economy, appears troubling once again. Thus, considering put options on the DAX or shorting EUR/USD may be wise responses. The US dollar is in a tricky position right now, lagging due to our own weak data. This is why commodity currencies like the Australian and New Zealand dollars appear stronger, breaking away from the usual pattern where the dollar gains during global growth concerns. In commodities, the rise in US 10-year yields to 4.227% likely has a stronger impact on gold than the weaker dollar is helping it. The recent increase in oil prices seems technical, finding support around its 100-day moving average. We recommend not overanalyzing these movements until the economic landscape becomes clearer next week. Create your live VT Markets account and start trading now.

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