European markets are finding stability after last week’s rollercoaster session. Major financial indices in Europe have increased by over 1%, and S&P 500 futures have climbed by 0.6%. The US market is responding to disappointing job data with a positive outlook, expecting possible rate cuts from the Federal Reserve. Key tech stocks, especially those in the “Magnificent 7,” are gaining traction in pre-market trading as investors continue to buy on dips. In currency news, the US dollar is stabilizing after last week’s drop. The EUR/USD is slightly down by 0.1% at 1.1568. The USD/JPY is steady at 147.45, while the USD/CHF has risen by 0.4% to 0.8075. The Swiss franc is lagging after the markets’ return from a long weekend. Commodity currencies have shown little movement today.

Bond Yields and Commodity Prices

Bond yields have settled, with US 10-year yields inching up by 1 basis point to 4.225% after previously hitting 4.257%. This stability is impacting market sentiment, especially regarding USD/JPY. Gold prices remain steady, as interest grows for a potential rise above $3,400 before summer concludes. Meanwhile, oil prices have dropped, with WTI crude falling 1.8% to $66.10, and Bitcoin sees a slight uptick of 0.25, priced at $114,431. After Friday’s market turmoil, we are noticing a shift in sentiment this week. The weak US jobs report, showing only 85,000 job gains against a 190,000 forecast, is being viewed positively for stocks. Traders are now betting on Fed rate cuts, making call options on the S&P 500 and Nasdaq appealing as investments. This “bad news is good news” scenario isn’t new; we’ve seen it before during the market recovery in late 2020 and 2021. Back then, the Federal Reserve’s dedication to keeping rates low spurred a significant stock market rally despite ongoing economic worries. We might be entering a similar situation where hopes for monetary easing take precedence over immediate economic issues.

Weakness in European Markets

The US dollar’s upward momentum has been halted following its largest single-day decline since December 2024 last Friday. Although it has stabilized, the expectation of rate cuts makes holding long dollar positions risky. Traders might consider buying put options on the dollar index or selling out-of-the-money call options to prepare for possible further declines. Meanwhile, data from Europe shows signs of weakness. The Eurozone’s investor confidence has dropped to -3.7, its lowest since the energy crisis fears of late 2023. Additionally, the Swiss franc is underperforming due to another month of contraction in its manufacturing PMI, making short positions on the euro and franc a sensible hedge. Gold prices are holding strong above $3,360, rising from the same factors supporting the stock market. The CME FedWatch tool now suggests a 75% chance of a rate cut by the November 2025 meeting, up from 30% last week. This environment favors non-yielding assets, making the purchase of call options targeting recent highs above $3,400 an attractive strategy for the coming weeks. Create your live VT Markets account and start trading now.

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