The USD has started the week on a low note in the US. This follows Japan’s elections, where the ruling party lost its majority in the upper house. As a result, the JPY has strengthened against major currencies. The USDJPY is currently trading below its 200-hour moving average, which suggests a possible bearish trend. Both the EUR and GBP are also gaining ground against the USD. These currencies are approaching or exceeding their 200-hour moving averages, indicating that they may continue to rise if the USD weakens further.

US Stock Futures Update

US stock futures are predicting a higher opening. The Dow is up by 97.81 points, the S&P has increased by 15.71 points, and the NASDAQ is up by 57.28 points. In contrast, European indices display mixed results: Germany’s DAX is down 0.14%, France’s CAC has fallen 0.44%, and the UK FTSE 100 remains nearly unchanged. US debt market yields have decreased. The 2-year yield stands at 3.850%, the 10-year yield is at 4.373%, and the 30-year yield is at 4.938%. This decline supports the weakening USD. Crude oil prices have dipped slightly, while gold has risen by 0.99% to $3382.76. Bitcoin is also trading higher at $118,603. The Fed is currently in a quiet period ahead of the July interest rate decision. The US Treasury Secretary has indicated progress in trade talks but stressed the need for better quality in agreements rather than speed. Given the current market signals, we recommend that derivative traders prepare for ongoing USD weakness. The dollar’s decline is reinforced by falling US Treasury yields, with the 10-year yield dropping below 4.40%, a crucial psychological level. This decrease suggests that the market expects future interest rate cuts, making dollar-denominated assets less appealing.

European Currencies Insight

For traders focused on European currencies, breaking the 200-hour moving average is a key buy signal. We suggest considering near-term call options on the EUR/USD and GBP/USD to take advantage of this upward movement. Recent Commitment of Traders (COT) reports from the CFTC indicate that large speculators are consistently reducing their net-short positions on the Euro, showcasing that institutional investors are preparing for a possible rally. The yen’s strength, despite political uncertainty in Japan, emphasizes its role as a primary safe-haven asset during trade tensions. Derivative traders might want to buy puts on the USD/JPY to protect against potential escalations in trade disputes. Historically, during global economic stress, like the 2019 US-China trade war, the yen has notably strengthened even amidst domestic challenges. The significant drop in bond yields before the Federal Reserve’s quiet period is a critical indicator for traders. Market probabilities from federal funds futures, such as those on the CME’s FedWatch Tool, show a greater than 90% chance of at least one 25-basis-point rate cut by the end of the year. This outlook reinforces the bearish sentiment for the dollar and supports strategies that benefit from lower interest rates. While US stock futures indicate a potential rise, a divergence is emerging that derivative traders can exploit. The equity rally appears driven by the prospect of cheaper money, but the bond market is signaling caution about the economy. In this situation, buying protective put options on indices like the S&P 500, or purchasing calls on the VIX volatility index, is a smart strategy to guard against possible market downturns if economic indicators falter. Gold’s significant rise above $2,350 per ounce supports the narrative of a weak dollar and a shift toward safe-haven assets, particularly amid uncertainty in trade talks. The August 1 date highlighted by Bessent is likely to heighten volatility. We recommend that traders think about long positions in gold derivatives to hedge against inflation and geopolitical risks in the upcoming weeks. Create your live VT Markets account and start trading now.

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