The US Dollar remains stable within its previous ranges, with limited drops around 1.3700. The US Dollar Index is slightly declining due to falling US yields. The US Dollar has notched a slight rise against the Canadian Dollar as risk appetite decreases. Canada’s upcoming Producer and Import Price data and the BoC Business Outlook Survey may impact the Loonie.

Price Movements Are Constrained

Price movements are tightly controlled, with support levels above 1.3700 and resistance below 1.3720. The US Dollar Index, which measures the dollar against six major currencies, is trending down because of falling US Treasury yields. Today, with no significant US economic events, focus shifts to possible tariff decisions. There is still hope for trade deals ahead of the 1 August tariff deadline. Canada expects a slight 0.1% increase in industrial product prices for June, following a 0.4% drop in May. Raw material prices are projected to fall by 0.2%, continuing the trend of decreases. The Bank of Canada’s Business Outlook Survey may provide new insights for the Canadian Dollar. This survey gathers economic sentiment from business leaders, affecting views on the CAD’s strength.

Economic Indicators and Currency Valuation

Changes in the Industrial Product Price and the Raw Material Price Index are key indicators of inflation. These figures are vital for economic evaluations and currency valuation. Given the current stability, there’s an opportunity in the tight price movements. The narrow range suggests low volatility, which can be good for strategies that capitalize on the pair staying between 1.3700 and 1.3720. However, this calm is probably temporary. We’re observing downward pressure on the greenback caused by decreasing American bond yields. For example, the US 10-year Treasury yield recently dipped below 4.25%, dragging down the dollar index. This trend makes holding the dollar less appealing, limiting any potential gains for the pair. Eyes should shift to Canada, as its upcoming economic reports might trigger a price breakout. With Canada’s annual inflation rate easing to 2.9% in May, another soft producer price report could boost expectations of a September rate cut from the central bank. The Business Outlook Survey will be key in shaping these views. Given these upcoming reports, traders should prepare for increased price swings. Implied volatility for options is likely to rise ahead of the Bank of Canada’s announcements. This is a time to consider positions that can benefit from sharp moves in either direction, instead of assuming the current calm will continue. Historically, differences in policy between the two central banks lead to long-lasting trends. For instance, in 2015, the Canadian central bank cut rates while the US was about to tighten, which significantly raised the currency pair over several months. A similar situation could develop now if the data supports differing monetary policies. Beyond economic data, geopolitical factors like potential tariffs are unpredictable wildcards that could lead to a flight to safety. Such a scenario would likely boost the US dollar, overcoming the current technical resistance. We need to stay alert for unexpected news that could outweigh domestic data influences. Create your live VT Markets account and start trading now.

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US and European 10-year yields have dropped significantly today. Germany’s yield fell to 2.615%, down by 6.3 basis points. France’s yield is now at 3.295%, decreasing by 9.0 basis points, and the UK dropped to 4.613%, down by 6.0 basis points. Switzerland’s yield is at 0.423%, a reduction of 5.0 basis points. Spain’s yield has fallen to 3.217%, down by 16.9 basis points, while Italy’s stands at 3.484%, down by 8.0 basis points. These changes in European yields come as the European Central Bank (ECB) prepares for its announcement and the release of flash PMI reports for the eurozone. Even after recent measures, the ECB is expected to keep rates stable. The euro remains strong, and inflation is low. Since last Thursday, the euro-dollar exchange rate has risen, currently trading at 1.17159, above its 200-hour moving average.

US 10-Year Yield Decrease

The US 10-year yield dropped by 7.3 basis points, reaching 4.357%. This year, it has decreased by 21.5 basis points. For European 10-year yields, Germany is up by 25 basis points, France by 10, the UK by 3.2, Switzerland by 13.2, Spain by 15, and Italy down by 6.6. The rise in long-term yields presents a challenge for overall financial conditions. The sharp drop in bond yields signals a key opportunity based on the growing gap between the US and European markets. Data indicates that US borrowing costs are on a downward trend, while Europe’s remain high despite central bank actions. This supports our strategy to bet that US rates will fall quicker and further than those in Europe. We consider the spread between the US 10-year Treasury and the German 10-year bund—currently about 1.75 percentage points—a vital indicator. Historically, this gap narrows when the market expects the Federal Reserve to cut rates more aggressively. Recent US inflation reports show a softer 2.7% annual rate for May, suggesting further tightening of this spread in the coming weeks.

Currency Market Signal

The currency market is sending a clear message, with the EUR/USD breaking through important technical levels like the 1.1658 moving average. We see this as evidence of US dollar weakness and are using options to target the 1.1725 resistance level identified in our analysis. This approach allows us to benefit from upward momentum while managing risk ahead of this week’s ECB decision. Mr. Michalowski’s comments about the August 1 tariff deadline and political tensions remind us to brace for potential volatility. The CBOE Volatility Index (VIX) has been relatively low, hovering in the 12-14 range, indicating market complacency. We are acquiring protection through put options on broad market indices to guard against any surprises from ongoing trade discussions. His insight into European yields rising this year despite rate cuts underscores an important market trend. It shows that central bank policy isn’t the only factor, prompting us to avoid oversimplified bets on rate directions. Instead, we are focusing on relative value trades, such as preferring Italian debt over German debt, to take advantage of the economic differences within the Eurozone. Create your live VT Markets account and start trading now.

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The USD/JPY pair has fallen to around 147.70 as the Japanese Yen gains strength. This comes after Japan’s parliamentary elections, where Prime Minister Shigeru Ishiba lost his party’s majority in the upper house. Japan’s markets were closed for Marine Day. Despite the setback, Ishiba intends to keep his position, though there is ongoing political uncertainty after losing the lower house majority in October.

Trade Uncertainties Affecting the Yen

Trade tensions between the US and Japan are putting pressure on the Yen. The US has imposed a 25% tariff on Japanese imports, but Japan hopes for a resolution. The US Dollar has slightly corrected after trade issues with the EU, with the US Dollar Index around 98.15 after hitting a peak of 99.00. In the US, traders are reducing their bets on a dovish Federal Reserve, as June’s CPI report shows rising import prices. The Bank of Japan’s monetary policy impacts the Yen’s value, along with the difference in bond yields between the US and Japan. The Yen is seen as a safe-haven currency, drawing in investors during times of market stress. Its strength often comes from its stability compared to riskier currencies.

Political Risk and Yield Advantage

With the political uncertainty after the elections and Mr. Kishida’s low approval ratings, we expect continued volatility for the Yen. This instability, combined with Japan’s reputation as a safe-haven asset, suggests traders should prepare for sharp declines in the USD/JPY pair. Buying USD/JPY put options might be a good strategy to hedge against or profit from sudden Yen strength. However, the fundamental situation is largely influenced by the significant interest rate difference between the US and Japan. The US 10-year Treasury yield is around 4.2%, while Japan’s 10-year government bond yield is below 1.0%. This strong carry trade favors the dollar, making it risky to short the USD/JPY pair without a clear reason. It’s also important to note the recent interventions by Japanese authorities. The Ministry of Finance spent a record 9.8 trillion yen in April and May 2024 to support its currency when the pair exceeded the 160 mark. This action may create a perceived ceiling, making traders cautious about holding long positions at high levels. These conflicting factors—political risk versus yield advantage—suggest a time of high implied volatility, recently around 9-10% for one-month options. We see a trading opportunity in this volatility through strategies like long straddles or strangles, allowing traders to profit from significant price swings in either direction without needing to predict the specific cause. For those who have a directional bias, we believe option spreads provide a defined-risk approach. A trader who is cautiously bullish on USD/JPY due to the rate difference could buy a call spread. This strategy could yield profits from a modest rise in the pair while limiting losses if government actions or political news trigger a sudden drop. Create your live VT Markets account and start trading now.

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Inflation in New Zealand rose by 2.7% in the second quarter, slightly below the expected 2.8%. The smaller increase was partly due to rents not rising as much as anticipated. The inflation rate for the last three months was 0.54%, down from 0.93% in the previous quarter. This brings it back within the central bank’s target range after a higher rate earlier in the year.

High Service Inflation

Service inflation remains elevated, above 1% from the previous quarter, and is accelerating. However, lower prices for goods provide some relief amid a weak economic outlook. The Reserve Bank of New Zealand may act cautiously, even with the lower inflation figure suggesting a possible interest rate cut in August. This cut might be the last in the current cycle. The drop in inflation supports the case for an interest rate cut by the Reserve Bank. Current derivatives markets suggest there’s over an 85% chance of a 25 basis point reduction in August, which aligns with the data showing inflation is back within target levels. Yet, we need to tread carefully because service inflation remains tough. Official data shows domestic non-tradable inflation stubbornly high at 4.7% annually. This pressure indicates that the central bank should not be overly aggressive in easing policies.

Trading Strategies Amid Inflation Data

With this outlook, we are considering trades that benefit from a single rate cut, but not from a full easing cycle. One strategy is to use interest rate swaps, where we receive a fixed rate on the short end of the curve while paying a fixed rate on the long end. This position profits if near-term rates drop, but long-term expectations remain stable. The speculation that this might be the last cut in the cycle is important, as it differs from past trends. Recent easing cycles since 2000 often included multiple cuts averaging over 150 basis points. The current economic weakness, along with persistent price pressures, presents a unique challenge not seen before. This complex situation also opens up opportunities in currency derivatives. While a rate cut would normally weaken the New Zealand dollar, hinting at it being the final cut might strengthen the currency. We think buying options to capture volatility could be a smart way to trade the expected short-lived market reaction. Create your live VT Markets account and start trading now.

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The New Zealand Dollar (NZD) might pull back against the US Dollar (USD), likely staying between 0.5925 and 0.5970. Recent declines in the NZD appear to be stabilizing, and the currency is expected to trade between 0.5905 and 0.6000 in the near future. Last Thursday, the NZD hit a low of 0.5907 before bouncing back. On Friday, it climbed to 0.5991 and closed at 0.5961, an increase of 0.49%. Although another pullback is possible, it will likely stay within the 0.5925/0.5970 range.

NZD Consolidation Phase

In early July, forecasts predicted a weaker NZD, but recent trends suggest this downward movement has ended. The NZD reached a high of 0.5991, breaking through the resistance level of 0.5980. This indicates that previous weaknesses are fading. Current trends suggest a consolidation phase between 0.5905 and 0.6000. The provided information includes forward-looking statements and involves potential risks. This data is for informational purposes only and should not be interpreted as trading advice. It’s essential to do thorough research before making investment decisions, as investing involves risks. Given the expected consolidation, we believe it’s a good time to sell volatility rather than predict a direction. Derivative strategies like short strangles or iron condors, which benefit from time decay and minimal price fluctuations, seem suitable. Our analysis indicates that the pair will remain stable, creating a favorable setup for these strategies.

RBNZ Policy Impact

The Reserve Bank of New Zealand’s (RBNZ) policy limits the upside for the local currency. Governor Orr has kept the official cash rate at a restrictive 5.5% to control inflation, which latest data shows at an annual rate of 4.0%. We believe this cautious stance from the central bank effectively caps significant gains for the NZD at this time. On the USD side, there’s no clear directional driver, reinforcing the sideways outlook. The U.S. Federal Reserve is also taking a cautious approach, looking for more certainty that inflation is heading toward its 2% target before making any rate changes. This creates a balanced environment against currencies with a similar wait-and-see approach. Historically, we’ve seen similar consolidation periods in this currency pair following sharp moves. For instance, late in 2023, the pair traded sideways for weeks after a significant drop before its next major move. Current implied volatility for NZD/USD options has decreased, indicating that the market doesn’t expect a major breakout soon. Create your live VT Markets account and start trading now.

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The Japanese Yen rose at first in trading after the recent elections, even though the Liberal Democratic Party (LDP) lost its majority in the upper house for the first time since 1955. The prime minister does not plan to resign, but the government has ten days to finalize a trade deal with the US, focusing on car tariffs because of the importance of car exports.

Political Challenges and Economic Proposals

The brief relief from political uncertainty quickly faded, and the Yen lost its gains. The LDP-Komeito coalition now faces more challenges in governance, making it more dependent on opposition parties. This may lead to increased public spending due to necessary concessions. Before the elections, the government proposed a one-time payment to households to help with inflation, while the opposition wanted a permanent reduction in VAT, which would affect the national budget. The International Monetary Fund (IMF) warns that Japan’s budget deficit may rise from 2.5% of GDP to over 5% in the future. This scenario increases the risk of higher long-term bond interest rates, putting pressure on the Yen. Negotiations with the US will be the main focus in the coming days. We think the Yen’s initial rise was just a short-term reaction, and it will likely continue to weaken. The weakened ruling coalition indicates potential legislative deadlock and a greater chance of populist spending measures to gain support. This political instability suggests a less stable economy ahead. The main reason for a weaker Yen remains the gap in interest rates between Japan and other major economies. The Bank of Japan is only now starting to normalize its policy, while the U.S. Federal Reserve maintains high rates, making yen-denominated assets less appealing. Japan’s current core inflation is around 2.2%, which is not enough to prompt aggressive tightening from the traditionally cautious central bank.

Fiscal Spending Concerns

The increased possibility of higher government spending raises major concerns, especially since Japan’s government debt exceeds 260% of GDP. Any concessions made to the opposition, like the proposed VAT cut, would further worsen the budget deficit highlighted by the IMF. This situation would likely be financed through more debt, increasing the risk premium on Japanese government bonds and putting additional pressure on the Yen. In the short term, we see the US trade negotiations as a source of volatility rather than a shift in the overall trend. The current 2.5% US tariff on passenger cars is a key point that could lead to sudden, short-term currency fluctuations. We can use derivatives, such as buying USD/JPY call options, to position for Yen weakness while managing risks around this event. This environment resembles the early “Abenomics” period, where bold fiscal and monetary policies led to a rapid drop in the currency’s value. The current push for spending, combined with a hesitant central bank, creates a similar situation. Therefore, we should adjust our positions to take advantage of a weakening Yen in the coming weeks. Create your live VT Markets account and start trading now.

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Today’s market showed strong performance in the technology sector, led by major industry players. Microsoft increased by 0.28%, signaling confidence in tech infrastructure. Meanwhile, Apple’s rise of 1.54% showed growth in consumer electronics. The sustained demand for technology and electronics could explain this sector’s resilience. The semiconductor sector also saw positive movement, bouncing back from earlier challenges. Broadcom jumped by 2.14%, thanks to strong earnings and new partnerships. Nvidia gained 0.35%, reflecting ongoing industry demand.

Market Sentiment Overview

Overall sentiment appears cautiously optimistic, with mixed results in other sectors. Communication services performed well, highlighted by Google’s 2.02% rise and Meta’s 1.32% increase, likely driven by positive advertising revenue forecasts. In finance, Visa and JPMorgan Chase gained 1.13% and 0.29%, respectively, indicating stability. The consumer cyclical sector saw Amazon increase by 0.84%, which reflects consumer demand trends. Engaging with the technology and semiconductor sectors may provide short-term benefits. A diversified portfolio, including financials and consumer cyclicals, can help reduce risks tied to specific sectors. Staying updated on market trends and earnings reports is crucial for making strategy adjustments.

Strategic Investment Opportunities

According to Levitan’s analysis, the strong performance in technology presents a clear chance for bullish derivative plays. Traders might consider buying call options on leading tech and semiconductor ETFs to benefit from this upward trend. This strategy aligns with the strong investor confidence noted in his report. We see this optimism supported by solid data. The Semiconductor Industry Association recently reported a 15.2% year-over-year increase in global sales as of April 2024. This growth bodes well for chipmakers and suggests that selling cash-secured puts on top-performing companies in the sector could be a smart way to earn premium income. The options market supports this sentiment, with recent data from the Cboe showing that call option volumes for the Nasdaq 100 ETF (QQQ) are significantly higher than put volumes, indicating traders expect further gains. Historically, the current market is notable for its low volatility. The Cboe Volatility Index (VIX) has been at its lowest levels in years, making it cheaper to buy options contracts. This presents a great opportunity to purchase protective puts on broader market indices as a cost-effective hedge against the mentioned sector-specific risks. Looking ahead, we are watching key industry events for potential movements, such as Apple’s upcoming Worldwide Developers Conference in June. Traders may use short-dated options, like straddles or strangles, to benefit from expected price fluctuations around such announcements. This aligns with the advice to keep an eye on corporate reports for strategic adjustments. Create your live VT Markets account and start trading now.

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The Bank of Canada’s Q2 Business Outlook Survey shows that the impact of tariffs on business outlooks is less severe than in Q1. The Business Survey Indicator dropped slightly from -2.12 in Q1 to -2.42 in Q2. Firms are less worried about extreme tariff situations, but tariffs and uncertainty still significantly influence their views.

Investment And Employment Plans

Many companies plan to keep their current workforce and limit new investments to maintenance over the next year. Businesses focused on exports expect fewer extreme tariff events than in Q1. A steady 23% of firms believe inflation will stay above 3% for the next two years. Additionally, 43% expect labor costs to decrease, while 9% anticipate an increase. Consumer inflation expectations for the next five years rose slightly to 3.45%, up from 3.39% in Q1. About 24% of firms reported a drop in sales, down from 28% in Q1. Furthermore, 28% expect a recession in Canada, a decrease from 32%. The future sales indicator balance decreased from +22 in Q1 to -6. The USDCAD exchange rate has been volatile but remains around the 200-hour moving average. The next target is the 38.2% retracement level at 1.36902, with more selling potential below that. The business outlook survey presents a mixed picture. Firms are less fearful but are also not planning to invest or hire extensively. This opens opportunities for traders looking for a stronger Canadian dollar. The report’s technical breakdown under the 200-hour moving average signals action.

Macroeconomic Factors

We think this bearish view on USDCAD is supported by recent macroeconomic data. For example, Canada’s job market surprised with an increase of 90,400 jobs in April 2024, much more than expected. This strong employment may limit the central bank’s ability to lower interest rates soon, helping the currency. While survey participants expect high inflation, Canada’s annual inflation rate slowed to 2.7% in April, providing the central bank with some leeway. This contrasts with the U.S., where persistent price pressures remain a key concern for monetary policymakers. This difference in monetary policy is a major reason we believe the currency pair will decline. With this outlook, we are positioning through derivatives for further drops in USDCAD. This could mean buying put options or shorting futures contracts, targeting the 38.2% retracement level around 1.3690. The 200-hour moving average near 1.3785 is crucial as a stop-loss level, as Michalowski suggests. Typically, significant currency levels that break often see a retest before a further move continues. Thus, we should brace for potential price fluctuations and use any rallies back toward that critical moving average to enter short positions. If the level holds and moves above it, our bearish outlook is invalidated. Create your live VT Markets account and start trading now.

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Gold is currently trading below the resistance level of $3375. Technical indicators suggest a possible increase in buying interest. If the price breaks above this resistance, it could reach targets of $3450 and the highs from April, around $3500. A key support level to watch is $3280. Recently, gold has been forming a base close to $3375 after hitting resistance near $3500 in April. The daily MACD indicator is above the baseline, showing upward momentum.

Potential Uptrend Breakout

If gold moves past $3375, it could continue its upward trend, targeting $3450 and the previous peak range of $3500 to $3520. The support level at $3280 is essential for market stability. Given the current technical indicators, we think traders should prepare for a potential upward breakout soon. The price consolidation just under the resistance, along with bullish signals, suggests that strategies like buying call options or setting up bull call spreads could be beneficial. These strategies would enable traders to profit if prices move higher. This positive outlook is backed by strong demand fundamentals. The World Gold Council reported that central banks bought an impressive 290 tonnes of gold in the first quarter of 2024. This large-scale purchasing provides a solid price floor, which limits potential price declines.

Impact of Macroeconomic Trends

Recent economic data supports the expectation of higher gold prices. U.S. inflation in May cooled to 3.3%, which was below expectations. This has raised market hopes for a Federal Reserve interest rate cut, with the CME FedWatch Tool indicating almost a 70% chance of a cut by September. Lower interest rates often make holding non-yielding gold more attractive. Historically, gold has performed well when the central bank starts to ease rates, similar to the 2019 pivot that led to a significant rally. This trend suggests the current market conditions could favor a notable price increase. We view the current price behavior as a potential starting point for a similar surge. The sentiment among large speculators also supports this outlook. The latest Commitment of Traders (COT) report shows that money managers are increasing their net-long positions in gold futures, indicating institutional investment betting on price rises. Such positioning often precedes significant market shifts. Thus, we recommend setting strike prices for long call positions around the $3450 target to take advantage of the anticipated price movement. The noted support level is crucial for managing risk. If the price decisively drops below that level, it would signify that the bullish outlook might be failing, prompting us to exit those positions. Create your live VT Markets account and start trading now.

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The Australian Dollar is holding steady above 0.6500 after a recent turnaround. The softer US Dollar and moderate risk appetite help support the currency, but upward movement seems limited. With no major economic news expected, the market remains stable. There is optimism about better US-China economic relations due to talks of a meeting between their leaders at the APEC summit.

Technical Analysis Shows Mixed Signals

Technical analysis indicates mixed signals, showing weak momentum and a hesitant market. The AUD/USD pair is just above 0.6500, with possible drops to 0.6450 and 0.6375. Resistance is found around 0.6545 and 0.6590. Key factors impacting the AUD include interest rates from the Reserve Bank of Australia (RBA) and the price of Iron Ore, a significant export. Additionally, the state of the Chinese economy, Australia’s biggest trading partner, is crucial. The RBA’s interest rate decisions significantly influence the AUD. The Trade Balance, which shows the difference between export income and import costs, also plays a role. A positive Trade Balance strengthens the currency, while a negative one weakens it. Current stability above 0.6500 presents an opportunity for range-bound strategies. Given the mixed signals, traders might consider selling call options near the 0.6590 resistance level. This strategy takes advantage of anticipated limited upward movement.

Current Market Dynamics and Future Predictions

The recent decision by the central bank to raise interest rates to 4.35% is likely already factored into the market. Futures markets indicate an over 80% chance that rates will stay steady in December. As a result, we don’t expect any immediate upward momentum from domestic monetary policy. Australia’s trade balance supports the currency, with a September surplus of A$12.24 billion, exceeding expectations. However, concerns about China linger, as the recent manufacturing PMI fell to 49.5, indicating slight contraction. This mixed data suggests a tug-of-war that may keep the currency stable. Iron ore prices have surged recently to over $130 per tonne, a multi-month high driven by stimulus hopes in China. This strength in commodities is likely to prevent sharp declines to the 0.6450 support level. A softer US Dollar also plays a significant role. A recent US inflation report showed the annual rate slowing to 3.2%, reinforcing expectations that the Federal Reserve will not raise rates further. This change reduces a major downward force that has affected the AUD/USD pair for months. Taking these factors into account, we recommend strategies that benefit from low volatility. A short strangle—selling both an out-of-the-money put and call option—could be effective. This strategy works best if the currency pair stays within its key support and resistance levels in the coming weeks. Create your live VT Markets account and start trading now.

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