XAG/USD has risen for three straight sessions, hitting a 14-year high of $39.13 before dropping to around $38.60. Increased demand for silver, driven by geopolitical concerns and fears of a trade war, is boosting the metal’s performance. Attention is now on the upcoming US CPI data, which may change expectations for Federal Reserve interest rates and affect silver prices. Tariff threats from the US President towards the EU and Mexico have heightened trade war fears, increasing interest in precious metals.

Silver’s Strong Momentum

Silver is currently supported in a rising channel, showing solid upward momentum. The metal has broken past a key resistance zone above $37, indicating renewed interest from buyers, with $40 now in sight. Technical indicators reveal that Silver’s RSI is in overbought territory at 73.15, while the ADX at 15.65 suggests a strengthening trend. If prices hold above $38.50, further gains may be possible, with support near $37.30. Silver’s price is influenced by geopolitical instability, interest rate shifts, and the behavior of the USD. Industrial demand, especially from the US and China, plays a role in silver’s pricing, and the metal typically tracks gold’s price movements. The Gold/Silver ratio can provide insights into their relative valuations. Silver’s recent rise—peaking at $39.13, a level not seen since 2010—reflects growing geopolitical tensions and the ongoing threat of new trade restrictions. The drop to $38.60 has not impacted the overall trend, which remains solidly supported in a rising channel, signaling more potential advances. This situation has attracted more investor attention due to changing global conditions.

Expectations for US Consumer Inflation Data

With US consumer inflation data arriving soon, interest rate market sentiment is likely to adjust. A surprising inflation figure could impact the Federal Reserve’s view, which would affect the dollar’s value. Since silver often moves inversely to the dollar, the CPI data’s impact could either support or undermine its recent gains. A weaker dollar, particularly if coupled with lower long-term yields, could boost silver prices. Mid-channel support now appears to be just above $37.30. If prices remain above this level, they may sustain short-term buying momentum. The significant surge past previous resistance at $37 signals renewed confidence, especially as market participants reassess the growing gap between industrial demand and interest in hedging against inflation. However, technical indicators suggest some caution. The RSI above 73 increases the risk of a short-term pullback, especially alongside an ADX of just over 15. These numbers don’t indicate exhaustion but suggest the early formation of a directional trend that typically allows for further movement — though it may face short-term pauses. Market focus has shifted back to safe-haven assets. Discussions about trade tariffs from Washington—especially if they become more aggressive or specific—are driving demand for metals that serve both as financial hedges and industrial materials. It’s also important to watch the Gold/Silver ratio. This ratio has been slightly narrowing, indicating that silver is outperforming gold relatively. Changes in this ratio can often predict where speculative and institutional investments may head next. A drop below the long-term average could encourage further strength in both metals, especially during times of real rate volatility. We recommend staying long, possibly through options or synthetic strategies, to account for the high RSI while also positioning for a potential break towards $40. Short-term pullbacks may provide better buying opportunities, especially if the $37.30 area holds. With industrial activity—particularly in Chinese electronics and the American automotive sectors—showing modest improvement, this demand offers additional support in a risk-sensitive market. Create your live VT Markets account and start trading now.

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Abbott Laboratories will announce its second-quarter 2025 results on July 17. Expected revenue is $11.07 billion, which is a 6.7% increase from last year. The anticipated earnings per share (EPS) is $1.25, showing a 9.6% growth compared to the previous year. The Medical Devices segment is expected to drive this growth, largely due to the increased use of continuous glucose monitors and cardiac devices. Recently, Abbott received approval for the Tendyne transcatheter mitral valve replacement system, which is an important development. The Established Pharmaceuticals Division is projected to see a 6.1% rise in revenue. This growth comes from strong sales in areas like gastroenterology and biosimilars, particularly in international markets. In the Nutrition sector, sales of the adult brand Ensure are expected to support revenue growth. Strong sales in infant and toddler nutrition brands are also anticipated, leading to a projected 4.3% rise in this segment. Abbott has an Earnings ESP of +0.96% and a Zacks Rank #2, indicating it is likely to exceed earnings estimates. Similar potential is noted for CVS Health, Cencora, and Cardinal Health, which are all set to release earnings soon. Abbott’s results on July 17 show positive signs: expected revenue of $11.07 billion indicates nearly a 7% increase from last year, while EPS is projected at $1.25—almost a 10% gain. This growth is not explosive but reflects steady progress in key areas. The Medical Devices segment stands out in this growth. The adoption of continuous glucose monitors and cardiac devices drives sales. The recent approval of their mitral valve replacement device offers long-term potential in cardiac care. Though such approvals don’t immediately impact earnings, they can positively influence future growth expectations. Abbott’s Established Pharmaceuticals Division is expected to see about a 6% rise in income, thanks to strong sales in digestive health and biosimilars, particularly in global markets. However, biosimilars can be affected by regional pricing and competition, so future conference insights or updated forecasts may reveal changes in short-term outlooks. In the Nutrition sector, strong consumer demand is key. Adult brands, particularly Ensure, are predicted to perform well. Much of the optimism also relies on their pediatric segment, which is generally stable and defensible. This leads to an expected 4% revenue increase in this category, but actual results will depend on inventory levels and market demand dynamics, which won’t be fully visible until Q3. The earnings surprise prediction (positive ESP of 0.96%) and current ranking suggest a strong chance that the actual figures will exceed consensus estimates. However, recent weeks have seen estimates firm up, reducing the margin for upside. Future results may be less surprising compared to previous quarters unless there are improvements in operational margins or regional sales. Abbott is not alone in expected earnings surprises. CVS and Cencora, known for distribution, are growing relevant in pharma earnings comparisons as they expand services. Cardinal Health might also surprise, but its sensitivity to generic pricing and product mix could lead to volatility after earnings. Observing reports closely can help identify trading opportunities based on deviations. This situation prompts us to focus not just on financial results but also on operational metrics within each division. Significant changes in margins in the devices and nutrition sectors may provide early signals about pricing pressures and cost management that could affect performance in the latter half of the year. If device sales exceed expectations but operating income does not, further investigation into supply chain costs or research and development expenses may be necessary. As July progresses, expectations are clearer. The devices segment offers a good lead indicator, but any updates should consider unit demand signals rather than just total sales. Unless there’s a change in guidance, any differences from consensus EPS estimates will be more critical for market positioning after the report.

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The USD/CAD pair is currently steady, influenced by US tariff threats against the EU and Mexico. The US Dollar is trading at about 1.3690 against the Canadian Dollar. Possible tariffs raise concerns for Canadian exports, potentially including a 35% tariff on imports and 50% on copper. Despite these challenges, a strong employment report from Canada has provided some support for the Loonie.

Bank of Canada Rate Cut Speculation

Speculation about the Bank of Canada making rate cuts again has eased for now. Canadian inflation data due Tuesday will help clarify economic trends and the central bank’s plans. The US will also release inflation data, expected to show a 3% rise in core CPI. This could impact the USD/CAD pair by shaping expectations for the Federal Reserve’s interest rate policies. Technically, USD/CAD has pulled back from 1.3713 and is testing the 20-day SMA at 1.3670. Resistance lies at the 50-day SMA around 1.3745, with further targets at 1.3798 and 1.3800.

Future Market Movements

A drop below 1.3670 could lead to further declines towards 1.3539 and 1.3419. The upcoming inflation readings from both countries may play a crucial role in determining future market movements. Price changes for USD/CAD have been quiet, with no strong influence from either side. The pair is just below 1.3700, indicating that investors are pausing to assess uncertainty around US trade policies. The possibility of high tariffs on imports from Mexico and the EU, including raw materials like copper, raises concerns about the Canadian Dollar’s export volume and competitiveness. Since Canada is closely tied to North American supply chains, it may feel the impact quickly. However, last week’s Canadian employment data provided some unexpected support. Increases in full-time jobs and a steady unemployment rate have reassured some that the labor market is stable for now. This has temporarily eased pressure on central bank policymakers and reduced expectations for immediate rate cuts. Still, the situation isn’t entirely clear. Both Canada and the US will release new inflation figures next week. In Canada, market watchers will monitor core measures after months of fluctuations. Any momentum in services inflation or surprises in headline rates could lead to new pricing adjustments. If inflation comes in lower than expected, it might push the central bank toward easing its policies, which would not be good for the Loonie in the short term. In the US, expectations lean toward a stable 3% year-over-year increase in core CPI. If this figure is unexpectedly high, it could suggest that the Federal Reserve still has work to do, delaying any rate cuts. A stronger dollar in this scenario would likely raise the USD/CAD pair, especially if monetary policy differences widen. From a technical standpoint, traders are closely monitoring the 1.3670 level, where the 20-day simple moving average is located. Prices have tested this level multiple times but haven’t broken below it yet. If there’s sustained movement under this level, technical targets for further declines could emerge near 1.3540 and possibly even 1.3420 if selling accelerates. These levels are significant since they represent areas of prior accumulation and could draw renewed interest. On the upside, resistance is near the 50-day moving average just below 1.3750, which has held firm recently despite upward attempts. Beyond this, the 1.3800 level is noteworthy, but reaching it may require an external catalyst, likely from inflation data or shifts in rate expectations. From our perspective, keeping an eye on the dynamics between policy divergence and upcoming inflation data will be crucial. Volatility could rise significantly if either release deviates from expectations. Short-term positions should incorporate volatility considerations and utilize tight stops on momentum trades. Longer-term strategies, particularly straddles and spreads around near-the-money strikes, could benefit from potential price movements in either direction in the coming sessions. Create your live VT Markets account and start trading now.

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Crude oil futures closed at $66.98, down $1.47 or 2.15%. Last week, prices hovered around the 200-day moving average, closing above it only on Friday. Today, prices hit a high of $69.61, the highest since June 24. However, the trend reversed, and prices dropped below the 200-day moving average of $68.33, eventually reaching a low of $66.87. On the hourly chart, prices fell below the 100-hour moving average of $67.97 and the 200-hour moving average of $67.37. This signals a bearish trend. Breaking below these important moving averages shows a rise in selling pressure. This gives sellers an advantage, making it tough for buyers in the market. Recent sessions displayed a strong effort by the market to rise, but selling pressure pushed the momentum down. The initial spike to $69.61 suggested bullish intentions, but that excitement didn’t last. Once prices couldn’t stay above the 200-day moving average, sellers took this chance to steer the market. When prices failed to hold above the 100-hour and 200-hour moving averages, a steady decline followed. These levels often serve as pivot points for short-term traders. Falling below them can lead to capital outflows from speculative buyers while attracting new short sellers. We’ve now seen a break below several key moving averages across different timeframes. In similar past situations, there is often continued selling pressure until prices hit solid support or buyers show enough strength to turn things around. With sellers pushing the market below both the 200-day and hourly moving averages, we may see an increased response to ongoing weakness. If the $66.87 low breaches further without attempts at recovery, more retracement is likely, especially if recent trading volumes confirm this trend. Investors should closely monitor how prices react around the $67.00 level in the short term. Any attempt to reclaim and close above previous support levels, now turned resistance, is significant. For now, momentum favors retracement rather than recovery. We are watching for any changes in volume and momentum indicators that might indicate weakening selling pressure. Until we see such signs, staying alert to potential downside remains smart. Targeting lower levels can be based on previous consolidation zones, paying attention to how order flow behaves near these areas. As prices stay just below key hourly averages, it’s crucial to consider not just what the price does but also what it doesn’t do. A lack of quick attempts to regain lost levels suggests more than just caution—it indicates market control.

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The S&P 500 dipped slightly on Friday, closing down 0.33% due to concerns over tariffs. President Trump’s potential new tariffs on Europe caused futures to drop sharply over the weekend, but the market bounced back, and the index is expected to start 0.2% lower. Attention is now on the upcoming earnings season, as major banks prepare to release their reports. The Consumer Price Index (CPI) data is also likely to be a key focus for this session. According to last Wednesday’s AAII Investor Sentiment Survey, 41.4% of individual investors feel optimistic, while 35.6% are pessimistic.

Market Consolidation Patterns

The S&P 500 is currently stabilizing, hovering around the resistance level of 6,300. The Nasdaq 100 showed a similar trend, falling 0.21% on Friday. The Volatility Index rose to 17.24 on Friday after reaching a local low, reflecting market fluctuations. Crude oil prices jumped 2.82% on Friday and rose another 1.3% this morning, reaching a three-week high. This increase is due to anticipated global supply tightening, influenced by higher Chinese imports and potential sanctions on Russia. Prices are currently above $69, with resistance between $70-72 and support from $68-69. Overall, the market appears hesitant after a relatively stable period. The slight decline in the S&P 500 last week was triggered by renewed trade concerns stemming from new tariff suggestions targeted at Europe by the U.S. administration. While futures quickly reacted to this, the initial panic subsided, allowing markets to stabilize as the week began, even though a slightly lower opening is expected. Investors are looking at early earnings reports for clues about market direction. As major financial institutions release their data soon, there’s anticipation on how these figures will confirm or challenge expectations. These reports come at a crucial time as inflation data remains uncertain, making the next CPI release particularly significant for policymakers and future rate decisions.

Investor Sentiment and Volatility

Last week’s sentiment report from the American Association of Individual Investors (AAII) revealed a significant divide: just over 40% of investors are optimistic, while about 36% are bracing for possible downturns. This division can leave the market open to quick swings, highlighting the current volatility. The S&P 500 is in a brief holding pattern, moving within a narrow range near the 6,300 resistance level. Each attempt to move higher has struggled to break through decisively. The Nasdaq 100 is also facing similar structural concerns, with its 0.21% decline last week reflecting growing unease and choppy trading. The Volatility Index, which measures expected future price movements, has increased from recent lows, rising to 17.24 on Friday. This increase follows a period of low readings and may signal the start of more significant price swings, which could shake out weaker positions in the coming sessions. Momentum is also affecting commodities, particularly crude oil. Prices have surged over 4% in just two sessions, reaching levels not seen in three weeks. This rise is linked to signs of tightening supply due to increased Chinese imports and discussions of new sanctions on Russia. With crude priced above $69, it is approaching strong resistance between $70 and $72, while support sits firmly between $68 and $69. This area is likely to be contested soon. In summary, we are not seeing chaos but rather a build-up of pressure on both sides. The price movements across equity futures, commodities, and sentiment indicators suggest we are at a pivotal moment where short-term positions may begin to shift more quickly. Those aware of where volatility is returning and where technical levels line up will have an edge. Don’t assume that the current calmness will last if upcoming data or earnings surprise in any direction. Create your live VT Markets account and start trading now.

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Since April, market conditions have improved, helping asset prices recover. However, economic and geopolitical risks are now clearer. Global debt levels remain high, which impacts growth forecasts and requires careful monitoring of market changes. The GBPUSD is moving lower, approaching a key swing point at 1.34137. This level was a low on May 29 and June 17. Recently, the currency pair fell below the 50% retracement level from the May increase, which was at 1.34638. The next significant retracement level is at 1.33873, corresponding to the 61.8% retracement.

Key Levels And Resistance

Last week, attempts to regain short-term control did not succeed, as prices couldn’t stay above the 100-hour moving average. This ongoing resistance pushed the price down further, with sellers remaining in control. The recent drop below the 50% retracement and repeated resistance shows that sellers are still dominant. This ongoing downward momentum may lead to a move towards the 61.8% retracement level. Looking at the current setup, it’s clear that the momentum in this pair is under pressure, and the direction has been consistent in recent sessions. The failure to hold above the 100-hour average confirms the prevailing short-term sentiment. Although there was hope for a bounce while prices tried to reclaim a foothold above past technical barriers, it didn’t last, and the subsequent pullback was significant. Falling below the midpoint of the May rally brings our focus back to critical levels that have attracted attention earlier this year. These levels saw strong reactions from both buyers and sellers. With this in mind, we could test the 61.8% retracement. If the price moves into this zone without obstacles, it would signify a clear loss of bullish ground gained in late spring. The decline from the key area of 1.34638 highlights the weakened demand recently.

Market Momentum And Strategies

For traders looking for clear positioning, it’s wise to focus on quantifiable trends instead of speculation. The trend is not just weak; it’s moving towards areas of past activity. Our perspective is that unless the price significantly rises above that failed average and holds, the most likely path continues downward. Low-volume jumps should not be interpreted as meaningful shifts just yet. When O’Brien mentioned a decline in broader momentum, it may have seemed premature at the time. In hindsight, that observation is more relevant now. The persistent push-backs from technical resistance areas indicate an unresolved imbalance beneath the surface. When Ghosh pointed out increasing liquidity concerns in related markets, some dismissed it. However, we are beginning to see how thinner execution layers can increase volatility around these key retracement levels. Currently, our focus is not only on the next retracement level but also on how the market reacts to it. If buyer interest does not show up significantly near 1.33873, we would consider any drop below that level as a more substantial decline, rather than a minor drift. For those using options or volatility-sensitive strategies, that point could act as a strike filter or volatility trigger — but it requires careful monitoring. Keep in mind that the distance between major levels has recently decreased. This compression signifies reduced tolerance for uncertainty among market participants and underscores the need for risk-offsetting methods to be as responsive as directional trades. We should pay more attention to short-term moving averages that define the boundaries of this inertia. If sellers keep defending these averages, the strategy should lean towards fading rather than chasing moves, especially during mid-session spikes that lack correlated flow. Finally, remember Becker’s observation from last week about flows from leveraged participants leaning in one direction. If chaos starts to enter from interest-rate expectations or other market factors, a drop below could be swift. Most importantly, the current structure isn’t volatile for mere noise; it’s systematic, albeit uncomfortable. Monitoring reactions around measured support instead of expecting reversals based on outdated narratives will keep positioning informed without overexposing. Create your live VT Markets account and start trading now.

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This week kicks off the quarterly earnings reports, starting with major banks and financial institutions. Six companies from the Dow 30, including J.P. Morgan and Goldman Sachs, are set to announce their earnings. Additionally, important economic reports like the US CPI, PPI, and retail sales data will be released. Canada’s CPI is expected to rise by 0.2% month-over-month (m/m). In the US, inflation figures predict a 0.3% increase for both Core and headline CPI m/m. Projections for the US PPI suggest a slight rise of 0.2% in Core PPI m/m and 0.3% in headline PPI m/m. Meanwhile, the UK’s CPI year-on-year (y/y) is anticipated to stay steady at 3.4%, putting pressure on the Bank of England. Australia is expected to add 21,000 jobs, keeping its unemployment rate at 4.1%. China’s GDP y/y is forecasted to be 5.1%, with a significant rise in new loans to 1,960 billion yuan. In Germany, the ZEW Economic Sentiment is likely to increase to 50.8, reflecting growing optimism about its economic outlook. The Empire State Manufacturing Index is expected to remain negative, while UK labor data shows easing wage pressures. The Philly Fed Index and the University of Michigan (UoM) Consumer Sentiment Index are expected to improve. This week places traders in a dynamic environment influenced by both earnings reports and a busy calendar of inflation and growth data, which could lead to quicker and possibly more volatile price movements. Bank earnings typically act as a benchmark for broader financial conditions. Reports from major firms like J.P. Morgan provide insights into credit quality, loan growth, and consumer behavior—important for short-term pricing. With CPI and PPI data coming in, inflation is central to macro trades. The expected 0.3% month-on-month increase in both headline and core US CPI indicates that disinflation hasn’t yet taken hold convincingly. Recent months have shown that even slight differences in these metrics can significantly adjust expectations. The projected 0.2% rise in US core PPI aligns with consumer trends, suggesting that pricing power remains strong among many producers. These values likely keep current rate expectations stable, without needing drastic adjustments. Canadian CPI offers cross-asset traders the chance to consider correlation trades, especially since oil-sensitive currencies may diverge more sharply. The forecasted 0.2% monthly increase suggests stability, allowing us to monitor the Bank of Canada’s next moves without the risk of overheating. It provides space for carry trades but still requires attention, especially if global inflation data is strong. Across the Atlantic, the expected steady UK CPI at 3.4% y/y may relieve pressure on the gilt markets, but its durability depends on labor data. Slowing wage growth is positive, but the strength of hiring announcements later this week will add more depth. Traders interested in inflation swaps or short-term interest rate options may find new opportunities here. Reduced pressure on the Bank of England suggests a softer tone at the next meeting, as long as employment data remains stable. In Australia, the job forecast is to add 21,000 jobs while keeping unemployment at 4.1%, affecting APAC markets, particularly in rates and currency volatility. We need to monitor changes in workforce participation and types of jobs created. A focus on full-time positions would support a neutral Reserve Bank of Australia stance, favoring relative yield strategies. China’s GDP is projected at 5.1% y/y, which not only looks good domestically but also benefits exporters and resource-sensitive investments elsewhere. The increase in new loans to nearly two trillion yuan demonstrates efforts to boost credit without aggressively cutting rates. This situation encourages optimism for steel, copper demand, and equities in shipping and energy sectors, which are often subject to volatility. Germany’s increasing ZEW expectations, now over 50, indicate a short-term confidence boost that might lift European indices slightly. However, the key question is whether this optimism corresponds with actual industrial output. This index usually leads by several months, and without confirmation from hard data, it remains a soft signal. Still, momentum traders on DAX futures could find opportunities if forward multiples rise alongside consistent sentiment. In the US, the Empire State Index remaining negative is expected, and its prolonged decline caps manufacturing optimism. In contrast, the Philadelphia Fed Index is anticipated to strengthen, highlighting differences in regional performance. The University of Michigan sentiment could reinforce consumer resilience just as retail sales data comes in. Strength in consumption could shift Fed expectations quickly, leading to rapid adjustments across government bonds and related options volatility. We remain observant. Each data point this week carries weight—not just for their immediate impact but also for their implications on central banks and liquidity flow, all crucial for planning trading strategies in the upcoming sessions.

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USDJPY is on the rise as trade tensions continue, largely due to tariffs imposed by President Trump on Japanese goods. Effective August 1, there is a 25% tariff on all imports from Japan, along with additional tariffs on automobiles and auto parts starting in March 2025. By June 2025, there will also be 50% tariffs on steel and aluminum imports. Looking at the technical side, USDJPY shows a positive trend. The price has risen above the 38.2% retracement level of 147.135, measured from the 2025 high to low. The hourly chart shows the price finding support at this level, indicating that buyers are active at important technical points. Last week, the price engaged with the rising 100-hour moving average during two drops, and buyers stepped in to halt any declines, reinforcing this moving average as a crucial support area.

The Bullish Outlook

Staying above these key technical levels, like moving averages and retracement points, boosts the bullish outlook. These levels serve as important decision points where buyers typically re-enter the market to maintain the upward trend. In simple terms, the yen is losing value compared to the dollar. Traders are anticipating higher risks of inflation in Japan due to tariffs and an overall stronger dollar. The recent U.S. policy changes targeting Japanese exports have increased pressure on the yen while driving up demand for the dollar. The market charts illustrate this sentiment. The movement above the 38.2% retracement offers strong confirmation that buyers are confident in this area. The steady support around the 100-hour moving average, even through minor sell-offs, shows that demand remains strong. These dips haven’t changed the overall trend; instead, they signal increased market engagement. To act on this, there are a few practical steps we can take. As long as support holds at these retracement levels and moving averages, there’s potential for further upside. We should treat these levels as critical turning points—places where interest has previously stopped declines. If buyers don’t show up at these spots in the coming days, it would signal a possible change in market structure.

Approach For Tracking Movements

As a group, our focus shouldn’t just be on following the major trend, but also on having a plan for when momentum shifts. If we see buyers retreat—like if the price dips below the 100-hour average without recovering—we should reconsider our position. It’s essential to be prepared for this actively rather than just watching. For now, the respect for these technical markers provides a clear framework for action. It’s also important to remember that when tariffs are announced over several months, markets may not respond immediately. The staggered implementation—starting in August and continuing into March and June of next year—means reactions might stretch over time rather than being instant. This timeline allows for adjustments as more information comes in. Paying attention to the dollar side of the pair is just as crucial. Any changes in U.S. interest rate expectations due to these policies—especially if economic data suggests fewer or delayed cuts—could increase upward pressure on USDJPY. Recent market behavior indicates that macroeconomic developments are being considered alongside technical data. This combination of macro and technical analysis tends to yield the clearest signals for action. Moving forward, the best strategy is to treat key levels as clear indicators—deciding if the price will hold or break through these points. Whether we keep our leverage or reduce our exposure will depend on how these levels perform in the coming week. It’s also worth noting that movements in other yen pairs suggest broader market trends are aligning. As we continue to monitor each hourly candle and daily close, the market pattern becomes easier to follow. We should maintain our strategy as long as the structure remains intact and react swiftly if it changes. That’s our objective path from here. Create your live VT Markets account and start trading now.

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UK Economy Shrinks

The Euro is gaining strength against the British Pound due to weak economic numbers from the UK and comments from the Bank of England hinting at a more relaxed monetary policy. Even with trade tensions between the EU and US, the Euro appears stable, trading near a two-week high of around 0.8710 EUR/GBP. New data shows the UK’s economy shrank by 0.1% in May, following a 0.3% drop in April. This decline is driven by weaknesses in manufacturing, industrial production, and construction. Bank of England Governor Andrew Bailey suggested that interest rates may gradually decrease because of emerging economic weaknesses and pressures like higher national insurance contributions for employers. The job market is also slowing down, with more staff available and a sharp drop in permanent job vacancies. The unemployment rate has climbed to 4.6%, the highest level in four years. Many expect a potential interest rate cut from the Bank of England in August. Upcoming inflation data from the UK and Eurozone will be crucial for policy expectations. If UK inflation softens, it could support a rate cut by the BoE. The different monetary strategies of the BoE and the ECB favor the Euro over the Pound. The Bank of England influences the Pound’s value through methods like setting interest rates and controlling money supply. With the Pound under pressure due to disappointing economic figures and cautious comments from policymakers, the EUR/GBP pair remains strong, reaching levels not seen since late June. The Euro’s continued strength, despite EU-US trade tensions, shows greater investor confidence in the Eurozone. This trend has become clearer over the last two weeks.

Diverging Economic Trends

The contraction in output for May, following a poor showing in April, highlights deeper weaknesses across key sectors. Manufacturing and construction are particularly lacking, sending a clear signal about economic activity as summer progresses. These figures are likely to impact market participants looking to forecast monetary policy for the next two quarters. Bailey’s recent comments about economic softness and rising employer costs have added to this sentiment. There’s now a strong belief that rate cuts could happen as soon as August, rather than just in early autumn. Markets have already adjusted Gilt yields accordingly. Labour data further emphasizes the situation. A 4.6% unemployment rate isn’t just a number; it influences policymaking. Fewer permanent job vacancies and increased labor supply weaken the Bank of England’s hawkish position. Traders are already showing this change in their strategies, particularly in short Sterling futures and overnight index swaps, which now reflect over a 65% chance of a rate cut by late Q3. Meanwhile, sentiment in the Eurozone remains steady. The ECB, while cautious, does not share the same immediate concerns. This difference is important, as it makes the Euro more favorable compared to the Pound. Even though EU data has its challenges, it’s clear that one central bank is looking for economic weaknesses while the other is managing them. We expect upcoming CPI data from both the UK and the Eurozone to be significant. If UK inflation decreases, the BoE may feel confident to change its approach, leading to more downward pressure on the Pound. On the other hand, if Eurozone inflation remains stable or increases, it could support the ECB’s hawkish stance further. For traders involved in interest rate futures or currency options, these reports will impact volatility and market direction. The market is already adjusting to these differences. Forward guidance on interest rates is being reflected in currency pairs. We’ve seen increased activity favoring Euro strength, especially in options markets nearing September deadlines. Notably, there’s been a rise in implied volatility skews on EUR/GBP call options, indicating a push for protection or speculation around further Pound weakness. Now is the time to refine strategies with greater accuracy. A clear direction based on data is about to take shape, but misinterpretations could lead to significant risks. While short-term interest rate futures are currently active, it may benefit traders to consider a broader date range, particularly as we approach late-Q3 central bank meetings. As economic trends diverge and sentiment shifts toward a more dovish UK policy, pricing across short-duration UK risk instruments will likely reflect these growing imbalances quickly. Create your live VT Markets account and start trading now.

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Sources say the European Central Bank (ECB) will discuss a more negative economic outlook next week due to recent tariff threats. However, at the meeting on July 24, the ECB is expected to keep interest rates steady, focusing on how tariffs might affect the economy. A decision to lower rates may be postponed until September. Following this news, the EURUSD has dropped below the 1.3663 – 1.3691 range seen in both daily and hourly charts. The report shows the ECB is taking a cautious approach as it prepares for its meeting next week. The central bank is paying attention to the economic strains caused by rising tariff issues, which are impacting previously steady growth forecasts. While no rate changes are expected this month, the ECB is modeling weaker economic scenarios. Changing monetary policy now might be too soon, especially since we don’t yet know the full impact of tariff threats on Europe’s economy. With the ECB likely to hold off on action in July, focus will shift to the September meeting. By then, the ECB will have summer economic data and a clearer picture of trade policies. Meanwhile, the euro has reacted predictably to the softer outlook—it’s falling. The drop below the 1.3663 to 1.3691 range indicates expectations for European growth and monetary policy are changing. For those analyzing market changes related to derivatives, the EURUSD’s decline requires adjustments. The previous levels acted as minor supports on daily and intraday charts. Since those levels have been crossed, prices could move closer to short-term selling targets. The directional bias has shifted from neutral. From a strategy standpoint, short-term bearish approaches should be preferred while downward momentum persists. Delta should be adjusted because implied volatility may rise as we anticipate stronger ECB comments in September. We expect larger fluctuations in FX volatility, especially before major economic releases. We will need to reassess exposure further out as guidance becomes clearer. Gamma will mostly favor defensive strategies unless we see significant changes. Also, we’ve noticed that regular correlations between interest rate expectations and spot prices are returning. These movements are not random. It’s important to respond to established expectations rather than just headlines. As the euro weakens due to worsening forecasts, it becomes easier to adjust trades connected to central bank responses. Finally, hedging portfolios that focus on September rate expectations may gain importance in the coming days. This is not the time to chase rebounds in the euro without a solid reason. Instead, it makes sense to adjust option strike levels, keeping costs efficient while capturing opportunities based on increasingly negative policy scenarios.

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