Canada’s international trade minister wants to start talks with Chinese officials to address trade issues. The recent decision to bring back the Indian high commissioner is a key step toward promoting dialogue and enhancing trade relations. There is shared interest in discussing trade opportunities with Mercosur. At the same time, there is growing enthusiasm to speed up trade talks with ASEAN countries.

Expected Strength of the Canadian Dollar

Given these diplomatic efforts, we think traders should prepare for the Canadian dollar to strengthen in the next few weeks. The loonie has been trading at multi-month lows against the US dollar, making it sensitive to any positive developments in trade relations. We recommend considering an upward position in CAD futures or call options. The push to resolve issues with Chinese counterparts is especially important for our commodity markets. In 2022, two-way merchandise trade was worth nearly $129 billion, so any progress could significantly benefit major Canadian resource exporters. This suggests considering bullish positions on companies that export lumber, canola, and potash. Ng’s comments about India indicate a potential shift following the pause in negotiations for a trade deal last year due to political tensions. The return of the high commissioner lowers geopolitical risks for Canadian assets. Although bilateral trade is smaller—about $12 billion per year—renewing talks could bring long-term advantages for sectors discussed in earlier free trade negotiations.

Prospects with ASEAN and Mercosur

We see finalizing an agreement with ASEAN countries as an immediate growth opportunity. With trade already reaching $40.7 billion in 2023, a formal deal with this quickly growing group of over 660 million people could greatly benefit Canadian technology and financial service companies. Traders should look for companies that could gain from these new market opportunities. Lastly, it’s important to keep an eye on the potential talks with Mercosur and how they might affect agricultural derivatives. Historically, these discussions have faced delays over issues related to beef and sugar market access from the South American bloc. As a result, this could lead to significant volatility for Canadian agricultural producers and related futures contracts. Create your live VT Markets account and start trading now.

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Chancellor of Germany, Friedrich Merz, has raised concerns about the European Union’s plan to increase budgets through higher corporate taxes. Merz believes these budget measures could face strong opposition from Germany. The EU needs to carefully consider the size of its future budget and manage with the funds it already has. Merz thinks it is not acceptable to fund the EU through a continent-wide corporate tax.

German Political Friction

Germany’s main opposition leader has voiced worries about new EU corporate taxes. This indicates potential political conflict that could increase market volatility in the upcoming weeks. The main issue is the clash between the need for a centrally funded EU and Germany’s focus on fiscal conservatism. This uncertainty could negatively impact European equity markets and corporate earnings forecasts. Therefore, buying volatility could be a wise strategy. Options on the Euro Stoxx 50 index are currently priced to react to important news. With the VSTOXX, Europe’s main volatility index, trading near 15, call and put options are affordable ways to prepare for significant market movements. Mr. Merz’s party’s position might also affect the Euro. Any signs of division within the EU often weaken the common currency. We saw this during the sovereign debt crisis ten years ago when disagreements among member states caused sharp declines in the EUR/USD exchange rate. Traders might want to consider protective put options or short positions on the Euro against the dollar.

Fiscal Pressure on Member States

If the EU can’t secure new funding, it will put more fiscal pressure on individual member states, especially those with high debt. We are closely monitoring the spread between Italian government bonds and German bunds, which is currently about 1.5 percentage points. An increase in this spread would signal growing risk perception, a trend that can be traded using futures contracts on the respective government debt. Create your live VT Markets account and start trading now.

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The recent 4-week bill auction in the United States saw a small drop in yield from 4.235% to 4.23%. This change comes as financial markets and global economic indicators shift. The AUD/USD currency pair struggled with resistance around 0.6600, falling to about 0.6450 due to a stronger US Dollar and disappointing Australian employment data. Similarly, the EUR/USD dropped to multi-week lows near 1.1550, influenced by a strong Dollar and positive economic reports.

Precious Metals and Cryptocurrency Trends

Gold is trading at roughly $3,340 per troy ounce. Its price is affected by a stronger Dollar, rising U.S. yields, and fewer trade worries. XRP is around $3.25, recovering from its recent low of $2.80 as Ripple focuses on Dubai’s tokenized real estate market. China’s economy grew by 5.2% year-on-year in the second quarter, thanks to trade and industrial production. However, slowdowns in fixed-asset investment, retail sales, and falling property prices reveal potential challenges. The recent dip in the shortest-term government debt yields points to the US Dollar as the main market driver. While inflation is cooling, it remains above the Federal Reserve’s target, suggesting interest rates will stay high. This supportive policy should help the Dollar in the upcoming weeks.

Currency Market Forecast and Strategic Insights

We expect continued weakness in the Australian and European currencies against the Dollar. This division is widening, as the European Central Bank has cut its key interest rate for the first time since 2019, while U.S. policymakers maintain their course. Historically, such gaps have led to lasting currency trends, presenting opportunities for options trading that benefits from declines in the EUR/USD and AUD/USD pairs. Gold, now priced around $2,320 per ounce, may struggle due to the factors mentioned. With the 10-year Treasury yield above 4.2%, the cost of holding non-yielding assets remains high. We advise caution with positions that depend on a significant price increase until there is a clear change in U.S. interest rate expectations. Mixed economic signals from China pose a primary risk for global commodities and associated currencies. While the headline growth seems strong, new data shows property investment has dropped over 9% in the first five months of the year. This ongoing weakness in a critical sector could limit demand for industrial materials and put further pressure on the Australian Dollar. Currently priced closer to $0.48, the digital asset’s movement highlights how specific news can shield certain tokens from broader economic pressures. However, this also creates volatility that can be hard to manage. Traders may want to consider using derivatives like options to handle this risk, which allows exposure to potential gains from specific events while clearly defining potential losses. Create your live VT Markets account and start trading now.

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Japanese inflation is currently above 3%, with all key measures surpassing the Bank of Japan’s 2% target. The headline Consumer Price Index (CPI) is at 3.3% year-on-year, while core CPI, which excludes fresh food, is also at 3.3%. The core-core CPI, which excludes fresh food and energy, stands at 3.4% year-on-year. There is talk that the Bank of Japan may raise its inflation forecasts during its meeting on July 30 and 31. This speculation is likely backed by persistent high inflation numbers. It seems the Bank is considering updating its forecasts to better align with the current situation.

Election Impact on Economic Policy

The rising cost of living is a major concern and could affect the ruling party in the upcoming election. This Sunday, Japan will hold upper-house elections for 124 out of 248 seats, serving as a mid-term review for Prime Minister Shigeru Ishiba’s coalition. The Liberal Democratic Party (LDP) is expected to lose its upper house majority, indicating possible political instability after prior losses. This minority government faces challenges from economic pressures, including inflation, rising living costs, and potential U.S. trade tariffs. With inflation consistently above the central bank’s target, we anticipate a shift towards a more aggressive monetary policy. We believe it’s wise to pursue strategies that take advantage of a strengthening Japanese Yen. We are considering buying call options on the JPY or selling futures on currency pairs like USD/JPY. Recent market data supports our perspective, with overnight index swaps indicating about a 70% chance of a rate hike at the upcoming meeting. Additionally, the yield on Japan’s 10-year government bonds has exceeded 1.0%, a level not seen in over ten years. This activity in the bond market shows that investors are preparing for tighter monetary measures.

Strategy Implications for Investors

We expect that a stronger currency and higher borrowing costs will impact the earnings of Japanese firms, especially major exporters. Thus, buying put options on the Nikkei 225 index is a smart strategy to hedge against or profit from a possible stock market decline. We plan to time this trade around the policy announcement at the end of July. Historically, when the monetary authority made unexpected changes to its yield curve control policy in 2022 and 2023, the yen strengthened sharply. Each adjustment led to quick, strong reactions in currency and equity markets. This past performance supports our expectation of a similar response to formal policy tightening. The upper-house election adds a layer of volatility, as a poor performance from Ishiba’s party could lead to political uncertainty. This situation is ideal for options strategies like straddles or strangles on key indices or currency pairs. These trades can benefit from significant price movements in either direction, protecting us from the outcome of the election or the policy meeting. Create your live VT Markets account and start trading now.

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The EUR/CHF exchange rate is staying above 0.9300, as sellers haven’t managed to drive it lower yet. Since early May, the pair has been moving in a tight range between 0.9300 and 0.9430, with the RSI currently showing some positive signs at 45.84. Right now, EUR/CHF is around 0.9330, showing some weakness due to a weaker Euro. The pair is also below the 20-day simple moving average of 0.9344, which is acting as a resistance level, hindering upward movements.

Potential Breakout

The Bollinger Bands are tightening, signaling less volatility and hinting at a possible breakout soon. The RSI reflects a bit of buying interest, while the ADX is at 24.02, indicating a strengthening trend, though it isn’t strong enough to confirm a definitive direction yet. If the rate falls below 0.9300, it could drop to 0.9250. However, if it rises above the 20-day SMA, it might reach 0.9430, with more resistance at 0.9500. The Swiss Franc’s value depends on Switzerland’s economy, market sentiment, and the Swiss National Bank’s decisions, making it a stable, safe-haven currency. Its value is closely connected to the Euro due to Switzerland’s ties with the Eurozone. Given the reduced volatility shown by the narrow Bollinger Bands, we believe the current calm hints at a significant price movement ahead. Traders should get ready for a breakout instead of betting on range trading to continue, which aligns with the increasing trend strength shown by the ADX. For a bearish strategy, we should monitor the 0.9300 level as a crucial point. A solid break below this support could justify buying put options aiming for the 0.9250 level. This approach would take advantage of the Euro’s recent weakness.

Upcoming Swiss National Bank Meeting

The likely driver for a rise is the imminent Swiss National Bank policy meeting on June 20th. With markets expecting over a 70% chance of another interest rate cut, a dovish decision could weaken the franc significantly. We would consider buying call options if the pair breaks above the 20-day moving average before the meeting. Recent data supports this outlook, as Swiss inflation in May stayed low at 1.4%, giving the central bank space to cut rates again. This contrasts with the European Central Bank, which has taken a cautious approach, despite a recent rate cut due to ongoing price pressures. This difference in policy strengthens the case for a higher exchange rate. To navigate the uncertainty of the breakout’s direction, we see potential in volatility strategies. Setting up a long straddle—buying both a call and a put option at the same strike price—could be profitable if a significant price movement occurs in either direction after the announcement. This strategy hedges against being caught on the wrong side of a sharp movement. Historically, the Swiss National Bank has made decisive moves that lead to strong market reactions, like the de-pegging event in 2015. This history indicates that any policy decision, or even indecision, can lead to major price movements. Thus, we should stay alert and ready for a sudden end to the current low-volatility phase. Create your live VT Markets account and start trading now.

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The Euro is trading within a tight range against the Japanese Yen after peaking at 173.25, its highest point in a year. The Euro remains above the key support level of 172.00 due to differences in central bank policies and a weakening Japanese economy. Japan has released trade data indicating a decline in exports caused by tariffs. The adjusted trade balance showed a deficit of ¥-235.5 billion, while the overall balance was ¥153.1 billion, falling short of expectations. Year over year, Japan’s exports dropped by 0.5%, although imports grew slightly by 0.2%.

Market Analysis

The weak trade data from Japan puts pressure on the Yen because of low external demand and insufficient investment. Japan’s struggling economy and the Bank of Japan’s cautious stance contrast with the European Central Bank’s careful approach due to inflation, which supports the Euro. After hitting 173.25, sellers have pushed the EUR/JPY back toward 172.00. If the Euro rises above 173.00, it may continue toward 174.00. The 78.6% Fibonacci retracement level at 170.93 offers support, while dropping below the 50-day SMA could lead to more selling pressure. With central banks moving in different directions, we see the Euro likely to rise against the Yen. The interest rate difference is significant, with the European Central Bank’s rate at 3.75% compared to Japan’s near-zero rate. This difference makes the Euro more appealing.

Investment Strategy

We believe Japan’s weak economic data will continue to weigh on its currency. May’s core inflation was at 2.5%, slightly lower than expected, which leaves the central bank with little incentive to raise interest rates. In contrast, the Eurozone’s May inflation was 2.6%, supporting a careful approach to future rate cuts after recent adjustments. Historically, the current price is at levels we haven’t seen since 2008. The peak of 173.25 is a significant psychological barrier. If the Euro breaks above this level, it could move rapidly higher as few resistance points remain. Therefore, we should closely monitor this level. For derivative traders, buying call options with a strike price at or above 173.50 is a wise move to prepare for a potential breakout towards 174.00. This strategy allows us to take advantage of upward momentum while keeping our risk in check. The current tight trading range also offers chances for strategies that benefit from unexpected volatility increases. We will use the mentioned technical levels to manage our risk. If the price closes decisively below the 172.00 support level, we will consider reducing our bullish exposure. A further drop below the Fibonacci support at 170.93 would prompt us to exit long positions and think about buying protective puts. Create your live VT Markets account and start trading now.

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Federal Reserve Governor Christopher Waller stated that after the rate cut in July, any policy changes should be based on new data and considered during each meeting. He mentioned that a long-term Fed funds rate might be around 3%, although he acknowledged some uncertainty in this figure. He pointed out that current long-term bond yields do not suggest very loose financial conditions.

Fed’s Balance Sheet Strategy

Waller discussed the Fed’s balance sheet, saying there’s no rush to sell the mortgage bonds owned by the Fed. He described this as a slow process and noted little eagerness for aggressive sales. He stressed that market signals should guide how much to reduce the balance sheet, instead of focusing on fixed goals. He also talked about stablecoins, viewing them as a way to boost competition in the payment system without causing major risks. On future roles, he confirmed he hadn’t been contacted by Donald Trump about becoming Fed chair. He mentioned that differing opinions among Fed officials are helpful and highlighted everyone’s commitment to keeping the central bank independent. Given his comments, a rate cut in July seems very likely. Market data shows a more than 90% chance of a 25-basis-point cut, according to the CME FedWatch Tool from mid-July. This expected move is already reflected in interest rate futures for the front month. His focus on upcoming data for future decisions adds a lot of uncertainty for policies later this year. Although June’s Consumer Price Index fell to 3.0% year-over-year, the job market remains strong, with 272,000 jobs added in the latest report. This creates a complicated picture for inflation. We believe that options betting on volatility for the September and December meetings, which seem currently undervalued, look attractive.

Market Volatility Index

The recent drop in the MOVE index, which measures bond market volatility, to nearly two-year lows seems at odds with the meeting-by-meeting approach stated by officials. This indicates that the market may be too relaxed about future rate paths after summer. We see a chance to bet on rising volatility, as any unexpected data could lead to rapid changes in the Treasury curve. Waller’s acknowledgment of uncertainty surrounding the long-term neutral rate, which he estimates to be near 3%, suggests caution regarding long-term interest rate positions. The 10-year Treasury yield has fluctuated between 4.2% and 4.7% for months, reflecting this uncertainty. This indicates that the final rate for this cutting cycle is still up in the air. His cautious view on reducing the balance sheet, especially the slow pace of mortgage bond sales, should support risk assets. The Federal Reserve is clearly trying to avoid a repeat of the 2019 repo market issues, which were partially caused by too aggressive balance sheet reductions. This careful approach lowers the chance of sudden tightening in financial conditions due to quantitative tightening. Create your live VT Markets account and start trading now.

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The United States Energy Information Administration reported a natural gas storage increase of 46 billion cubic feet, which is higher than the expected 44 billion. This update, from July 11th, shows a rise in reserves for that time.

Currency Market Movement

Recently, the AUD/USD pair faced resistance near 0.6600 and fell closer to 0.6450. This drop is due to a stronger US Dollar and negative Australian labor market reports. Similarly, EUR/USD dropped to about 1.1550 after positive economic data from the US lifted the Dollar. Gold saw slight losses, trading around $3,340 per troy ounce. Its downward trend is influenced by a stronger Dollar and rising US yields. Meanwhile, XRP continued to rise, trading around $3.25 after recovering from a previous low of $2.80. China’s economy grew by 5.2% year-on-year in the second quarter, supported by exports and industrial output. However, concerns arose from larger-than-expected drops in fixed-asset investment and retail sales, along with falling property prices. Trading currencies involves risks. It’s important to assess your investment goals and risk tolerance. Seek objective financial advice if you’re considering foreign exchange trading.

Impact of Natural Gas Supply

The latest report shows a larger-than-expected natural gas supply build, putting continued pressure on prices. Total storage is now over 18% above the five-year average, indicating a comfortable supply as we head into the later summer months. This situation may encourage traders to consider bearish positions, as such large surpluses often limit price increases before winter demand begins. The Australian Dollar is likely to stay weak against the US Dollar, struggling below the 0.6600 level. Recent data shows Australia’s unemployment rate has risen to 4.1%, while the US labor market remains strong. This economic difference strengthens the Dollar and may present shorting opportunities in the AUD/USD pair, aiming for lower support levels. The Euro is also facing challenges due to positive economic signals from the US. Eurozone manufacturing PMI data still shows contraction, remaining below 50, highlighting the diverging economic paths of the two regions. This trend is expected to continue, providing traders a chance to capitalize on further declines in the Euro. Gold remains under pressure as the 10-year US Treasury yield stays above 4.3%, making non-yielding assets less appealing. Trading around $2,330 per troy ounce, gold’s downward path seems likely as long as the Dollar remains strong. Derivative traders might consider buying puts to hedge against or profit from a possible decline. The recent rally in the digital asset appears to have slowed down, with its price stabilizing around $0.48 instead of climbing higher. The overall sentiment in the cryptocurrency market has turned cautious, and ongoing legal uncertainties add to the risk for this asset. We recommend waiting for a clear breakout before making significant positions. China’s economic situation poses a serious risk for commodity markets, leading us to adopt a cautious outlook. Although the growth numbers look good, the weaknesses in fixed-asset investment and consumer spending raise red flags. This internal fragility supports a bearish view for currencies and assets tied closely to Chinese demand. Create your live VT Markets account and start trading now.

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In May, business inventories in the United States remained unchanged, matching expectations for a 0% change. This indicates that inventory levels are stable, with no increases or decreases. The AUD/USD currency pair is facing strong resistance around 0.6600, dropping to the 0.6450 area due to a strong US Dollar and disappointing Australian labor market data. Meanwhile, the EUR/USD fell to multi-week lows near 1.1550, as sentiment towards the US Dollar improved.

Precious Metals and Digital Assets

Gold is trading close to $3,340 per troy ounce, under pressure from a strengthening dollar and rising US yields. On the other hand, Ripple (XRP) is nearing a record high of $3.25, bouncing back from a previous low of $2.80. China’s GDP growth in the second quarter was 5.2% year-on-year, driven by trade and industrial production. However, drops in fixed-asset investment and retail sales have raised concerns. For traders, finding the best brokers for trading EUR/USD is vital, with options available for both beginners and experienced Forex participants. Trading foreign exchange on margin carries significant risk and may not be suitable for everyone, as leverage can magnify both profits and losses. With the US dollar’s strength, we think traders should expect ongoing pressure on major currency pairs. The Dollar Index (DXY) recently rose above 105.5, reaching its highest level in over a month. This increase is driven by the Federal Reserve’s indication that interest rates will remain high to combat lasting inflation. Therefore, bearish positions on Australian and European currencies could remain profitable.

Impact of Economic Indicators

Weak Australian labor data, along with concerning figures from its largest trading partner, suggests a cautious outlook for the Aussie dollar. China’s recent Producer Price Index (PPI) has been consistently declining year-over-year, indicating weak demand from factories and lowering the outlook for Australian commodity exports. These factors may keep the AUD/USD pair below the 0.6650 resistance level for now. In terms of precious metals, the relationship with the dollar and yields is important. With the 10-year US Treasury yield staying above 4.25%, the cost of holding non-yielding gold is high, putting pressure on its price below the critical $2,300 per ounce mark. Historically, periods of persistently high real yields often lead to significant corrections in gold, a situation we are monitoring closely. The mentioned digital asset is influenced by different factors, mostly independent of macroeconomic trends. Its price has stabilized below $0.50, with volatility largely connected to ongoing legal issues with the U.S. Securities and Exchange Commission. We expect significant price movements around important legal decisions, creating potential opportunities for options traders using strategies like straddles to benefit from the resulting volatility. The unchanged business inventories in the United States reflect a broader trend of corporate caution. The latest data from the Census Bureau shows that companies are hesitant to increase stock levels, anticipating weaker consumer demand. This cautious stance aligns with our belief that positive economic surprises may be limited, favoring strategies that thrive in range-bound or declining markets. Create your live VT Markets account and start trading now.

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Federal Reserve Governor Christopher Waller is in favor of a 25 basis point rate cut at the upcoming meeting in July. He cites growing economic risks and signs that the labor market is weakening. Waller cautions that waiting for more job losses could lead to the need for stronger actions later on. Waller feels that the inflation caused by tariffs is temporary. He notes that core inflation is near its target when excluding trade pressures. With private sector hiring slowing and GDP growth at around 1%, he doesn’t see significant risks of inflation rising.

Fed Rate Cut Strategy

Waller suggests that a rate cut in July would allow the Fed to take a break in future meetings, helping align policies with a neutral stance as the economy slows down. Both Waller and Bowman currently support the rate cut for the Federal Open Market Committee (FOMC) meeting on July 29-30. However, with 12 committee members, support for the rate cut is not yet strong enough. Given Waller’s clear position, we think derivative traders should start positioning for a higher chance of a rate cut in July. His comments about acting early to prevent a more significant downturn indicate a major dovish shift in the Fed’s approach. This suggests they are becoming more reactive to slowing economic data. Recent labor market statistics support this view. The June report showed nonfarm payrolls increased by just 209,000, while the unemployment rate rose to 4.1%, its highest in over two years. These numbers reinforce his claim that private sector hiring is nearing “stall speed,” justifying a proactive policy change. Waller’s perspective on inflation is also supported by data, with the core Personal Consumption Expenditures (PCE) price index at 2.6% for May. Although this is above target, the six-month trend is closer to 2%, suggesting manageable price pressures. This allows the central bank to concentrate on its employment goals.

Market Implications and Strategies

We’ve seen similar policies before, particularly in 2019, when the Fed made three rate cuts to guard against risks from trade issues and slowing global growth. This situation is comparable to the current rationale, suggesting that the market should take the potential for a rate cut seriously. For interest rate traders, this indicates that we should consider buying futures contracts linked to the Secured Overnight Financing Rate (SOFR) for the third quarter. The CME FedWatch Tool indicates a 75% chance of a 25 basis point cut, but these positions could be more profitable if confidence increases or if the market anticipates a second cut. With uncertainty about full committee agreement, we see potential in buying volatility before the late July meeting. Purchasing straddles or strangles on the S&P 500 index could be advantageous, as they would benefit from a significant market movement, whether upward from a dovish cut or downward from a hawkish hold. The current disagreements among voting members suggest a considerable price swing is likely. A more focused strategy would involve using equity derivatives to position for a positive market reaction to a cut. Buying call options on the Nasdaq 100 could be beneficial, as growth-oriented technology stocks are often very responsive to lower interest rates. This strategy allows for a leveraged bet that a more accommodating policy will drive the next rise in equity prices. Create your live VT Markets account and start trading now.

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