The Eurozone Producer Price Index (PPI) dropped by 0.6% in May, slightly below the expected 0.5% decrease. This decline follows a more significant 2.2% fall in the previous month. Year over year, the PPI saw a 0.3% increase, which matched forecasts and was down from the 0.7% rise observed earlier. A major factor in the monthly decline was a 2.1% drop in energy prices.

Excluding Energy Costs

When excluding energy, producer prices rose by 0.1% in May. Durable consumer goods saw a 0.3% increase, while non-durable consumer goods rose by 0.2%. On the other hand, prices for intermediate goods fell by 0.1%, and capital goods prices stayed the same. The PPI for the Eurozone, which often indicates future inflation at the factory level, decreased more than expected in May. It fell by 0.6% compared to the anticipated 0.5%. This decline continues a trend of easing price pressures, following a sharp 2.2% drop in the previous month. Annually, the index rose by just 0.3%, aligning with expectations but slower than April’s 0.7% increase. These numbers suggest input costs are stabilizing, mainly due to a sharp drop in energy prices. Energy prices alone fell by 2.1% for the month, significantly impacting the overall index. This decline reflects ongoing volatility in wholesale gas and electricity markets, indicating that previous price spikes are beginning to unwind. When we exclude energy prices, the overall picture is more stable, with a 0.1% rise in prices for May. Stock levels remain manageable across different sectors. Durable consumer goods increased by 0.3%, while non-durable goods rose by 0.2%, suggesting that consumer demand has not weakened significantly yet. This modest growth indicates that producers are managing cost increases despite uncertain broader demand. In contrast, prices for intermediate goods fell by 0.1%, continuing a trend of low activity. Capital goods prices were flat, which is expected due to longer production cycles and delays in price adjustments for heavy machinery.

Market Responses and Expectations

These price indicators help clarify the production sector’s cost base and suggest a trend of broad disinflation. While some resilience remains, especially in consumer goods, there is little evidence to indicate renewed price increases. Manufacturers’ pricing power seems limited, and lower energy costs are efficiently passing through supply chains. We can anticipate some volatility in short-term rates contracts related to expected policy changes. The lower headline and core PPI figures further argue against any aggressive policy shifts. With inflation inputs softening, forward expectations may adjust, particularly in fixed-income markets and short-term swap positions. This is also notable given the cautious tone of key monetary officials last week. Bearish pressure on inflation hedges may continue if June’s data follows a similar trend. However, we should not dismiss the possibility of strength in consumer-related data. Hedgers should keep an eye on upcoming retail sales figures as a potential indication before changing long positions. Short gamma profiles may perform better in the near term as implied volatilities decline. We are also monitoring the relationship between intermediate goods pricing and overall industrial sentiment. The negative trend here could indicate weakening purchasing manager indices. If this continues over the summer, it could lead to more cautious assumptions about future policy. Consequently, steepeners in the yield curve, particularly in the two- to five-year segment, may gain renewed interest in the coming weeks, especially as spot inflation and production pressures stabilize. Timing is critical, but the data provides early indications for traders focusing on short-term rate differentials. We believe there is potential for further declines in near-term inflation swaps, provided energy costs keep falling. Longer durations should remain relatively insulated unless secondary indicators—like wage growth or services inflation—show a rise. The May data gives clear guidance for short-term derivatives pricing. Create your live VT Markets account and start trading now.

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Markets are being cautious as we head into the weekend, adopting a risk-averse outlook. The US Dollar (USD) is showing mixed results; the Japanese Yen (JPY) and Swiss Franc (CHF) are performing well, while high-risk currencies are struggling. In Europe, stock prices are falling, and US equity futures are looking weak. A recent tax and spending bill was passed, yet concerns over upcoming tariffs of 10-70% effective August 1 are causing worry.

Employment Report Impact

The USD saw a brief rise after a positive employment report, but overall, it remains weak. Better data has lowered the chance of a Fed rate cut in July, although criticism of the Fed continues. Treasury Secretary Bessent raised concerns about a partisan influence in the Federal Open Market Committee (FOMC), potentially affecting how the Trump administration might influence Fed members and interest rates. The DXY index is facing challenges with support, and we expect a more significant movement next week. Uncertainties in the markets still exist, making it essential for individuals to do their own investment research. Currently, financial markets are on edge, with a clear preference for safer assets as the weekend approaches. Traders are moving into traditional safe-haven currencies like the yen and the franc, while higher-risk currencies are struggling. The dollar’s movements have been muted overall; any gains seen after the employment report quickly faded, indicating a general hesitancy in the foreign exchange market. Despite the noise, European equities appear to be trending down, and S&P futures show no early signs of a rebound. The recent tax-and-spend bill provided some brief optimism but quickly gave way to worries about trade tensions. Looming tariffs, potentially reaching up to 70%, are on the horizon for early August. This timing is significant—not too far off but not immediate either. While today’s prices aren’t reacting heavily to it, these details work quietly behind the scenes.

Central Bank Dynamics

US job data came in slightly better than expected, giving the dollar a short-lived boost. However, markets quickly pulled back, showing that confidence in a stronger dollar remains shaky. The chance of a July interest rate cut has decreased a bit, but doubts about the Fed’s independence remain, especially after Bessent’s remarks stirred up concern. Her statements suggested the Federal Open Market Committee may be more politically aligned than guided by policy logic, complicating interest rate expectations. Powell’s team, responsible for maintaining stability, might face more domestic pressure than in past cycles. This is something to watch, not just for clues about monetary policy but also for how the broader economic narrative may shift when independence is questioned. From a technical standpoint, the DXY—essentially a gauge of US dollar strength—is close to a support level that has been tested multiple times without clear outcomes. Although current price movements feel sluggish, we believe a stronger directional move might develop next week. As we approach the weekend, thinning trading volumes could exaggerate minor price changes, but positioning suggests there could be room for adjustments if new external factors arise. Volatility remains low compared to the uncertainties present. One might expect larger fluctuations given the mix of geopolitical and domestic risks, but the current activity in rates, currencies, and equity markets indicates a methodical rebalancing rather than panic. For those involved in derivatives, it’s essential to acknowledge the increasingly binary nature of future outcomes. The uncertain possibility of rate cuts, evolving trade policies, and potential central bank changes under political scrutiny create varied risk profiles for short-term and macro-linked contracts. In these scenarios, it’s wise to evaluate exposures rather than chase market noise. Next week may hinge on the dollar’s resilience and whether the current weakness in equities becomes a lasting trend or fades with the tariff concerns. This will impact pricing in forward volatility and overall risk appetite. Recent economic releases have had muted market reactions when strictly interpreted—market responses have slightly detached from the data lately. There’s no clear pattern for what’s unfolding. We will closely monitor sentiment signals, observe how implied volatility curves behave, and avoid assuming that the dollar, bonds, and equities are all aligned—they’re not, at least not right now. Create your live VT Markets account and start trading now.

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The euro’s rise is influencing inflation in the eurozone, according to ECB official Francois Villeroy de Galhau. He warns that this could lead to inflation being lower than expected. Villeroy mentioned that they are closely watching the fluctuations in exchange rates. He also pointed out that current US tariffs are not causing inflation in the eurozone. He believes the ECB is in a good position to manage interest rates and inflation. However, maintaining flexibility in its interest rate approach remains crucial. Villeroy’s remarks highlight a key issue: as the euro gets stronger, it lowers the price of imported goods, which helps reduce inflation across the euro area. Anyone monitoring monetary factors should pay attention. A stronger euro usually means cheaper imports, which slows down consumer price growth. Currently, US tariffs are not significantly impacting European inflation, which is reassuring for now. However, this situation could change if trade tensions increase globally or within specific industries, eventually affecting prices. For the moment, import costs are stable and not causing larger inflationary pressures. The ECB appears to be following an approach they find comfortable. According to Villeroy, there are no immediate plans for rate changes. Nevertheless, the commitment to a “flexible” approach shouldn’t be overlooked. This suggests that while important figures are staying on target, they might not do so without adjustments. Traders focusing on interest rate changes should consider the recent strength of the euro against the dollar and other currency indices. If the euro continues to rise, the ECB may face new challenges—lower inflation data could halt any talk of rate hikes. We’ve seen situations like this before, where changes in exchange rates slowed down rate hikes, not due to weak growth, but because cheaper imports quietly influenced inflation. It’s essential to anticipate a scenario where consumer prices drop rather than spike. While some recent inflation figures in the eurozone remain stubbornly high, the goods sector may soften if the euro’s strength continues to increase. In summary, it’s time to rethink the implied volatility in short-term EUR options. Lower inflation expectations could mean less speculation about rate changes. Adjusting strategies accordingly might reflect a market that isn’t overly focused on tightening but also hasn’t fully priced in a shift. There’s room for adjustments, especially if core inflation starts to show signs of slowing. Keep an eye on changes in forward guidance and language that might indicate concern about exchange rate movements. Even a small change could create temporary gaps in interest rate differences, especially for shorter-term rates. Now could be the moment to explore scenarios where euro appreciation is more lasting than previously anticipated.

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Mexico’s consumer confidence index fell to 45.7 in June, down from 46.5 in May. This drop shows that consumers are less optimistic about the country’s economy. In currency markets, the EUR/USD pair is hovering just below 1.1800. Although it could rise this week, any gains may be limited because of the upcoming deadline for US tariffs. Meanwhile, the GBP/USD pair is fluctuating slightly in the mid-1.3600s due to low trading activity. The market is cautious because of ongoing political events in the UK.

Gold Price Movement

Gold prices are stabilizing around $3,300 per troy ounce. This follows a recovery from previous dips, driven by concerns over upcoming trade negotiations and potential rate changes from the Federal Reserve. Currently, worries about tariffs have eased, supported by strong market data. However, the US administration could still raise tariffs again. Asian markets are closely watching a controversial bill passed by the US Senate, which could impact market movements. Current data suggests that consumer sentiment among Mexican households is declining, which may affect local spending and could influence short- to medium-term inflation. A confidence reading of 45.7 indicates a notable decrease, so it’s essential to monitor this trend, especially when considering changes in monetary policy and growth forecasts for Mexico, Latin America’s second-largest economy. For currency trading, the EUR/USD pair sitting just below 1.1800 shows a struggle to rise significantly. Despite earlier strength, this stagnation may result from ongoing concerns about US trade actions. Traders seem hesitant, likely waiting for formal decisions before making significant moves. With tariff deadlines approaching, any news could lead to sharp swings in currency values. As for the British pound, the GBP/USD pair around 1.3650 reflects low activity levels and uncertainty stemming from domestic politics. There’s not much momentum in either direction, and while political events haven’t yet visibly affected economic data, they do influence trader sentiment and positioning, which can amplify price movements.

Market Uncertainty and Asset Pricing

Gold is holding steady at the $3,300 level; it has stopped declining but isn’t rising quickly either. This indicates a pause in the trend rather than a shift. The recovery from lower prices offers some confidence to those looking to hedge, but current prices don’t suggest any panic. However, decisions from the US central bank regarding interest rates could influence demand and create new market movement. Additionally, news about upcoming trade discussions could lead to further fluctuations. Despite some easing of tariff concerns, there has been no clear rollback or resolution—just a temporary calm. This reduction in immediate worries has stabilized asset prices but doesn’t guarantee long-term certainty. Markets seem to be bracing for a brief pause rather than expecting lasting tranquility. This assumption carries risks, especially if tensions rise again or deadlines change. The passage of the bill in the US Senate is important for anyone trading assets linked to Asia. It brings not only regulatory implications but also indicates a shift in geopolitical stance. These policy changes could influence sentiment towards regional stocks and, consequently, currencies linked to yields. Volatility may increase around any future announcements or clarifications. In this environment, brief moments of activity may be more significant than long-lasting trends. It could be more useful to measure short-term reactions in basis points or single-session changes instead of assuming bigger structural shifts until we have more clarity. Create your live VT Markets account and start trading now.

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The UK’s construction sector PMI for June was 48.8, slightly better than the expected 48.4. This marks six months of declining activity, although the decline is slowing down. New orders are dropping faster, leading to the lowest business optimism in two and a half years. Commercial activity decreased sharply, the worst in over five years, but house building showed some improvement. Residential work increased for the first time since September 2024, suggesting a bit of stability in demand.

Indicators of Economic Conditions

Forward-looking indicators fell from May, with new orders decreasing more quickly. This is due to tough domestic economic conditions and low client confidence. Expectations for business activity reached a two-and-a-half-year low, as firms faced fewer bidding opportunities. There is more competition for new work, and firms expect ongoing challenges due to low investment throughout the year. These elements create a tough outlook for the construction industry in the near future. These recent survey results indicate the sector is going through a difficult time. While the main figure was slightly above expectations, it still fell below the neutral 50 mark, which indicates growth versus contraction. Overall activity in construction firms is declining, though not as quickly as in the past few months. A concerning trend is the increased pressure on project pipelines. A notable drop in new work is an important indicator of future trends. For those closely watching the market, this continued downturn in new business shows that clients lack confidence to invest, leading to a dimmer outlook for firms. The optimism measure hit its lowest point since late 2021, not due to a specific event, but because of widespread fatigue in demand.

Competition and Pricing Implications

Traders have noticed that commercial projects are being heavily reduced. This area has experienced the steepest decline in five years. Developers are scaling back plans and holding off on bids. However, house-builders provided some hope. Residential work is picking up slightly, the first increase in nine months. While encouraging, this isn’t enough to uplift the entire sector. Inside the numbers, a significant drop in tender opportunities stands out. Fewer chances for construction firms to bid often lead to lower activity in the medium term. As project volumes decrease, competition intensifies, causing pricing to become more competitive. Firms may lower margins to secure work, creating operational pressure with direct pricing consequences. At the trading desk, it’s important to factor in ongoing pressure across input channels and tender quote adjustments. With low sentiment, clients’ risk appetite won’t change quickly. This might impact materials demand. If new contracts don’t materialize, procurement activity may slow, which could apply mild downward pressure on specific materials markets, especially those linked to non-residential projects. We’re also keeping an eye on labor dynamics. With fewer projects and more uncertainty in contracts, segments that rely on labor might see lower wage pressures, especially where subcontractors are involved. This could affect wage expectations tied to some pricing derivatives. One issue we’re monitoring is whether this competitive pressure leads to longer project completion times. If firms are spreading resources across fewer jobs, timelines could stretch. This isn’t favorable for project revenues, increasing the risk of delays, especially in multi-phase builds. We suggest reducing exposure to cyclical suppliers over the next two to three earnings periods. Overall, while a couple of areas have stabilized, the survey suggests no significant improvement. Long-term progress will depend less on sentiment and more on whether macroeconomic borrowing conditions ease. Until then, pressure will stay concentrated in commercial construction, with only modest support from housing. Create your live VT Markets account and start trading now.

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Mexico’s Consumer Confidence index fell to 45.4 in June, down from 46.7, indicating that consumers are feeling less optimistic. EUR/USD continues its upward trend but is still under 1.1800. Gains may be limited as the market remains cautious, especially with US tariffs on the horizon. US markets are also observing the July 4th holiday.

GBP/USD and Lower Volatility

The GBP/USD is fluctuating around 1.3650 with lower volatility due to reduced activity in the US market. Ongoing political tensions in the UK are influencing the behavior of the British Pound. Gold prices are around $3,300 per troy ounce and are in a consolidative pattern, suggesting potential weekly gains after recent pullbacks. Market attention is focused on trade issues and possible interest rate cuts from the Federal Reserve. Recent market sentiment has improved thanks to lower geopolitical tensions and strong economic data. However, the risk of renewed aggressive tariffs from the US still looms over the current optimism.

Market Implications

Consumer Confidence in Mexico dropped in June from 46.7 to 45.4 when adjusted for seasonal changes, indicating less household optimism. This decline could affect domestic demand and impact future spending, which may, in turn, influence cross-border capital flows and local currencies. Changes in consumer behavior could affect inflation expectations and central bank communications soon. In the foreign exchange market, EUR/USD remains in a gently upward trend but is stuck below the 1.1800 mark, serving as a psychological barrier. Caution among buyers is evident as US tariffs weigh on expectations, compounded by lower liquidity due to the holiday. This slower pace may last until stronger market drivers emerge. If reactions to tariffs are limited, there could be a halt in market direction. GBP/USD is stabilizing around 1.3650 without much urgency. UK political tensions continue to simmer, which may be creating some hesitation in trading Sterling. Trading volumes have decreased, largely due to the American holiday. Such reduced participation can dampen volatility, even amid significant issues. If political situations worsen or governance changes are likely, it may disrupt the current lull. In the metal markets, gold prices are currently steady around $3,300 per troy ounce, following a pullback in earlier sessions. The market seems set for a weekly upturn if positive trends continue. Current trading reflects uncertainty about trade actions and the Federal Reserve’s future signals. Should discussions about lower interest rates arise, gold could garner renewed interest because of its sensitivity to rate changes. So far, the economic data has been strong enough to lift sentiment slightly, especially after easing geopolitical tensions. However, concerns linger. The US maintains a hawkish trade stance, and the potential for reintroducing tariffs remains real. This isn’t just noise; it could quickly change risk assessments. A sudden tariff shift or an unexpected inflation report could surprise many. In the short term, we’re observing major central banks and government trade offices for any changes in approach that might affect volatility or futures spreads. Create your live VT Markets account and start trading now.

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Italy’s retail sales fell in May 2025. The latest data shows a 0.4% decrease compared to the previous month, an improvement from the earlier decline of 0.7%. Year-over-year, retail sales rose by 1.3%, down from 3.7% in the previous period. In the three months before May 2025, retail sales dropped by 0.1% in value and 0.5% in volume. Comparing to May 2024, large retailers saw a 3.2% increase, while small retailers faced a 0.4% drop. Non-store sales remained the same, but online sales decreased by 0.9%. Looking at non-food products, different sectors had different year-on-year trends. Cosmetics and toilet articles grew by 4.3%, and optical instruments and photographic equipment went up by 2.7%. In contrast, sales of stationery, books, newspapers, and magazines declined by 3.5%, while computers and telecommunications equipment dropped by 2.6%. In summary, the latest retail data indicates a slowdown in Italian consumer spending. Although annual sales are slightly higher than last year, the gain of 1.3% is smaller. Month-to-month, there’s a clear drop of 0.4%, and this trend has been observed over the past three months, with value down by 0.1% and volume down by 0.5%. Large retailers are still showing robust sales growth at 3.2% year-on-year, but small businesses are struggling with a 0.4% decline. Non-store sales are flat, and online shopping has decreased by almost 1%. This suggests that even if prices remain high, the volume of sales is decreasing, reflecting changing consumer behavior influenced by costs and sentiment. Breaking down non-food categories gives more insight into the trends. Cosmetics and photographic gear are performing well, indicating some consumers are willing to spend on non-essential items, but only selectively. Conversely, sales for books, paper goods, and technology-related products are declining. This suggests waning interest in both digital hardware and print media, highlighting weaker demand in sectors that were once strong during and after the pandemic. Moving forward, it’s crucial to focus on the current landscape. Notice the decline in volume despite steady prices, as this usually points to margin compression and weaker demand. When large retailers do well during downturns, it often means consumers are changing their spending habits rather than increasing purchases. Bigger chains can offer discounts that smaller businesses can’t, skewing the data and obscuring underlying trends. The recent drops in retail turnover, especially when matched by declines in volume, indicate price sensitivity. Tracking value against volume is essential. A significant volume drop, especially in the tech and publishing sectors, suggests taking a cautious approach in related areas. The difference between flat and declining categories is stark. For example, stable non-store sales might seem neutral, but in a cooling market, it signals stalled growth. Moreover, the 0.9% drop in online sales during a time when digital adoption should be rising is concerning, hinting at fierce competition or consumers opting out of discretionary buying. This trend is not encouraging. We have seen this pattern before: strong annual figures followed by weak monthly and flat quarterly results often signal a shift—not just in the retail industry but also in consumer behavior. When discretionary categories diverge, it’s wise to avoid making blanket assumptions about retail health. Some segments may thrive temporarily, but overall strength is currently limited. Smaller retail businesses are under strain, and the overall volume is decreasing. It’s prudent to stay vigilant about potential overpricing in consumer contracts, especially those expecting a recovery in volume before summer ends. Without a clear driver for growth and with continuing declines in real turnover, the best strategy is to prioritize resilience over trying to capitalize on rebounds.

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Germany’s construction industry is still in a recession, though the decline slowed down at the end of the second quarter. Growth in civil engineering and commercial projects helped somewhat, but residential construction remains a significant concern, hurting business confidence. Civil engineering is seeing growth, with its index rising for the third straight month due to an infrastructure package, although funds from the €500 billion plan have not yet been released. Private companies are finishing current projects quickly, anticipating future ones. However, input prices rose sharply in June, reaching a peak not seen in 28 months, due to higher material and labor costs. Suppliers are passing these increased costs onto construction firms. Despite more subcontractors being available, they raised their rates. Construction companies are worried about the new government’s plan to increase the minimum wage by over 8% to €13.90 in 2026. Confidence that existed in May turned into pessimism in June, largely driven by the ongoing downturn in the housing sector. The Housing Activity Index declined for two months, even though the ECB has lowered interest rates. Rising long-term rates, partly due to increased public debt, are influencing this decline.

Industry Sentiment Shifts

The article describes the ongoing recession in Germany’s construction sector, where residential construction continues to weaken despite some growth in civil engineering and commercial works. Although these sectors are making progress, the steep decline in the housing market is the main issue affecting business sentiment, particularly in residential construction, which is facing rising costs and uncertainty from policies. The civil engineering sector is showing positive results, largely due to hopes of future infrastructure spending. However, this optimism is based on plans yet to be financed from the €500 billion fund. Companies are focused on completing current orders before new projects become competitive. This suggests a drive to finish old work rather than an increase in new demand. Additionally, prices for materials like concrete and copper are rising, with June marking the highest material inflation in over two years due to increased labor costs and supply delays. While subcontractors are now easier to find, they are also raising their rates, likely in anticipation of wage increases and future costs. The planned minimum wage increase to €13.90 by 2026 could shrink profits for labor-intensive firms. Larger companies might again raise rates to maintain profit margins, while smaller firms may struggle more.

Monetary Policy Challenges

A notable shift occurred from May to June. Confidence briefly improved following changes in interest rates but quickly turned to unease. Despite the European Central Bank lowering its policy rate, long-term borrowing costs remain high, reflecting increasing sovereign debt, which drives up yields and mortgage rates. This shift is particularly impactful for those in residential development, where future investment interest is waning. Buyers are cautious due to high project costs, wage uncertainty, and difficult lending terms. The current situation suggests slimmer margins in the short term, especially since housing bookings are low. With a growing gap between input costs and consumer demand, further declines in volume are likely. Consequently, holding onto long-term projects seems unattractive unless protected against fluctuations in material or wage costs. In these conditions, we typically reduce bets on overall building activity and focus on where volatility may occur, particularly in subcontractor pricing and civil engineering assumptions. Optimism around infrastructure has begun to wane, and activity contracting does not align with funding timelines, warranting close evaluation. Additionally, wage increases are directly affecting cash flow as they are being anticipated sooner than planned. Companies may adjust build timelines to safeguard against unexpected price changes. Long-term interest trends have not clearly translated into confidence. The continuing decline in the Housing Activity Index, despite central easing, suggests a deeper issue that monetary policy alone won’t solve. Businesses should prepare for further changes in profitability expectations for residential-focused firms. Create your live VT Markets account and start trading now.

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The Euro is recovering as the impact of a strong US Nonfarm Payrolls report fades. Concerns about US tariffs and the fiscal health of the country are putting pressure on the US Dollar. ECB President Lagarde and MPC member Villeroy have hinted at maintaining current interest rates in July. The EUR/USD pair is gaining strength, now trading in the high 1.1700s. The Dollar is giving back some of its gains after the NFP report due to worries about tariffs and comments from the European Central Bank, where officials are reinforcing a 2% inflation target.

Eurozone Economic Weakness

Market activity in the US is quiet because of the Independence Day holiday, with EUR/USD showing a modest weekly increase. Recent strong economic reports from the US have lowered expectations for a July rate cut by the Federal Reserve, now at 5%. Economic data indicates weaknesses in the Eurozone. The PPI is down, and German Factory Orders are also falling. French industrial output is decreasing, putting more pressure on the Euro amidst weak indicators. However, the Eurozone services sector showed slight growth in June. EUR/USD is having trouble staying above 1.1800, with possible bearish signals emerging. Despite recent highs, there are resistance levels at 1.1800 and beyond, with downside targets near 1.1710. Tariffs, unlike taxes, are charged on imports to protect local markets. Trump plans to apply tariffs to support US producers, focusing on major trading partners like Mexico, China, and Canada, and intends to use the tariff revenue to reduce income taxes. The market is starting to move past the immediate impact of the US employment surge, showing early signs that the Dollar’s rise is losing steam. The focus is shifting from strong hiring data to worries about sustainability, especially related to fiscal and trade issues. This indicates that the market is beginning to factor in broader risks beyond just labor statistics. Lagarde and Villeroy have recently emphasized that significant changes to monetary policy are unlikely this summer. While this doesn’t ensure a smooth path for the Euro, it removes one variable. With clarity on rate policy, attention will turn to the ongoing economic weakness in the Eurozone, which cannot be overlooked, especially with new data continuing to disappoint.

Implications of US Trade Policies

The PPI is declining, German Factory Orders are down again this month, and French production is also slipping. While this may seem routine, together these trends raise concerns for Q3 performance. The services sector is showing slow growth but not enough to counterbalance the issues in manufacturing. This creates a situation where even a slight improvement in US data could push EUR/USD lower. The recent rise in the Euro, nearing the high 1.1700s, is more of a temporary bounce than a trend change. The pair cannot maintain levels above 1.1800, which is important. Resistance is building at that level, likely intensified by options exposure and stop signals. On the downside, support around 1.1710 appears weak—closing below could lead to further downward movement if momentum shifts. Expectations for Federal Reserve rate cuts are becoming stable. A July rate cut now seems unlikely with chances at just 5%. This market positioning suggests that treasuries may remain stable as everyone waits for CPI or earnings to shift sentiment significantly. Therefore, the FX market may respond to sentiment rather than policy in the near term. Trade tensions are also impacting sentiment. With Trump pushing for new tariffs aimed at major economic players in the Eurozone, we adopt a cautious view. These tariffs are not traditional taxes; they target important supply routes under the pretense of protecting domestic industries. If implemented—or even come close to being passed—they could alter trade balances and currency flows. Safe havens and export-related currencies might react first. With lower trading volume due to the US holiday and European markets becoming more sensitive to upcoming data, it’s essential to monitor implied volatility closely. Pay attention to the spreads between front-end Eurodollar and Euribor contracts. While this won’t predict the direction, it will increasingly show where hedging pressures are building again. Create your live VT Markets account and start trading now.

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China has put a halt on its support for a new agreement with French cognac producers. The issue stems from China’s desire to connect this cognac deal with ongoing talks about electric vehicle (EV) tariffs. Starting July 5, China will impose tariffs on certain imports for five years. Some imports might be exempt from these tariffs if they meet specific requirements. These conditions seem to depend on actions that the European Union might take about EV tariffs on China. China’s decision to pause its endorsement of the cognac agreement sends a clear message: trade issues are now interconnected. This delay reflects a strategic change, where various sectors are linked together in response to Western trade measures. The spirits industry finds itself in a challenging position; it’s not about volume but rather the underlying symbolism that matters. Beijing’s approach is now noticeably reactive. Discussions about electric vehicles have opened the door. The tariffs set to begin on July 5 are significant—they are carefully timed, targeted, and flexible. Not everything will be treated the same way, and some exemptions have been intentionally included. While limited, these exemptions suggest that there is still a narrow pathway available, depending on regulatory changes from Brussels regarding Chinese electric cars. For those watching the derivatives market, there’s now more to consider than just product flows and domestic demand. Political factors add additional complexity. Relying too much on historical trends while trade measures change can lead to serious mispricing. What was once a stable view of duty frameworks may now need to be reassessed weekly. Tariffs on consumer products like cognac, which hold strong national value, have not typically influenced broader market pricing; that could be changing. It’s not just about costs being passed through supply chains anymore. We need to be alert to increased hedging activities in sectors that don’t seem related to transportation or vehicle electrification. By delaying its endorsement, China hasn’t merely postponed a drinks agreement; it has introduced uncertainty in regulatory norms. This uncertainty impacts the expected confidence in trading futures. Decreased certainty in trade relationships can widen basis spreads, especially when policy updates come in clusters rather than clear announcements. Tariff expectations should be reviewed daily, not quarterly. Strategies relying on stable prices for euro-area consumer goods or inputs for affected manufacturing must be revised. Any uncertainty in tariff exemption rules will raise the risk of misalignment. This doesn’t imply a one-way pricing trend, but it does suggest increased volatility near previous tipping points. A more aggressive identification of potential tariff impacts will be crucial in short-term contracts. We should prepare for July 5, which not only marks the start of new tariffs but also a deadline for integrating new conditions into pricing models. Those using simple models will need to adapt to incorporate EU Commission behavior. We must also consider precedent. Tying duty decisions across unrelated sectors could become a recurring strategy. Evaluating pricing policy risks now requires a detailed examination of regulatory negotiations. No assumptions should be made about historical trade independence between sectors. Tariff terms are no longer fixed. Every update from Beijing or Brussels should be assessed for its potential impact on trading strategies. The market’s previous insulation from these diplomatic developments seems to be fading. This subtle shift brings risks for price distortions that models must start to account for—not just in logical sectors but also in traditionally low-volatility goods that may be affected by these exemptions. In the end, impending policy decisions are becoming a key factor in pricing. Current trades must go beyond simple value-chain considerations. They need to factor in the diplomatic ties between alcohol and alternative energy.

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