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UOB Group analysts predict the Pound Sterling may fluctuate between 1.3420 and 1.3655.
Pound Sterling (GBP) may test 1.3580, but a pullback could happen afterward. Right now, GBP shows mixed signals, with a possible trading range between 1.3420 and 1.3655.
Recently, GBP fell to 1.3373 but then jumped back up to close at 1.3527. This sharp rise seems a bit overstretched, but GBP could still touch 1.3580 briefly. Major resistance at 1.3655 is not expected to appear soon, while support levels sit at 1.3525 and 1.3485.
The dollar weakened as geopolitical tensions eased, while the Fed suggests possible rate cuts.
The value of the US dollar is decreasing against several currencies. The USD/JPY fell by 0.5%, reaching 145.40, while the EUR/USD increased by 0.3%, pushing above 1.1600. Recently, the dollar gained some strength due to safety flows related to the Iran-Israel conflict, which led traders to close short positions.
As geopolitical tensions ease, investors expect a more positive market environment, which might reverse prior movements in the dollar. Recent updates from the Federal Reserve suggest a dovish approach, indicating possible changes in policy that could weaken the dollar. Speculations show a 96% chance of a rate cut in September.
With reduced geopolitical tensions, attention shifts back to trade policies. No major trade agreements have materialized, despite a July deadline looming. Traders predict delays in trade resolutions and expect current policies to stay the same. This inconsistency adds uncertainty to the US economy and complicates predictions about the future.
This uncertainty has already affected the dollar in the first half of the year, and similar effects are expected to continue. As normal market conditions return, the dollar struggles to stay stable.
The earlier analysis indicates the dollar’s ongoing decline due to easing global political tensions and shifts in policymakers’ tone. The high chances of a rate cut in September, at 96%, show that market participants have factored this into their pricing rather than merely speculating.
Looking ahead, we will closely monitor interest rate differentials, especially now that geopolitical volatility has lessened. The dollar’s earlier strength was largely due to safe-haven behaviors during times of global tension, bringing funds back into US assets. We now see a shift away from the dollar against major currencies, with the yen and euro quickly regaining ground—something we haven’t witnessed with such firmness since earlier this year.
With ongoing trade talks unresolved and no clear agreement before July in sight, there is a lack of new direction that could support a rebound for the dollar. Disputes over tariffs and inconsistent negotiating approaches dampen any hopes for surprising policy changes. This stagnation is causing the dollar to falter, unable to recover despite earlier oversold conditions unwinding amid a stronger risk appetite.
What’s notable is the dollar’s diminished ability to attract yield-seeking investors without strong hawkish signals. With recent Fed communications favoring accommodation and real yields adjusting accordingly, the carry advantage is no longer appealing.
As always, this situation makes positioning increasingly sensitive to minor shifts in macroeconomic data, particularly inflation rates and employment figures. If forward-looking data doesn’t improve, the market may start treating a rate cut as a certainty, not a possibility. This would maintain downward pressure on the dollar into the start of Q3.
Although volatility may remain low, the overall trend has shifted. In previous weeks, strength was driven more by market sentiment reacting to headlines rather than fundamentals. Now, without that support, strength is not only fading but showing signs of reversal. The consistent adjustments in swap data and futures give us reasons to favor this directional trend rather than dismiss it without justification.
Watching options flow over the next two weeks will be crucial for assessing whether markets lean towards aggressive downside positions for the dollar or remain cautiously stable. Regardless, assuming complacency in pricing would be premature. The upcoming sessions require a flexible strategy, but not a vague one. Wide straddles may not be effective—lean, directional exposure with suitable hedging will likely perform better in a market realigning around confirmed policy paths rather than reacting to uncertainty.
During European trading hours, the Indian Rupee nears 86.10 against the US Dollar as oil prices decline.
The Indian Rupee rose to about 86.10 against the US Dollar during European trading hours. The USD/INR pair fell as oil prices dropped, following a ceasefire announcement between Israel and Iran made by US President Donald Trump.
Oil prices on the New York Mercantile Exchange decreased by over 15% from a high of $76.74. This is good news for countries like India, which depend significantly on oil imports.
Impact On Inflation And Trade
Lower oil prices help to reduce inflation and the current account deficit in India. The announcement of the ceasefire has also boosted Indian stock markets, with the Nifty50 and Sensex30 seeing sharp increases, although they both gave back half their gains by the end of the day. After Iran threatened to close the Strait of Hormuz, there was a notable sell-off in Indian stocks. However, Foreign Institutional Investors bought ₹5,591.77 crore worth of Indian equities on Monday. The table below displays the percentage changes in currencies, showing that the Rupee is strongest against the Canadian Dollar. The decline of the USD/INR pair is due to a weaker US Dollar, influenced by changes in the Federal Reserve’s monetary policy. Federal Reserve officials have raised concerns about the labor market, hinting at a potential interest rate cut. Fed members Michelle Bowman and Christopher Waller support reducing rates to tackle employment risks.Technical Analysis And Market Sentiment
The USD/INR pair approached the 20-day Exponential Moving Average at about 86.10, with the Relative Strength Index indicating a bearish reversal. Key support and resistance levels are at 85.70 and 86.93, respectively. The US PCE Price Index, an important inflation indicator, will be released on June 27, 2025. The expected increase to 2.6% from 2.5% could impact the strength of the US Dollar and guide monetary policy. With the rupee gaining ground, especially reaching around 86.10 during the European session, it’s clear that favorable economic conditions are emerging. This increase correlates with a broader decline in the US dollar, particularly as crude oil prices fell due to geopolitical developments, such as the ceasefire announcement between Israel and Iran. This situation is advantageous for India. Brent and NYMEX oil prices have dropped over 15% since reaching their recent highs, easing one of India’s major external financial pressures. Since India spends a lot on oil imports, lower prices will reduce costs for consumers and wholesalers, alleviating inflation concerns for the central bank. Cheaper energy helps narrow the trade gap and supports the rupee. The stock markets reacted quickly to the dual effects of decreasing oil prices and improved geopolitical conditions. Both major indices, Nifty50 and Sensex30, rose sharply in early trading, although they lost some gains by the end. This decline was partly due to heightened tensions after Iran warned about the Strait of Hormuz. However, foreign investments remained strong, with net purchases of nearly ₹5,600 crore, showing confidence in the market even on a volatile day. Technical indicators support the rupee’s positive trend. The USD/INR pair has dropped towards the 20-day EMA at 86.10, and the Relative Strength Index reveals weakening bullish momentum for the dollar. Attention should now shift to support at 85.70 if the rupee continues to rise, and resistance around 86.93 may lead to selling pressure or temporary consolidation. In the US, there’s a noticeable shift in sentiment at the Federal Reserve. Policymakers like Bowman and Waller, who were previously cautious, now seem more open to cutting rates due to concerns about employment data showing signs of weakness. This creates a scenario more favorable for a weaker dollar, thereby supporting the rupee. The upcoming US PCE Price Index, set for June 27, will be significant. The forecasted rise to 2.6% from 2.5% isn’t alarming by itself, but any unexpected increase might temporarily strengthen the dollar based on interpretations of future monetary policy. However, with inflation under control and signs of weakening employment, the overall narrative favors lowering interest rates instead of raising them. It’s a complex situation but with clear opportunities ahead. Create your live VT Markets account and start trading now.Villeroy suggests that more rate cuts may happen based on changing economic conditions and geopolitical factors.
ECB policymaker Francois Villeroy de Galhau has said that further rate cuts are possible, even with the current economic situation. He noted that inflation expectations are moderate and recent oil price hikes have offset some gains from a stronger euro.
Villeroy mentioned that a ceasefire between Iran and Israel could result in changes to policy within the next six months, but he emphasized that oil prices alone won’t dictate the ECB’s decisions.
Neutral And Terminal Rates
He explained that the neutral rate and the terminal rate are different. The ECB plans to observe how things unfold before making further moves. Currently, markets expect about 23 basis points of rate cuts by the end of the year. The ECB is staying flexible and hasn’t committed to immediate changes. Villeroy’s comments provide insights into the euro-area’s monetary policy future. His focus on the neutral rate versus the terminal rate indicates that the central bank hasn’t reached its final goal yet. The neutral rate is an estimate of a balance point that neither boosts nor slows the economy, while the terminal rate is where rates might eventually settle after a cycle of increases or cuts. Differentiating between these rates helps us understand the ECB’s cautious approach. Villeroy also pointed to geopolitical risks, particularly the potential ceasefire between Iran and Israel, indicating that the bank is analyzing factors beyond usual inflation signs. He suggested that while energy prices, like crude oil, may temporarily affect overall inflation, they won’t drive decisions alone. This important nuance shows that supply-side shocks, such as oil prices, will be evaluated alongside domestic demand and wage trends.Market Expectations And Strategy
Market expectations are pricing in nearly one-rate cut before the year ends, around 23 basis points. This aligns with our assessment: traders are cautiously leaning towards continued easing. The ECB’s lack of specific future guidance shows they do not want to commit until they have clearer data. What’s noteworthy is not just what Villeroy said, but the tone of his speech. It was careful and designed to keep options open without offering false certainty. This serves as a reminder for us to stay flexible. This cycle does not lend itself to simple assumptions. Rate expectation changes will likely be gradual and contingent on factors beyond basic inflation, like global events and commodity movements. In the coming weeks, this suggests a more measured approach when betting on rate movements. Short-term volatility is still more influenced by words than actions. Traders looking for volatility may find fewer opportunities unless macroeconomic indicators surprise significantly. Those trading duration might prefer smaller, steady positions, especially around important data releases or central bank updates. If oil prices change direction or wage growth speeds up, the curve could steepen quickly. We need to monitor these turning points closely. Long-term contracts might currently price in overly cautious expectations—something to compare against past ECB reactions. Data will be more crucial than usual this summer. European PMIs, wage agreements, and regional inflation figures from places like Germany or Belgium could carry extra weight. Therefore, positioning should be lighter but more strategic, focusing on short opportunities when event risk sways probabilities. In such times, flexibility is not just a strategy—it’s essential. One or two well-timed decisions could significantly alter market rate perceptions. This highlights the importance of clear communication from policymakers, allowing us to create responsive probability assessments rather than mere forecasts. Create your live VT Markets account and start trading now.The US Dollar fell against the Canadian Dollar ahead of Canada’s CPI data release.
The Canadian Dollar (CAD) has risen because the US Dollar (USD) is weaker, but its rise is limited. Oil prices have fallen nearly 15% in two days after a ceasefire in the Middle East, which impacts the CAD since oil is a crucial Canadian export.
The US Dollar Index has dropped over 1% from Monday’s peak, thanks to better market feelings from a ceasefire between Israel and Iran. This ceasefire has increased investor risk appetite and reduced the need for safe-haven assets like the USD.
The Canadian Dollar and Oil Prices
The Canadian Dollar is having trouble rising past its recent lows, mainly due to falling oil prices. Investors are cautious as they wait for Canada’s Consumer Price Index (CPI) data, which could influence the Bank of Canada’s decisions on monetary policy. In the US, all eyes are on Fed Chairman Powell’s upcoming testimony to Congress. Recent comments from the Fed suggest a softer approach, leading to hopes for future interest rate cuts. Additionally, oil prices are affected by global growth, geopolitical issues, and OPEC decisions. WTI Oil, a major crude oil type, heavily influences global markets. Its prices fluctuate based on supply and demand factors, especially changes in inventory and OPEC’s production policies. The Canadian market is keenly focused on inflation data to predict future economic actions. Right now, the Canadian Dollar is trying to climb higher but is hindered by recent oil price drops. This isn’t surprising since oil plays a big role in Canada’s export earnings. With crude prices dropping nearly 15% in just two sessions—largely due to an unexpected truce between Israel and Iran—the CAD is feeling the impact. This ceasefire has boosted confidence in financial markets, pulling investors away from safer options like the USD and pushing the Dollar Index down more than 1% from earlier highs this week. Despite the USD weakening, the CAD hasn’t gained much traction above recent levels. The drop in oil prices seems to outweigh the benefits of a weaker USD. Traders are carefully awaiting Canada’s inflation numbers, as these are important for the Bank of Canada’s upcoming rate decisions. A lower inflation figure could strengthen the argument for pausing or even cutting rates, especially as global economy signals show more caution. Looking to the south, all attention is on Powell’s upcoming testimony. Following comments from US central bankers suggesting a less aggressive approach, market expectations have shifted towards potential future rate cuts. However, the timing of these cuts—whether late this year or later—remains uncertain. Powell’s remarks could confirm this view or challenge the current dovish sentiment.Global Oil Dynamics
Oil, essential for energy currencies, is influenced by global supply choices and overall demand. Crude prices are volatile. Even minor shifts in Middle East tensions or OPEC output guidelines can lead to significant price changes. Traders trying to predict energy contract directions should focus on weekly inventory changes and statements from oil-producing countries. Market reactions have only added to the uncertainty. Traders oscillate between safe trades and riskier assets, making currency movements unpredictable. While the USD weakens, the loonie lacks enough momentum from international developments to establish a clear upward trend. In this environment, derivatives traders should approach CAD pairs cautiously. Monitor the inflation data from Statistics Canada, and stay ready for shifts in oil futures. Given the differing interest rate views between Canada and the US, remarks from Washington could lead to short-term adjustments in market predictions. Keep spreads moderate but adaptable. The coming days may bring lower clarity—not due to a lack of events, but because of the many overlapping factors influencing prices. It’s not a good time to chase breakouts; patience is key. Each economic release and geopolitical news can quickly impact currency values. We suggest avoiding extremes unless one strong catalyst emerges and holds. Create your live VT Markets account and start trading now.Markets remain indifferent to geopolitical tensions, focusing on future developments and trends.
The IDF has reported a fourth wave of missiles from Iran aimed at Israel, even as calls for a ceasefire grow. However, the markets remain stable, showing little reaction to the rising tensions in the Middle East.
Last week, markets appeared eager to move past the unrest in the region. Former President Trump’s decision for U.S. intervention did not lead to major changes, especially since Iran’s response has not been severe. This hints at a possible easing of tensions.
For the markets, the focus is on reducing conflict. Although attacks continue, as long as the situation does not escalate further, market reactions are not expected to change significantly.
This situation resembles the ongoing conflict between Russia and Ukraine, which is still active. Such conflicts often serve as checkpoints for both the media and the markets, which quickly move on from the initial shock.
Globally, attention shifts quickly as new stories emerge. The markets’ reactions to geopolitical tensions may soon fade as other news takes precedence, reflecting the rapid pace of news cycles and economic interests worldwide.
Despite recent missile exchanges, asset prices, especially in speculative markets, have shown little reaction. Volatility indicators across most indices hardly moved. This detachment suggests that market participants believe the issues will remain contained. Instead of reacting impulsively to every development, there’s a growing sense of cautious complacency.
We see patterns similar to past geopolitical turmoil, where initial alarm turns into indifference if disruptions don’t affect trade routes, energy supplies, or financial systems. With the broader conflict not showing signs of expanding regionally, there’s no indication of significant disruptions to oil flows or supply chains. After minor fluctuations, Brent crude prices have stabilized.
The outcomes from last week’s monetary policy meeting also gave traders a reason to overlook the headlines. Powell’s team indicated that interest rates might remain steady for a while, focusing more on supporting stable financial conditions rather than addressing inflation directly. This reduces the need for major adjustments in bonds or equity-related assets.
From our perspective, stories that don’t have a direct economic impact tend to fade from traders’ consciousness. This doesn’t underestimate current events, but it highlights that markets look ahead. They quickly absorb public concern and adapt if the situation doesn’t affect key areas—liquidity, credit conditions, or earnings performance.
While analysis desks continue to urge caution in hedging, few are changing their main forecasts this week. In options markets, demand for protection against downside risks is present but not significantly high. This gap between concern and action indicates stability rather than a calm before a storm.
We find it more useful to monitor trading volume than headlines. When fighting intensified, there was a surge in index put options, but those have since rolled off or been adjusted upward. This behavior suggests that traders are opting for short-term hedges instead of long-lasting bearish outlooks.
In the upcoming sessions, derivatives positioning will likely focus on key earnings announcements and inflation reports. Although geopolitical tensions continue, there are no new developments pushing significant budget or policy changes, meaning that market positioning will rely more on local economic data than global conflict.
In commodities, interest in safe havens has cooled. Last Wednesday, gold lost some momentum, and open interest in near-term futures contracts decreased. There’s no sign that large institutions are adjusting their collateral portfolios in response to international developments.
Keep an eye on the bond market for any signs of price adjustments. Recent auction results indicate steady demand, with ten-year yields remaining relatively stable, influenced more by supply expectations and domestic policy outlook than geopolitical concerns.
While aggression continues, market participation shows selective sensitivity. Across various sectors, traders are treating political unrest as a background issue rather than a catalyst for sweeping corrections. As new macroeconomic data comes in, focus will likely shift back to inflation, wage growth, and earnings season—elements that feed more into options volatility and positioning than missile launches reported in the news.
The pound strengthens against the euro as EUR/GBP falls below 0.8550 after UK PMI data
Strong Performance in the UK Services Sector
In June, the S&P Global UK Composite PMI rose to 50.7, up from 50.3 in May, which is better than expected. This strong performance in the services sector stands out when compared to Germany and France. As a result, the Pound has strengthened, putting pressure on the EUR/GBP exchange rate. The European Central Bank (ECB) is worried about the economic effects of US tariffs and tensions in the Middle East. ECB officials, including Francois Villeroy de Galhau, have mentioned that rate cuts might be on the table. Christine Lagarde has highlighted that inflation expectations are crucial when evaluating the impacts of trade or geopolitical shocks. The ECB’s dovish tone may lead to a weaker Euro in the near future, and we look forward to more insights from Lagarde’s upcoming speech. The early drop below 0.8550 for EUR/GBP shows that the shift is driven more by the UK’s resilience than Euro weakness, at least for now. The recent UK PMI data confirmed a surprising strength in the services sector, which has been a critical area since the pandemic. This new information makes the Bank of England’s next steps seem tighter, especially since inflation still isn’t fully under control. We are not just seeing a quick reaction to one data point. The UK statistics show an economy that is not slowing down as many had anticipated, which is quite different from what we see in France and Germany. There, the services sector is struggling, and manufacturing is not helping. This sets up a stark contrast between the confidence reflected by the Pound and the caution associated with the Euro.Market Dynamics and Future Volatility
As traders, we are closely watching not just the initial data but also forward guidance. Bailey’s upcoming remarks will be important, as they will not only address rate expectations but also cover demand, wage trends, and core inflation. If he suggests that policy will remain steady beyond autumn, it will strengthen Sterling’s position. Meanwhile, Lagarde has a tougher job. The European Central Bank is facing external pressures it cannot control, such as tariffs and conflicts. It must also consider whether upward price shocks are becoming part of inflation expectations. Lagarde’s comments showed more concern than anticipated about inflation not decreasing smoothly, especially if businesses begin adjusting prices for longer-term uncertainties. Villeroy’s remarks about rate flexibility were not entirely unexpected but do indicate a willingness to change. If this sentiment spreads among ECB members, the Euro could weaken further. Markets often interpret flexibility as a sign of impending rate cuts unless countered strongly. Since consumer pricing data has had less impact recently, guidance will take precedence. Relative performance now drives short-term market movements. If Bailey’s tone is firm and Lagarde is more defensive, we can expect volatility in one clear direction—though it might not be one-way. Volatility around key levels on EUR/GBP could change quickly, especially if US data later in the week suggests a risk-off sentiment. Observing how inflation expectations shift in the next two weeks is more important than just whether a cut or hold is discussed. The market favors stability, and currently, Sterling is in that position. However, the Dollar’s performance could complicate matters if surprises arise from the Treasury discussions. Currently, option pricing for EUR/GBP leans toward Sterling strength, but this is very sensitive to any verbal missteps. The specific language used by both leaders will influence hedging interests. Those managing positions through the late June expiry should watch for shifts in alignment before increasing their stakes. Stay alert to changes in sentiment rather than trying to anticipate rate decisions. With implied volatility still lower than first-quarter averages and liquidity thin before summer, chances of mispricing remain. Monitor realized volatility against implied rates to identify where movement expectations may be underestimated. This is not a market to chase strength when valuations are extreme—at least not yet. Create your live VT Markets account and start trading now.The Israeli military reports that Iran has launched a third wave of missiles targeting southern and central Israel.
Iran Has Reportedly Launched Ballistic Missiles
There is significant chaos and confusion in the affected regions. The situation is still developing, and many people are waiting for more updates.
This article discusses a sudden rise in tensions as Iran reportedly launched ballistic missiles targeting several areas in Israel. Soon after these strikes, Israeli defense officials announced that citizens could leave their protective shelters. This message suggested that the immediate threats from the missile launches had either ended or were managed by military defenses.
However, the overall environment remains very unstable. The impact on civilians and infrastructure still needs to be fully evaluated. Local reports differ widely, showing inconsistencies in communication. Although public announcements indicate a reduced threat, ongoing activity in the airspace and military preparations suggest that a cautious approach is still needed.
Due to the escalation and unpredictable responses, there is a noticeable impact on market volatility. Options pricing has broadened for both short-term contracts and weekly expirations. Demand for protective measures, especially for instruments exposed to regional instability, has caused skew patterns to shift. Futures term structures now reflect risks that were not considered before, indicating that the market is trying to set new short-term baseline conditions.
**Pricing Behavior Aligns with Geopolitical Shocks**
This situation marks a significant change in how risk is being reassessed. Hedging activity has increased in highly liquid options, especially in sectors and commodities that are sensitive to Middle East tensions. There is heightened interest in protective puts and a rise in trading volume for long-term volatility instruments, showing that market anxiety is influencing trader strategies.
The current pricing behavior fits a known pattern seen during sudden geopolitical events. Changes at a micro level—such as bid-ask spreads and order book activity—are happening faster than broader asset adjustments. We’ve also noticed stronger correlations across different assets, leading to sudden spikes in trading volume that can cause unintended market shifts. Liquidity providers have started widening spreads on both index derivatives and individual products.
Traders now face a brief opportunity to decide whether to limit risk exposure through careful reductions or to capitalize on pricing inefficiencies caused by emotional trading. The focus should be on swift yet calm reactions. We should observe large buyers entering longer-term futures and gradually layering on protective strategies. Institutions willing to take on more risk are likely already adjusting their positions, particularly in commodities and currency pairs linked to regional movements.
Underlying trends in energy and defense-related derivatives send a strong message. Trades are not just focused on direction but also on the duration of those positions. Attention-grabbing spot prices do not tell the whole story; it’s the spread trades, allocation shifts, and ongoing adjustments in synthetic baskets that provide a deeper understanding.
The current market conditions do not appear to be temporary. Each change in basis points and every adjustment in premiums reflects the decisions participants are making about future risks. We are seeing genuine demand-driven changes rather than random repositioning. It’s essential to pay attention not just to headlines but also to how informed trading flows drive market actions.
We can expect higher floors in certain volatility surfaces and continued interest in specific expiration timeframes. For those navigating these conditions, precision is more crucial than prediction. Let pricing anomalies direct your next steps and prepare early. Don’t chase trends—stay vigilant and seize opportunities.
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A risk-on sentiment strengthens the Australian dollar against the US dollar after positive news
The Australian Dollar (AUD) rose against the US Dollar (USD) on Tuesday for the second day in a row. This increase follows a ceasefire announcement between Iran and Israel made by US President Trump, who mentioned the destruction of Iran’s nuclear facilities and noted missile interceptions.
The Iranian parliament’s decision to close the Strait of Hormuz has added to global tensions. On the domestic front, Australia’s private sector is experiencing significant growth, according to S&P Global PMI data, which lessens expectations for a rate cut by the Reserve Bank of Australia.
Market Focus Shifts
Attention is now on Fed Chair Jerome Powell’s upcoming testimony before Congress for clues about future interest rates. The US Dollar Index is around 98.20, influenced by dovish comments from Federal Reserve officials. They suggest that rate cuts may be near due to risks in the job market and inflation trends. The Federal Reserve’s position is flexible, with potential easing next month amid global uncertainties. Currently, they have kept interest rates steady at 4.5%, forecasting reductions by the end of 2025. Governor Waller has indicated that easing could begin soon. The People’s Bank of China has kept its Loan Prime Rates stable. The AUD/USD pair is trading close to 0.6480 and is testing the nine-day EMA. If it surpasses this level, it could reach 0.6552. Initial support lies around 0.6440, corresponding with the 50-day EMA, as the AUD remains strong despite market fluctuations. Right now, the Australian Dollar is performing well against the US Dollar, marking its second day of gains. This trend is linked to events in the Middle East and positive domestic economic signals. President Trump’s ceasefire announcement between Iran and Israel, along with reports of disabled nuclear infrastructure, has lowered perceived risks, even if temporarily. The interception of missiles adds further context, highlighting the restraint shown in the region but leaving room for unexpected events, especially with the closure of the Strait of Hormuz, which could disrupt global oil flow and affect commodity-driven currencies. Domestically, Australia’s private sector is still expanding robustly according to the latest S&P Global PMI data. This suggests that the economy is not slowing down as much as previously feared, reducing the likelihood of rate cuts from the Reserve Bank, even as inflation rates approach target levels. This dynamic is already impacting expectations for monetary policy, which have started recalibrating over the past several sessions. Upcoming US events are particularly important. Powell is set to testify before Congress, and recent comments from Waller and others indicate a shift towards a more accommodative stance. We are watching this closely. The US Dollar Index at about 98.20 shows sensitivity to weaker labor data and declining inflation numbers. If Powell’s comments lead to increased expectations for easing, investments in US assets may weaken, allowing for further AUD gains.Technical Levels and Market Outlook
Technical levels are also supporting a bullish outlook. The AUD/USD pair is currently around 0.6480, having tested its nine-day exponential moving average (EMA). If buyers push the pair above this level, the next target could be 0.6552. However, the downside is supported by the 50-day EMA, which is around 0.6440. Overall, the market seems to be favoring AUD strength unless significant surprises occur. In China, the unchanged Loan Prime Rates provide additional support for the Australian Dollar, aligning with a steadier trade outlook for the region. This stability from Beijing helps mitigate expectations of sudden drops in demand. For those trading futures and options on AUD pairs, it may be wise to consider shorter-dated calls with limited downside risks. Implied volatility is compressing but remains sensitive to geopolitical events. Positioning through spreads could be more effective than straightforward directional trades at this time. We will keep monitoring signals, especially regarding upcoming US job data and any firm commitments to rate changes. The recent reactions in US fixed-income markets suggest that traders are becoming more confident about beginning an easing cycle as early as next month. This default position will influence risk-reward scenarios in AUD-linked pairs in the coming weeks. Create your live VT Markets account and start trading now.The PBOC set the USD/CNY rate at 7.1656, exceeding the expected rate of 7.1605.
The People’s Bank of China (PBOC) is China’s central bank. It sets the daily midpoint value of the yuan, also called the renminbi or RMB. The bank uses a managed floating exchange rate system, allowing the yuan’s value to move within a range of +/- 2% around the central reference rate.
Recently, the PBOC set the midpoint at its highest level since November 8, 2024, which is a strong indication for the yuan against the USD/CNY. The last close was recorded at 7.1772.
