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Italian consumer price index for May was 1.7%, below the expected 1.9%
Italy’s Consumer Price Index (CPI) for May rose by 1.7% compared to last year, which is lower than the expected 1.9%. This indicates a slower inflation trend in the country.
In early European trading on Monday, the EUR/USD pair climbed close to 1.1600 due to a weakening US Dollar. The GBP/USD pair also moved up towards 1.3600, benefiting from similar pressures on the Dollar, despite ongoing geopolitical issues in the Middle East.
China’s NPC Standing Committee meeting will focus on anti-competition laws and international issues.
China will hold a National People’s Congress (NPC) Standing Committee meeting from June 24 to 27 to discuss changes to anti-competition laws. The agenda may also include topics like Trump tariffs and issues in the Middle East.
The NPC Standing Committee is China’s main legislative body, unlike the full NPC, which only meets once a year in March. The Standing Committee meets every few months and works on legislation throughout the year.
This committee has around 170-180 members, including the NPC Chairman, Vice-Chairpersons, and Secretary-General. Their responsibilities include passing new laws, amending existing ones, and approving key appointments, such as ministers and central bank officials. They also review international treaties and supervise state organizations like the State Council (cabinet), courts, and prosecutors. Through these roles, the NPC Standing Committee significantly influences China’s laws and governance.
This article explains the timing and role of the NPC Standing Committee and highlights that the upcoming session may address issues beyond just domestic laws. These topics include a review of anti-monopoly laws and discussions about U.S. tariffs, particularly those established during the previous administration, as well as political matters in the Middle East. The inclusion of these topics suggests that Beijing prioritizes them.
The NPC Standing Committee, unlike the broader NPC, handles daily legislative functions. It can modify or introduce laws between full sessions and regularly approves appointments and treaties. It also serves as a mechanism for implementing directives from party leaders quickly, impacting global economic interactions.
What stands out about the June meeting is that it’s not just about refining internal laws. It also touches on external factors that affect trade and economic sentiments. The mention of the “Trump-era tariffs” indicates that China may be reconsidering its approach to international trade tensions, possibly in anticipation of political changes in the U.S. Beijing’s decision to discuss these issues at the Standing Committee level suggests that planning is already advancing.
The next few weeks will be sensitive, as the outcomes may influence inflation, trade commodities, and exchange rates. Changes in external tariff discussions could lead to unexpected shifts in energy pricing or trade flows. Even if no official changes are announced, any potential for revision might signal market directions. If global traders perceive easing signals to be credible, we could see rapid shifts in defensive positions.
Wang, Li, and their colleagues are not just speculating. The way past agenda items were scheduled suggests there is a plan for follow-up actions in the months ahead. Those involved with interest-rate-linked instruments should watch for references to import timelines and possible retaliation clauses. These details could impact spreads, particularly in cross-strategy options.
On a different note, the discussion of Middle East issues—while not defined—adds a geopolitical aspect that must not be overlooked. The committee’s agenda probably includes strategies that could affect infrastructure lending or changes in the Belt and Road Initiative, which in turn could impact emerging market correlations, particularly in sovereign credit default swaps and oil demand predictions.
In this evolving environment, cautious sellers of convexity and those with Asian basis swaps might consider adjusting their positions to a more neutral stance ahead of the meeting. While not a definitive context for directional moves, changes in forward volatility in rates and FX are expected. Many traders are already flattening their curve sensitivities as shifts in Beijing’s policies often precede related adjustments in Singapore and Hong Kong.
Regarding the anti-monopoly law revision, it’s not merely bureaucratic. It’s crucial for how consumer tech, industrial services, and supply chain platforms can price, scale, and secure funding. This has implications for profit margins and valuation methods for structured products. If cross-border elements or broadcasting restrictions are included, it could impact the reassessment of export-heavy sectors.
For those dealing with uncertainty in term structures and gamma around China-linked assets, the focus should be on the language used that hints at future direction. In this context, seeing terms like systemic fairness or third-party compliance could be significant for Q3 strategies.
Past committee meetings, often seen as procedural, have triggered global policy shifts. This pattern is likely to continue. Traders should pay attention not only to the results but also to the order and framing of discussions. This upcoming week is expected to provide insights that extend beyond immediate conclusions.
Bundesbank President addresses ECB in Frankfurt, says a pause or cut isn’t sensible
Joachim Nagel, a key ECB figure and Bundesbank President, spoke in Frankfurt about the theme “Goal achieved – no reason to give up.” He stressed that it is not wise to signal a pause or rate cut due to ongoing uncertainty, advising the ECB to stay flexible.
Current data and forecasts suggest the ECB has met its goals. However, keeping options open concerning interest rates is still important. Right now, the EUR/USD pair has risen by 0.28%, largely due to the weakening of the US Dollar.
Understanding The ECB’s Role
The European Central Bank (ECB) is based in Frankfurt and manages monetary policy for the Eurozone. Its primary goal is to maintain price stability, aiming for inflation of around 2% by adjusting interest rates. High rates usually strengthen the Euro, while low rates weaken it. In tough financial times, the ECB uses Quantitative Easing (QE) to pump money into the economy by buying assets, which can lead to a weaker Euro. Conversely, during recovery, Quantitative Tightening (QT) involves halting asset purchases, typically strengthening the Euro. Nagel’s statements indicate that while current figures show success, there’s no immediate shift in monetary policy. Policymakers are cautious about locking themselves into fixed plans. Although inflation has decreased, it hasn’t done so uniformly across the Eurozone, with some areas still showing weak indicators. Thus, it’s risky to talk about ending or reversing policy too soon. For now, the ECB keeps its options open. Leaders like Nagel are advocating patience. With inflation near the 2% target, there’s a temptation for market analysts to suggest easing up. However, the cautious approach indicates that changes won’t happen quickly. We see the Euro gaining against the Dollar, largely influenced by shifts in investor sentiment and a weaker Dollar, rather than just demand for the Euro. This reaction in the derivatives market isn’t surprising. Traders are adjusting their positions, expecting a different trajectory for the Fed and the ECB in the near future. This divergence will rely more on incoming data than on policy announcements.Navigating Future Challenges
The need for flexibility is genuine. Rate adjustments may be necessary in either direction. For policymakers to react effectively, they need clear signals, rather than just noise from monthly reports. At the same time, pricing is sensitive to comments from policymakers; any suggestion of dovish or hawkish trends can impact yields, currencies, and futures. As we approach upcoming meetings, we might see significant changes in the implied volatility of rate futures and options. Directional bets are fragile when confidence hinges on unpredictable external factors—like commodity prices, geopolitical tensions, and uneven recoveries in the service sector across member states. With QT continuing, it signifies a gradual withdrawal from pandemic-era support. This also technically supports the Euro by trimming excessive supply from the market. However, this process is slow and methodical, similar to how the stimulus measures were rolled out in 2020. The ECB values credibility, particularly during a recovery that isn’t consistent across the board. Economic indicators are mixed—some countries show low unemployment, while others are still struggling. This situation turns the process into a waiting game rather than a guessing game for the central bank. In such scenarios, those trading derivatives are already adjusting their strategies. We are monitoring hedging ratios and the sensitivity of short-dated contracts. Any current overexposure could lead to challenges due to policy inertia. Delta positioning must be attuned to this immediate risk. It is likely that volatility will rise again as traders adjust for the later quarters. In simpler terms, options are narrowing, even though the outlook seems complete at first glance. Create your live VT Markets account and start trading now.Futures suggest buyer dominance, indicating institutional accumulation and a potential market recovery.
Data from ForexLive.com shows that buyers are stepping in despite global uncertainty. The S&P 500 E-mini futures gained 60 points and have remained steady amid geopolitical tensions. This analysis on futures gives us an early look at market sentiment before the U.S. stock market opens.
OrderFlow Intel helps us understand market activity by showing current buyer and seller dynamics. This AI-powered tool reveals who is in control of the market, the support behind price movements, and how liquidity reacts. It helps traders distinguish between genuine interest and random price fluctuations.
Buyer Dominance in Early Trading
Today’s early futures trading highlights buyer strength with little selling pressure and low volume, suggesting that institutions are methodically accumulating. This follows Friday’s sell-off, with buyers stepping in during price dips and absorbing liquidity at lower levels. The price increase happened without significant intraday pullbacks, indicating intentional accumulation. For traders, today’s performance suggests market stabilization and potential buying opportunities on minor dips. Long-term investors might question if recent macro concerns are overblown. The current behaviour in the futures market shows a shift from reactive selling to quiet accumulation. If this trend continues, we may see a broader recovery as the U.S. session begins. What we observe is a consistent reaction to Friday’s drop, with buyers cautiously but clearly re-entering the market. The lack of strong selling pressure and low volume during upward moves indicate that buying is not driven by speculation. Instead, it seems to be driven by institutions—carefully and deliberately focused on value. Such buying habits help strengthen price levels. Futures remaining stable without intense selling or sudden drops suggest that sellers are losing their energy. This often signals a phase where value-seekers quietly enter the market—not forcefully, but patiently, allowing prices to rise gradually as supply is absorbed. In this situation, it’s the base being formed, not the speed of the rise, that matters.Liquidity and Buyer Dynamics
Examining the order flow reveals that liquidity is building beneath active prices, especially after minor dips. This indicates that buyers are not just present; they are committed to defending their positions. When this commitment appears after a sell-off, prices usually stabilize instead of dropping quickly. This points to a week where strength during light pullbacks may continue to attract attention. However, reactions around key levels must be assessed in real-time. No price movement should be accepted at face value. We need to examine the depth—who is entering the bid, how substantial they are, and if they re-enter after being tested. When buyers maintain their positions even after reduced activity, it conveys more than a fleeting spike. While sentiment seems positive, we cannot ignore global challenges. Instead, we adapt to how the market is reacting—calmly rather than impulsively. When prices stabilize amid uncertain headlines, we consider whether the worst has already been factored in. This reflection guides future strategies. There’s also an advantage in observing how passive flows behave around VWAP and session ranges. If institutions continue to accumulate near these points, it usually signals a purpose. With purpose, opportunities become clearer. However, each scenario requires a plan—entry points need triggers, and stop-losses must fit within the order book context. From our perspective, we proceed with careful observation rather than blind optimism. If shallow dips keep attracting steady buyers, it may indicate positioning for further upward movement. However, if rising prices encounter ongoing selling pressure, it’s time to reevaluate. For now, the responsibility lies with sellers to make their presence known—and they have mostly stayed quiet. Create your live VT Markets account and start trading now.Stock markets remained stable after attacks in the Middle East, despite early fluctuations in Emini S&P.
Emini Dow Jones June Overview
In June, the Emini Dow Jones dropped to 41920 but quickly bounced back, with the day’s low just 50 ticks below the buying zone at 42350/250. The session included trades at resistance levels, and further declines may target 41650 or even 41350/300. In the forex market, the EUR/USD climbed towards 1.1600 as the US Dollar weakened. Similarly, the GBP/USD approached 1.3600. Gold remained stable above $3,400, even though it has lost some of its appeal as a safe-haven asset. Chinese economic data suggests that the country may meet its growth target for the first half of 2025, despite mixed signals from fixed-asset investment and property prices. As mid-June approached, indices remained constrained within narrow ranges. The S&P contract showed strength overnight, breaking above resistance levels at 5995/6005. However, the overall trend lacks clarity. This month, the price action has been confined to a narrow band of about 160 points, which can lead to complacency or false breakouts. Caution is advised around these upper levels, as movement can be indecisive without new drivers. Traders should refrain from overextending positions unless there is consistent upward momentum. On the other hand, the Nasdaq has displayed more reliable trends. It sharply rebounded after nearly touching the 21440/400 band, a previous support area. Recently, it has approached 21900, which now acts as a crucial barrier before any potential movements towards 21970/990. These developments could be fleeting without broad tech participation. The trading range of roughly 900 points has persisted for weeks, so any future breakout will require volume to sustain momentum; otherwise, it may fall back into a retracement trap. Observing the coming sessions above 21900 will help clarify if the bulls are in control.Forex And Commodity Markets
The Dow contract exhibited more volatility, dropping to 41920 before reversing, which aligns with our expectations for buyer interest. The upward bounce confirms that lower support zones like 42350/250 are attracting attention. However, sellers remain vigilant around resistance points, often with precision. While the bounce was orderly, a failure to surpass recent highs may pressure prices back towards lower limits. Should weakness return, 41650 may be achievable, with 41350/300 also on the radar if current strength diminishes. Recent down moves have started to accelerate once buying interest fades. In the currency market, the Euro is steadily moving toward 1.1600, supported by a recent dip in the US Dollar. There has been a subtle shift in tone from the US Federal Reserve that has unsettled dollar bulls, allowing the sterling to edge closer to 1.3600. These are not large jumps, but enough to keep traders alert for potential upward movement. Differing bank policies are likely to resurface soon, making each data release carry extra weight. Gold remains just above $3,400, showing a lack of clear direction lately. Its diminished demand as a safe-haven asset hasn’t triggered a mass sell-off, but new buying interest is also scarce. Currently, gold seems stable, though its balance is fragile. Traders looking to gold for market sentiment might find it less helpful at this time, as the market appears hesitant to make a commitment. Recent Chinese growth data has brought just enough optimism to counter previous concerns. Despite some apprehensions about fixed-asset investments and property data, the overall economic growth trajectory looks aligned with medium-term goals. This offers some stability for risk-sensitive sectors, but caution remains due to inconsistencies in the data. In the upcoming sessions, it will be crucial to monitor volume changes near the Nasdaq’s 21900, the Dow’s mid-42000s, and the S&P’s 6005 area. Equities seem to be in a state of waiting, with underlying momentum building, but not yet realized. We will continue to evaluate whether this price trend signifies accumulation or distribution, as timing is just as important as price levels when ranges tighten and pressure increases. Create your live VT Markets account and start trading now.Traders should remember that US equity index futures rollover happens the Monday before the expiration date.
Key dates for the rollover of U.S. equity index futures on June 16, 2025, include important indices like the S&P 500, Nasdaq 100, Dow Jones, and Russell 2000. Rollover means closing positions in the expiring contract and opening new ones in the next contract. This is important because these contracts have fixed expiration dates.
U.S. equity index futures expire quarterly on the third Friday of March, June, September, and December. The last trading day or expiration date is on this Friday. The rollover, or liquidity shift, happens the Monday before this Friday, making it a crucial time for traders.
Traders often watch volume and liquidity to spot when the transition starts. Important upcoming dates include June 16, 2025, as the rollover date and June 20, 2025, as expiration. Future key dates are September 15, 2025, for rollover and September 19 for expiration, December 15, 2025, for rollover and December 19 for expiration, and March 16, 2026, for rollover, with expiration on March 20.
Simply put, we are approaching another change in futures positioning. The June 16 move is expected, but there are complexities. While expiration is on the 20th, the main activity happens on that Monday, four days earlier. This is when the transfer from old contracts to new ones really begins. Observing volume on that Monday provides a clearer understanding of market sentiment than waiting until the expiration date.
We see the week of rollover as a transition period, where older contracts lose their importance and new ones gain traction. However, this shift can lead to temporary pricing and spread disruptions. As older contracts become less active, bid-ask spreads can widen, and implied volatility might behave unexpectedly. For those managing positions across different time frames, it’s a reminder to adjust strategies to reflect how price discovery moves toward the next contract.
Nasdaq-linked contracts may behave differently than those tied to the Russell or S&P. Each attracts a different group of traders, which can affect the timing of volume shifts. For example, tech-heavy indices might transition earlier. At this point, it’s more useful to follow the money rather than just the calendar.
However, volume doesn’t always tell the whole story. Monitoring open interest is equally important. A rise in open interest for the new contract, especially after a drop in the expiring one, indicates when the big shift occurs.
Rollovers are not just routine; they bring short-term risks from basis traders and arbitrage desks. We’ve noticed aggressive spread movements leading up to these dates, especially when major macro data is released during that time. Even if this rollover week seems quiet, things can change rapidly. It’s wise to keep sensitive positions lighter at the start of the week.
In the days leading up to June 16, pay close attention to changes in curve shape between the first month and the second month. Changes in behaviour, like compression or contango, can disrupt trends. For entities managing delta or hedging volatility, even small shifts in skew can become significant during these adjustment periods.
According to Harris, volatility often stalls just before these weeks as hedgers and speculators position themselves. This stall is usually followed by a brief reordering just after the rollover. We have often used this tail end period to recalibrate our short volatility exposure, as it resets baseline readings for the next cycle.
There’s also a behavioral aspect; traders tend to become more decisive in their risk-taking around rollover time. You can see this in volume patterns during expiration weeks—risk is often added or removed suddenly. To avoid forced adjustments, it’s essential to stay ahead of the market. This is especially true for managing synthetic positions, where carrying costs in calendar spreads become more apparent.
As we approach June’s rollover, the key focus is maintaining clarity. The closer we get to that Monday, the more important it is to model your portfolio across both contracts and adjust according to how liquidity is shifting.
US Dollar Index remains stable around 98.15 amid rising geopolitical tensions in the Middle East
The US Dollar Index (DXY) is steady around 98.15 early in the European session. Traders are waiting for the US Federal Reserve’s decision on interest rates, which is expected this Wednesday amid rising tensions in the Middle East.
Recent inflation data suggests there is an 80% chance of a rate cut from the Federal Reserve in September, with another possibly in October. The upcoming FOMC Press Conference will likely shed more light on this situation.
Consumer Sentiment Improves
Consumer sentiment in the US improved for the first time in six months in June. The University of Michigan’s Index rose to 60.5, exceeding forecasts of 53.5, which may temporarily support the US Dollar. The conflict between Israel and Iran has been ongoing for four days, marked by missile launches from both sides. Increased geopolitical tensions may lead to more safe-haven flows, benefiting the USD. The US Dollar makes up over 88% of global foreign exchange turnover and became the world’s reserve currency after World War II. The Federal Reserve’s monetary policy has a major influence on the dollar’s value. Tools like quantitative easing (QE) and quantitative tightening (QT) affect the flow of credit and the dollar’s strength. Economic indicators and geopolitical risks continue to impact the USD’s direction.Impact of Federal Reserve Policy
The Dollar Index holding around 98.15 is not surprising, given the current economic and political uncertainties. Markets are currently calm, but this “waiting period” is likely before a series of important releases and clarifications from policymakers. The level of 98.15 suggests hesitation among traders, who are holding off on major moves until more guidance from the Fed is provided. With inflation trends appearing softer, many are now expecting two rate cuts, one in September and another in October. Current market expectations indicate that this is becoming the primary scenario, not just a possibility. Whether this is seen as too aggressive or reasonable may depend less on the Consumer Price Index and more on how the Fed discusses overall economic health. If Jerome Powell expresses caution or suggests that disinflation is not secure, expectations may adjust rapidly. We will keep a close watch on the press conference for its tone rather than just the numbers. The encouraging consumer sentiment data, breaking a six-month trend of decline, is significant. It indicates that households may feel more confident, possibly due to stabilizing prices or labor market support. The University of Michigan Index exceeding 60 is much higher than the predicted 53.5, giving the Fed room to delay rate cuts if they decide to. However, this could also create pressure on expectations for rate-sensitive assets. At the same time, the ongoing situation in the Middle East is influencing the market more than domestic data. Currency flows show heightened risk aversion, which generally supports the dollar, especially in short-term futures. The likelihood of further escalation and how long the current tensions last will likely keep demand strong for liquid and reliable assets. We’ve seen this pattern before when conflicts escalate without resolution. When considering the long-term direction of the dollar, all roads lead back to Fed policy. The USD is involved in over 88% of global currency turnover, making it very sensitive to changes in policy communication. We expect a closer relationship between real yields and the index in the coming weeks, particularly if volatility returns to the rate markets. Traders heavily involved in short-term derivatives will need to guard against sharp price changes, especially after Fed updates. Also, keep in mind that broader actions—like balance sheet changes—are crucial. QT and its opposite, QE, significantly affect dollar liquidity. Currently, the environment leans neutral to slightly restrictive, which may help limit excessive dollar weakness if risk-off trends continue. Every piece of data, from jobs to manufacturing, is more important than ever. As we approach Wednesday, traders will have a short window to reassess the current rate path and the Fed’s guidance. Stay flexible with your positions, avoiding hasty conclusions based on individual data points or movements driven solely by geopolitical events. There is not yet a clear consensus, and misinterpretations could lead to swift reversals, especially in leveraged trades. Create your live VT Markets account and start trading now.Tensions rise between Israel and Iran as China’s property sector struggles despite growth in retail sales
Violence between Israel and Iran continues, as both nations carry out attacks, raising the risk of a larger regional conflict. Iran’s recent missile strikes are the most significant yet, hitting major Israeli areas. Meanwhile, Israeli forces have targeted missile sites and Revolutionary Guard facilities in Iran.
### Japanese Bond Market Reaction
In the financial markets, gold prices have risen as investors seek safety amid geopolitical tensions. Oil prices initially went up but later fell as the potential for escalation was evaluated. A large deployment of U.S. military refueling aircraft indicates readiness for possible confrontations.
In Japan, bond prices dropped due to inflation worries that overshadowed the search for safe assets during the ongoing Middle Eastern crisis. The Bank of Japan is likely to keep its interest rates steady but may slow down its bond-buying program in the future.
In China, issues in the property sector persist, shown by falling home prices, although retail sales are improving. The U.S. dollar has strengthened, particularly against the yen and the Swiss franc, with upcoming international meetings like the G7 and FOMC likely to impact market trends further.
This report highlights ongoing international events that directly affect short-term pricing, especially in sensitive markets influenced by momentum and geopolitical factors. Military actions between Israel and Iran have started to follow a pattern of retaliatory strikes, moving beyond mere threats. The recent deployment of U.S. aerial refueling assets suggests markets now view this as more than just saber-rattling, affecting global risk perceptions and various asset classes.
Demand for gold has increased for good reasons. The metal is attractive during times of currency volatility, reflecting erratic policymaking or sudden shifts towards risk aversion. The recent rise in gold prices coincided with a period of stable real yields, indicating that the increase is driven by real demand for protection rather than just falling rates. This trend may continue as military developments remain unpredictable.
Oil prices reached over $90 per barrel before decreasing. This initial spike was due to concerns about supply disruptions, but was later moderated as shipping and inventory assessments improved. The market returned to a tighter trading range, suggesting that sentiment primarily drives prices rather than fundamental factors like real-time tanker movements or OPEC capacity. If this trend stabilizes, we may see reduced intraday volatility in crude oil, shifting the focus to options pricing models instead of outright directional trades.
In Japan, bond yields have risen not because of external conflicts, but due to rising inflation concerns. Inflation is no longer just cyclical; it is now driven by cost pressures such as commodities, wages, and supply issues. While the central bank may not raise policy rates yet, it seems uneasy about its bond holdings. Reducing long-term purchases could introduce risk, changing how we view interest rate products linked to five years or longer. This makes flatteners less attractive.
### China’s Economic Impact
Over in China, ongoing property problems still affect confidence. Another decline in house prices adds to the overall negative sentiment. However, stronger-than-expected retail data might help ease concerns, at least for those assessing consumer credit risk in the short term. But, the property sector remains the main pressure point, and any improvement in consumer confidence won’t matter if construction volumes remain low. As a result, equity futures linked to mainland China may remain limited, with local institutions less willing to take on leverage.
Recent currency movements have been telling. The U.S. dollar, often seen as a safe haven during distress, has appreciated against the yen and the Swiss franc. This shift indicates a preference for dollar-denominated liquidity over negative-interest alternatives in Japan and Switzerland. If this trend continues, companies relying on USD borrowing may face wider debt spreads. It’s important to note that the dollar’s strength doesn’t solely reflect U.S. economic conditions; it also reflects global insecurity and shifts in risk perception.
Looking ahead, the upcoming meetings of central banks and finance ministries, especially the G7 and Federal Reserve’s FOMC, hold significant importance. While these meetings may not drastically change rate paths, they will frame future guidance and international coordination. In options markets, we should expect higher implied volatility leading up to these events, largely due to uncertainties regarding fiscal responses amid geopolitical risks.
Positioning now requires us to rethink previous assumptions about market behavior. We need to adjust our pricing models to account for greater potential upsides in commodity-linked options and sustained volatility in bonds, especially in the mid-curve. It’s crucial to recognize that what used to be temporary spikes in volatility are now lasting longer. This change affects how we hedge, price time value, and manage our portfolios.
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Week Ahead: The Quiet Rise of Liquidity
At first glance, soaring stock markets would suggest robust economic fundamentals. Yet in 2025, this perception doesn’t hold. The primary driver behind current market performance isn’t productivity or profitability. It’s policy. And that should prompt some reflection among traders and investors.
Sentiment appears euphoric. Bitcoin has rallied sharply, and gold is reinforcing its reputation as a safe-haven asset. But when one considers the broader macro landscape, it feels suspiciously optimistic. This isn’t a rally born of corporate earnings or broad-based confidence.
Liquidity At The Core
Since 2020, the US money supply has expanded dramatically. M2, which includes cash, current and savings accounts, and money market funds, has reached unprecedented levels. This didn’t unfold organically.
The Federal Reserve injected trillions into the system via aggressive quantitative easing and ultra-low interest rates in response to the COVID-19 crisis. While this stabilised markets in the short term, it also unleashed an era of abundant, low-cost capital.
In such an environment, cash doesn’t sit idle. With interest rates near zero, investors pivot away from deposits and bonds, channelling funds into equities, property, gold, and increasingly, cryptocurrencies. This capital inflow into a finite pool of assets naturally drives prices higher.
A Familiar Playbook
This pattern isn’t unfamiliar. Following the 2008 financial crisis, central banks embarked on a similar path, fuelling one of the longest bull markets in history. What we’re witnessing now is a magnified version. The scale and pace of post-2020 monetary expansion dwarfs anything previously seen, boosting blue-chip stocks and speculative and defensive assets.
Crucially, much of this new liquidity bypasses consumer spending, funnelling straight into financial markets. That’s why we’re seeing record-breaking asset prices while other economic indicators falter. Corporate earnings remain underwhelming, and labour market data sends mixed signals. Yet markets continue climbing, driven by liquidity rather than fundamentals.
The Fed hasn’t relied solely on printing money. Measures such as adjustments to the Supplementary Leverage Ratio have enabled banks to lend more and hold additional government debt. While these tools support markets during periods of instability, they also highlight the extent to which central banks are willing to intervene.
The Risk Of Dependency
Such interventions are not without consequences. If a vulnerable sector, say, commercial property or a regional banking group, begins to unravel, the likely response will be even more stimulus.
History provides a cautionary tale. In the 1970s, prolonged monetary easing and fiscal deficits triggered runaway inflation. Gold soared from $35 to $850 an ounce by 1980. To rein it in, the Fed hiked interest rates above 15%, plunging the economy into a harsh recession. That era stands as a stark reminder of the limitations of endless liquidity.
Navigating The Terrain
For those still holding equities, a more selective approach is warranted. Sectors with strong pricing power often weather inflationary pressures better. Energy, industrials, and defence may prove more resilient than technology or high-growth names. Defensive sectors such as healthcare and consumer staples are also worth watching as volatility picks up.
Holding cash, particularly in US dollars, is no longer the safe option it once was. Despite its reserve currency status, the dollar is facing long-term structural headwinds. Large fiscal deficits, declining demand for US debt, and efforts by other nations to diversify their reserves are eroding its appeal.
Seeking Shelter
Overexposure to cash during aggressive monetary expansion risks silent, gradual capital erosion. For those aiming to preserve long-term value, alternative stores of wealth deserve consideration.
Precious metals such as gold and silver historically retain their value during currency debasement. Inflation-linked bonds (TIPS) provide protection by adjusting returns in line with inflation. Commodities, especially in agriculture and energy, often appreciate when the dollar weakens. Currencies like the Swiss franc, Singapore dollar, or Norwegian krone also offer diversification benefits.
For those more tolerant of volatility, digital assets remain a growing component of the hedging strategy. Bitcoin, despite its fluctuations, continues to attract both institutional and long-term investors.
At the heart of this momentum is liquidity. It’s lifting asset prices even as economic signals remain murky. But this is not a rally grounded in strength. It is one levitating on the back of cheap capital. When the tide turns, the descent could be swift.
Market participants would be wise to monitor the conditions underpinning this surge. When those conditions shift, having a well-thought-out strategy will matter more than ever.
Market Movements This Week
US Dollar Index (USDX) is testing resistance at the 97.90 mark after climbing from 97.139. This zone has previously halted advances, and a break above it could see the index targeting 98.30. On the downside, 96.40 remains a key support for bullish confirmation if momentum fades. With the Fed’s next move pending, expect reactive trading over directional clarity.
EUR/USD hit resistance at 1.1485 and has started to retreat. If buyers fail to reclaim this level, the pair may drift towards support at 1.1420. Alternatively, a bullish rebound would shift focus to 1.1675 and 1.1730 as potential resistance zones. This week’s Eurozone inflation data will be key to determining the next direction.
GBPUSD continues to show strength after taking out the 1.35221 low, but so far has not triggered any major selling pressure. The lack of bearish momentum suggests further upside is possible, with the next key resistance at 1.3670. Whether the pair pushes higher or stalls will likely depend on Wednesday’s CPI report. Any surprise uptick in inflation could change the tone quickly, so we’re staying flexible.
USDJPY dropped from the 145.75 area but found support again near 142.785, a level that has held in previous weeks. The bounce from there suggests bulls may have regained some control. As price moves higher, we’re now watching 145.15, 145.75, and 146.55 for possible bearish reactions. If the BOJ hints at any shift in policy tone when it holds rates at 0.5%, we could see stronger moves either way.
USDCHF remains under pressure and may be setting up for a new leg lower. If price consolidates beneath 0.8195, that area becomes a potential short zone. Should the 0.80388 low be taken out, we’ll be looking for bullish confirmation next, particularly if the SNB does surprise markets by cutting rates from 0.25% to 0.00% as forecasted. Either way, a shift in Swiss franc volatility may follow.
AUDUSD is still caught in consolidation, but the pressure is building. If price pushes up to 0.6575, it could attract sellers looking for a downside continuation, especially with employment data sharply downgraded from 89.0K to 19.9K. We’re also watching how price behaves near the green trend line marked on our chart—this is where we expect any real directional move to show its hand.
NZDUSD continues to respect its support along the green trend line. However, price remains soft, and a liquidity sweep below that line isn’t off the table. If that happens, we’ll be looking closely at the reaction—either to confirm a deeper move or to catch a reversal setup. With limited data out of New Zealand this week, the pair may simply track AUD sentiment.
USDCAD retested the 1.3590 low and even pushed briefly below it, hinting at bearish intent. If this move holds, the next support at 1.3500 becomes the key zone for price action. Stronger oil prices could lend the Canadian dollar a tailwind here, particularly if geopolitical risk continues to support crude. Still, we’re waiting on a clear confirmation before calling for further downside.
USOil remains supported, with prices holding firm as geopolitical tensions between Israel and Iran remain unresolved. Traders are reluctant to sell into this kind of uncertainty, and if consolidation holds above 68.40, we could see another push higher. However, without fresh headlines, the rally may struggle to gain traction. A pullback to that 68.40 area could attract buyers again.
Gold has breached the 3439 level, but confirmation is still lacking. Should prices falter, we’ll be eyeing the 3385 and 3355 levels for buyer interest. The upcoming US inflation data and Fed tone could determine whether gold breaks out or stalls.
SP500 has pulled back slightly but remains well above the monitored 6000 area. So far, sellers have not shown strong conviction. If price consolidates here, it may just be a pause before another move higher. However, any weakness in earnings forecasts or a hawkish tone from the Fed could trigger a sharper correction. We’re watching for clearer signs of either.
Bitcoin is consolidating after its massive run, with potential bearish setups forming around the 106,950 area. If sellers reclaim control, a drop through the 102,666 low could lead to a deeper flush. On the other hand, continued consolidation may simply be the market catching its breath. Either way, volatility is likely to return soon, so we’re keeping tight watch on the edges of this range.
Natural Gas bounced off the 3.25 area and is now heading toward the 3.52 zone. Bulls will want to see continued follow-through to confirm the move. This week could bring more upside, but traders will likely wait to see if price can hold above the current levels before committing to new longs.
Key Events This Week
On Tuesday, the spotlight turns to Japan, where the Bank of Japan is set to announce its latest policy rate decision. Markets expect it to remain at 0.5 percent, unchanged from previous meetings. However, the real focus will be on any change in language. If Governor Ueda signals the possibility of a rate hike or hints at scaling back stimulus, the yen could strengthen sharply. This would pressure USDJPY, which is already bouncing within a sensitive range. Japanese policymakers have so far resisted tightening, but inflationary pressures and currency weakness may force their hand. Traders should brace for a reactive move, even if the headline rate holds steady.
Come Wednesday, the UK takes centre stage with its Consumer Price Index (CPI) report. Forecasts suggest a year-on-year reading of 3.3 percent, slightly lower than the previous 3.5 percent. While this indicates a modest cooling in inflation, the difference is slim. The reaction in GBPUSD will likely depend on whether price has already made a new swing high before the release. If so, the data could trigger a retracement, especially if inflation undershoots expectations. However, a surprise spike in the numbers could revive rate hike speculation and give sterling a fresh boost. Either way, this CPI print has the potential to jolt the market out of its holding pattern.
Thursday brings a flurry of decisions from four major economies. First up is the U.S. Federal Reserve, expected to keep its Federal Funds Rate at 4.5 percent. After weeks of mixed data and growing calls for rate cuts later this year, traders will dissect the statement for any dovish or hawkish shifts. The Fed’s tone here matters more than the number. If policymakers express concern about sticky inflation or a tight labour market, the dollar could catch a bid. But if the tone leans toward patience or future easing, risk assets could rally further.
At the same time, Australia’s Employment Change data drops, with a sharp drop in hiring projected: 19.9K jobs expected versus 89.0K previously. That’s a steep slowdown, and if the report confirms weakness, AUD could come under pressure—especially if paired with dovish signals from the Reserve Bank of Australia. Price action in AUDUSD has already been drifting, and this data could be the spark for a more decisive move.
Switzerland also enters the fold Thursday with the Swiss National Bank’s rate decision, where markets anticipate a cut from 0.25 percent to 0.00 percent. If that happens, the franc could weaken, particularly against the dollar and euro. But as with most central bank meetings this year, the reaction may depend more on the outlook than the rate itself. Traders will look for clues about how long the SNB expects to remain accommodative, especially amid global divergence in monetary policy.
Rounding out Thursday’s lineup is the Bank of England, expected to leave its Official Bank Rate at 4.25 percent. The decision itself is unlikely to surprise, but the statement could still move markets. If policymakers emphasise persistent inflation risks, GBP could hold its gains or even strengthen. But if they acknowledge progress in disinflation or hint at a more neutral stance, sterling may lose steam.
This week won’t deliver blockbuster surprises on paper, but the tone from central banks and the nuance in CPI figures could still swing markets. We’re preparing for pockets of volatility, especially around FX pairs and commodities tied to rate-sensitive currencies. As always, the message between the lines may matter more than the headline print.
China restricts rare earth metal exports vital for US military amid geopolitical tensions and trade disputes
China controls the global supply of samarium, a rare earth metal vital for military production, affecting fighter jets and missiles. Recent supply issues have arisen as Western nations try to restock weapon supplies sent to Ukraine and Israel.
During U.S.-China trade talks in London, military-related rare earth exports were not discussed. Chinese officials hinted that approvals for exporting military-grade rare earths, like samarium, depend on how the U.S. handles restrictions on AI chip exports to China.
China continues to restrict exports of specific rare earth metals used in U.S. weaponry. Although it has created a limited “green channel” for civilian-use exports to selected U.S. companies, military materials remain prohibited.
The U.S. is unwilling to lift AI chip restrictions in exchange for access to rare earths. There are also discussions about extending tariffs on Chinese goods, which could complicate any comprehensive agreement.
China’s dominance, especially in refining and processing rare earths, poses a strategic challenge for the West. Analysts warn that trade imbalances and critical mineral issues may linger, possibly throughout Trump’s term. These discussions show that Beijing is ready to use rare earths for geopolitical leverage.
This article explains that China has full control over samarium, a material used in defense systems like fighter jets and missile guidance. Recently, obtaining this material has become more difficult as the West tries to replenish its defense supplies, given the amount sent to different conflict areas.
Talks in London between U.S. and Chinese delegations did not cover rare earths used in military applications. Chinese negotiators indicated that export approvals for these materials would depend on whether the U.S. eases its rules on AI chip exports.
China is still holding back on exporting these metals, allowing only limited supplies for civil uses to trusted companies. Military materials remain off-limits. This situation is complicated by China’s control over global refining capacity, making it hard for others to quickly fill the gap.
The U.S. refusal to ease chip restrictions means a formal agreement is unlikely soon. American officials are also considering extending tariffs on Chinese goods, adding to market tension and delaying negotiations.
Huang notes that this situation reflects how resource policy is being actively used for strategic purposes. Beijing aims to leverage its refining power to exert diplomatic pressure.
For traders, this suggests a clear strategy: market movements will likely respond to policy changes rather than just supply metrics. The refining bottleneck indicates that upstream limitations will remain for the next two fiscal periods.
Investments tied to industrial metals or aerospace components might show irregular patterns, fluctuating with policy shifts or changes in exports rather than standard demand. This environment favors trades sensitive to geopolitical events across various time horizons instead of short-term technical measures.
Unless there’s a change in chip regulations, it seems unlikely that samarium exports will increase enough to affect broader defense supply chains. Zheng’s insights emphasize that decisions are influenced by larger power dynamics rather than specific industry pressures.
In this scenario, adjustments should be made to volatility-sensitive instruments rather than taking long positions outright. Exposures tied to downstream manufacturers might face margin pressures or unstable order flows, even in otherwise strong markets.
Those involved in metals futures or options will need to prepare for sudden changes. Keep an eye out for signals regarding export licenses or shifts in tariff enforcement, especially around key fiscal policy dates. Timing will likely be more crucial than price levels.
