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Attention AUD traders: RBA’s David Jacobs to discuss Australia’s bond market today in Tokyo
Traders interested in the Australian Dollar should pay attention to an important event today involving the Reserve Bank of Australia.
At 5:20 PM Sydney time, David Jacobs, the Head of the Domestic Markets Department, will give a speech.
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Consumer inflation expectations in Australia rise to 5%, impacting AUD performance against other currencies.
Australian consumer inflation expectations rose to 5% in June 2025, up from 4.1% in May, according to the Melbourne Institute Survey. This rise indicates that consumers are more worried about future price increases.
During this time, the Australian Dollar (AUD) has been weaker against other major currencies like the Euro (EUR), British Pound (GBP), Japanese Yen (JPY), and Swiss Franc (CHF), which have all gained against the USD. The Canadian Dollar (CAD) has remained stable, while both the AUD and New Zealand Dollar (NZD) show signs of weakness.
Reports suggest that the Reserve Bank of Australia (RBA) plans to cut its cash rate multiple times, starting in August 2025. Additional cuts are expected in November 2025 and in February and May 2026.
These developments tell a clear story. The significant rise in inflation expectations from 4.1% to 5.0% reflects how households believe prices will change in the coming year. This shift can influence actual pricing and wage demands. We closely monitor such sentiment surveys because if people expect higher prices, they behave differently, making it harder for central banks to control inflation.
Increasing inflation expectations put pressure on the Reserve Bank. While the economy might benefit from lower borrowing costs as growth slows and global demand drops, rising inflation expectations complicate this. Lowering rates too quickly when people expect prices to rise could disrupt consumer stability goals. The planned timeline of rate cuts, starting in August and extending into 2026, adds to this challenge.
The Australian dollar’s current situation is quite clear. It is struggling while other major currencies gain strength. This broad weakness suggests that rate expectations for Australia are diverging from those of other countries. The gains in the euro, pound, and yen imply their economies might be on a more solid path, potentially maintaining higher rates for longer. Meanwhile, the Canadian Dollar remains stable, indicating neutral conditions in Canada.
These trends do not occur in isolation. If inflation persists while rate cuts are anticipated, this could further weaken the currency. This could lead to higher import costs, which may reinforce inflation and circle back to impact central bank decisions. Understanding this relationship is key. Inflation expectations, central bank credibility, guidance, and market prices all influence each other.
Stevens’ previous comments about planned cuts later this year and into next year suggest a cautious approach to easing. However, each new piece of inflation data adds complexity to our decisions. From a trading perspective, especially for those managing rate differences or currency volatility, clarity at short-term rates remains uncertain. Changes in expectations may lead to adjustments in short-term rates, especially if upcoming data does not ease inflation concerns.
In the Forex (FX) markets, we see this anticipation reflected. The Aussie has dropped, even on days without significant news, and the soft performance of the Kiwi indicates the region may be trading on expectations of looser policy. The central bank’s credibility and clarity in communication will be crucial in guiding short-term market positioning.
In summary, near-term moves should be driven by inflation data and any shifts in official communications. Investors looking at interest rate differences or currency strengths should closely monitor changes. A single data release or change in statements could quickly realign expectations.
S&P 500 Pulls Back As Inflation Data Tempers Market Confidence
The S&P 500 lost ground on Thursday, ending the session at 6,012.55 after briefly touching an intraday peak of 6,074. While initial optimism was sparked by softer-than-expected US inflation figures, that enthusiasm proved short-lived as global risk factors and doubts surrounding the US – China trade truce returned to the fore. The index dipped 0.21% on the day, suggesting some exhaustion after edging close to record highs earlier in the week.
Investor attention was firmly on the latest Consumer Price Index (CPI) release, which indicated that US inflation rose at a slower pace than anticipated in May. Although this eased immediate pressure on the Federal Reserve to adjust interest rates, caution prevailed among traders. Eyes now turn to forthcoming producer price data, which could reignite inflationary concerns, particularly given ongoing cost pressures linked to tariffs. This report will also provide insights into the Fed’s preferred inflation gauge, the Personal Consumption Expenditure Index.
Markets are currently factoring in a 70% likelihood of a quarter-point interest rate cut by September, despite expectations that the Fed will hold steady at its upcoming meeting. Shane Oliver, Chief Economist at AMP Capital, noted that tariffs could either stoke inflation or squeeze corporate margins, reinforcing the rationale for the Fed’s careful approach.
Trade policy developments added another layer of uncertainty. President Trump confirmed that within the next fortnight, the US will begin issuing letters to major trade partners, setting out unilateral tariff terms ahead of new negotiations. Although he hailed the recent US – China deal, which includes relaxed restrictions on rare earth exports and student visas, investors remained sceptical. Many are awaiting more concrete details before committing further.
Technical Analysis
The S&P 500 retreated from its high of 6,074 following a volatile trading session, briefly finding support at 5,997.55 before regaining stability. Despite a promising start, momentum weakened during European hours, with MACD indicators turning negative and red histogram bars signalling a decline in bullish strength.
Moving averages have begun to level out, pointing to a period of consolidation. Although the index is attempting a modest recovery above the 6,000 threshold, upward momentum appears fragile unless prices can regain the 6,030 to 6,050 zone. A drop below 5,995 would increase the risk of a deeper pullback in the near term.
With key inflation data, central bank guidance, and further commentary from Washington on the horizon, volatility is likely to rise. Traders should remain alert for sudden shifts in sentiment as geopolitical uncertainties and market expectations begin to align more closely.
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In Asia, the USD is under pressure from easing trade tensions and expected Fed rate cuts, while EUR/USD is rising.
The USD is getting weaker due to reduced trade tensions and expectations of more interest rate cuts from the Fed after a drop in the Consumer Price Index (CPI). This has affected currency values worldwide.
The EUR/USD has hit a seven-week high, and other currencies like the yen and Swiss franc are also gaining value. In contrast, the Canadian (CAD), Australian (AUD), and New Zealand (NZD) dollars are lagging behind in growth.
This shift indicates a rebalancing in major currency pairs, mainly driven by the outlook of U.S. monetary policy. As inflation data softens, the Federal Reserve faces pressure to lower interest rates further. Lower rates make dollar-denominated assets less attractive, weakening the demand for the USD and boosting currencies that are considered safer or where central banks are not likely to cut rates aggressively.
The euro’s recent strength aligns with these trends. Rapid changes in the EUR/USD often reflect shifts in broader markets, especially when influenced by rate differentials rather than local economic surprises. When prices reach multi-week highs, like now, we usually see increased activity from macro funds aiming to profit from medium-term trends. This conviction often increases currency volatility, especially around policy decisions or key economic reports. Traders should pay close attention to euro cross-pairs, especially those with lower liquidity.
The strength of the yen is also expected, following its typical response during U.S. rate cuts. A drop in Treasury yields tends to attract funds to currencies like the JPY, which has been undervalued. However, movements in the yen can be swift and unpredictable during periods of dollar weakness, leading to broader intraday price swings. Leveraged accounts often act quickly, pushing local resistance levels upward. Concerns about intervention from domestic authorities also mean that trading the yen should be approached cautiously—avoid placing stops too close to core entry points.
Similarly, the Swiss franc has gained due to the same lower-rate advantage as the yen, but it tends to be more stable, leading to gentler price movements. Investors often prefer passive allocations into Swiss franc assets, especially during U.S. easing cycles. This passive flow could grow stronger at month-end or quarter-end as reallocations occur.
On the other side, commodity-linked currencies like the CAD, AUD, and NZD are struggling to keep up. They seem held back by worries about global demand. Oil prices are sensitive to geopolitical events, and China’s stimulus efforts have disappointed those expecting a commodity rally. Despite the USD’s overall decline, these currencies can’t take advantage because their own monetary policy outlooks face potential downgrades.
Traders should focus on both expected rate changes and short-term volatility. When the dollar weakens primarily due to interest rate expectations and there’s no corresponding growth optimism, correlation between assets can become distorted. Many algorithmic strategies perform poorly unless their input weights are adjusted. To navigate this, we typically adopt a longer-term flow bias and decrease leverage until a range break confirms a short-term trend direction.
As disparities between regions grow clearer, trade construction becomes crucial. It’s better to focus on relative policy assumptions than on absolute movements. For short-term entries, timing around upcoming economic reports is key. Inflation reports from Europe and policy minutes from Asia-Pacific banks could lead to significant price swings. Keep hedges flexible and be ready to adjust your trading strategy as volatility rises.
The People’s Bank of China is expected to set the USD/CNY reference rate at 7.1703.
The People’s Bank of China (PBOC) is expected to set the USD/CNY reference rate at 7.1703, as per Reuters. This will be announced around 0115 GMT.
The PBOC manages the daily midpoint for the yuan using a floating exchange rate system. This allows the currency to move within a set range around a central reference rate, currently +/- 2%.
Daily Midpoint Determination
Each morning, the PBOC establishes a midpoint for the yuan against a group of currencies, mainly the US dollar. The decision takes into account market supply and demand, economic indicators, and global currency trends. This midpoint serves as the reference for trading that day. The yuan can fluctuate within a designated range around this midpoint. The +/- 2% trading band allows for slight changes in value during trading. Depending on economic factors and policy goals, the PBOC might adjust this range. If the yuan approaches the limits of the trading band or shows unusual volatility, the PBOC may step in. This could involve buying or selling yuan to stabilize its value, allowing for gradual changes. This system promotes daily price stability while enabling some flexibility in response to global and domestic conditions. When the PBOC sets its daily fixing, it considers not only immediate market conditions but also longer-term policy objectives, balancing internal issues and external pressures like economic challenges and a strong US dollar.Strategic Implications of the Fix
Recent trends show that the PBOC aims to keep the yuan within a stable range, suggesting a desire for orderly currency movements rather than allowing the market to dictate shifts. The midpoint of 7.1703 indicates a preference for stability amid uncertainty. This strategy appears designed to prevent excessive speculation and ensure that liquidity doesn’t disrupt financial stability. In this context, short-term trades may be more limited. It’s wise to assume range-bound conditions for now in both spot and options markets. Implied volatility is low, and without a significant policy change or new data, breakout strategies may quickly need adjustment. Therefore, keeping a flexible and carefully managed directional bias is essential. Because the fix and intervention policy are methodical, they offer valuable insights. When a central authority consistently nudges values toward a certain range, it suggests more control over market pressures rather than relying on market efficiency. This approach becomes evident when key data—like trade figures or manufacturing surveys—don’t meet expectations, signaling through price action rather than direct announcements that the fix serves a greater purpose. However, volatility might return if unexpected events, such as changes in overseas interest rates or geopolitical tensions, disrupt the current flow. Until then, strategies should lean on the daily fix. Those interested in options should reconsider their timing; there’s little benefit in maintaining optionality in a phase that discourages large intraday price movements without catalysts. Let the fix influence sentiment, rather than responding to second guesses. One advantage of this system is its predictability. Analysts and traders can usually estimate the midpoint accurately, especially without policy-related uncertainties. When the daily fixing aligns with expectations, as anticipated today, it reassures that policy direction remains stable. Short-term trades in yuan pairs may offer limited advantages at this time. However, carry strategies could still be beneficial if carefully structured around expectations. Although significant spot price swings are unlikely, certain structures remain sensitive to changes in interest rates. Factors related to differing inflation rates or future guidance abroad should now inform trading decisions. Ultimately, monitoring the daily midpoint fix is crucial—it defines the parameters for all trading strategies. While some traders may look beyond, the value set at 0115 GMT each day holds the most relevant insights. Create your live VT Markets account and start trading now.Israel prepares for operation against Iran, prompting US advisories for American civilians to leave
US officials have learned that Israel might be planning a military operation in Iran. In response, the US has urged Americans to leave the area due to the risk of military actions.
The US is also on alert for possible Iranian retaliation against American sites in Iraq if tensions rise. Despite these concerns, diplomat Witkoff intends to go ahead with the sixth round of talks with Iran scheduled for this Sunday.
Current events suggest that future developments could significantly influence market expectations, especially in oil. Increasing tensions in the Middle East might affect markets if military action takes place.
This article discusses the growing tensions in the Middle East, spotlighting recent intelligence that indicates Israel may be preparing for a military strike on Iran. To address the escalating situation, US officials have recommended that American citizens evacuate the region, citing possible threats of retaliation. There is particular concern that Iran may target US assets, particularly in Iraq, if conflict intensifies.
Even with this tense atmosphere, senior diplomat Witkoff plans to proceed with talks involving Tehran. This decision is viewed by some as both meaningful and strategic, showing a commitment to communication despite the worsening situation. It also suggests that diplomatic efforts continue, even when security conditions decline.
From our viewpoint, events like these typically put a spotlight on commodity markets, particularly energy. Historically, when military conflicts seem imminent in oil-rich regions, traders adjust their strategies to reflect increased risk in crude oil and future contracts. The concerns involve not just supply disruptions — an obvious worry — but also broader trade complications, shipping insurance costs, and delays in crucial routes like the Strait of Hormuz.
Given the intelligence shared publicly and the clear warnings from high-ranking officials, it’s evident that geopolitical instability is increasing. For traders involved in derivatives, this means pricing for volatility could change rapidly and unpredictably, creating both risks and opportunities. Hedging strategies that depend on stable conditions may struggle during potential military conflicts. The options market, often seen as a gauge for uncertainty, is likely to show higher implied volatility in the short term.
Patterns from past conflicts indicate that any significant military actions could lead to swift and sharp movements in oil-related contracts. The risks extend beyond just spot prices; the structure of contracts may change considerably depending on the expected length of unrest. Contango structures might flatten or reverse if traders foresee prolonged supply disruptions.
We believe this situation requires attention not only to energy exposures but also to broader market connections. Currencies linked to oil, sovereign credit risks, and stocks dependent on energy costs may all experience secondary effects. Currently, liquidity remains stable in most active contracts, but this can shift rapidly as prices adjust to direct military actions.
In summary, positioning should be adaptable and responsive. Recent trends in open interest and trading volume suggest that some investors are already making defensive portfolio adjustments. While there is no sign of panic yet, confidence in the broader risk markets appears to be lower than in recent weeks.
As we track these developments, it’s clear that the risk from headlines is not a brief concern. This phase is marked by quick political changes that can overshadow slower economic data. Therefore, next week’s events concerning negotiations or government statements will likely have more clout than regular economic indicators.
Market reactions associated with diplomacy can often be misleading. What seems like progress one morning might lose relevance by the afternoon. Thus, being responsive and planning for different scenarios is crucial, particularly in leveraged situations. We are observing not only public statements but also market trends that typically respond first: oil futures, credit default swap (CDS) spreads, and regional exchange-traded funds (ETFs).
It may be wise to avoid rigid strategies as the weekend unfolds. Financial instruments that allow for quick price adjustments, like weekly options, may become more appealing as traders look to manage their exposure without committing to long-term strategies during an active news cycle.
Overall, the next few sessions may require a shift in focus toward relative positioning and understanding where the greatest opportunities lie, especially in energy-linked instruments. Moving forward, carefully interpreting official headlines alongside actual market behaviors may provide the best signals about rising pressures.
US evacuations and concerns over potential Israeli actions amid heightened tensions in the Middle East
Tensions are rising in the Middle East, and US officials are worried about a possible Israeli attack on Iran’s military sites.
The US embassy in Iraq has begun an emergency evacuation of its diplomats, and plans are underway to evacuate military personnel from Kuwait and Bahrain.
Strategic Moves
Pentagon leader Hegseth has permitted the voluntary departure of US military families from various Central Command locations in the region. This suggests a careful response to growing concerns about safety. Some believe these actions are part of a strategy by the Trump administration during talks regarding Iran’s nuclear program. These early steps, including moves from important diplomatic and military sites nearby, suggest that the likelihood of conflict is rising rather than just pursuing diplomatic solutions. This indicates a close link between geopolitical actions and national security issues. The author notes decisions like allowing family departures and scaling down operations show how quickly military policy adapts to perceived threats.Market Effects
For markets, escalating events usually lead to sharp changes in energy-related assets and a flight to safer currencies. With the US adjusting its logistics for defense, it signals that institutions are preparing for real disruptions, not just making empty gestures. In such a situation, products linked to oil futures and short-term index options often adjust to reflect anticipated volatility due to tangible logistical signs. Hutchinson called the evacuation orders precautionary yet necessary, and with troops positioned near key areas, military intentions are clear. Markets typically react to troop movements and command authorizations before any actual conflict arises. Looking ahead, with military families authorized to leave and signs of coordinated military posturing, we expect energy market volatility, especially for Brent oil and regional jet fuel. Additionally, Middle Eastern sovereign credit spreads may gradually widen, indicating potential capital allocation risks in the region. In past Gulf-region tensions, shipping insurance costs for key routes like the Strait of Hormuz tend to soar before any actual blockage happens. This is because insurance markets monitor troop activities and naval movements closely. Shipping stocks and airline hedges could become more responsive to even temporary disruption fears. For those in options or macro rate futures, the rising geopolitical tensions add another factor to consider. The likelihood of direct confrontation between major countries is now seen as higher, affecting our day-to-day risk models. As the US Navy seems to be reducing its exposure to soft targets while consolidating assets eastward, we cannot overlook the military’s genuine response. This affects the pricing of short-term options, especially in sectors closely tied to oil and global freight. Weekly options should be reviewed for risk management rather than speculation. When Wilson enters a press room without downplaying evacuation efforts, it’s not just for show but to indicate real plans for reduced military engagement, rather than diplomatic steps. This framing shows that market reactions are not exaggerated but closely linked to actual developments. This situation also affects futures contracts. Energy or credit futures may steepen, driven not only by fundamentals but also by the need for forward cover. We are monitoring this closely and understanding how institutions are responding. Even without a full confrontation, the repositioning impacts swap spreads and corporate borrowing costs. Importantly, we are watching how hedging activities shift, especially in over-the-counter trades. This reveals where informed money is moving. The emergence of firewall hedges often suggests that investors are preparing for unstable market conditions, even in traditionally stable areas. Stay alert. Create your live VT Markets account and start trading now.EUR/USD rises above 1.1500 after consistent gains
The EUR/USD currency pair has been steadily rising, now crossing the 1.1500 mark. This indicates that the Euro is gaining strength against the US Dollar.
Recent trading shows a positive trend for this currency pair. These changes are important for anyone tracking foreign exchange markets.
What we’re observing is a consistent increase for the Euro against the US Dollar, breaking through the 1.1500 threshold. Traders often view this level as a sign that buying momentum is strong enough to overcome previous resistance. Since this rise has occurred over several days, rather than in one sudden jump, it is likely to last. This trend appears supported by broader buying interest, not just daily market fluctuations.
This increase suggests that demand for the Euro is persistent. It may relate to tighter monetary conditions in the Eurozone compared to what is expected in the U.S. Markets seem to expect that European interest rates will remain high longer than previously thought, while also predicting that the Federal Reserve will slow down its rate hikes or even consider cuts later this year.
Investors like Müller have pointed out that recent inflation data from the Euro area was stronger than expected, leading to revised expectations for interest rates. This adjustment typically benefits the Euro, especially against a Dollar under pressure from weak labor market data and cautious comments from officials. The key is not just the current numbers but how they align with future guidance and what is reflected in swaps for the coming months.
From a technical perspective, the pair has remained above its 50-day and 200-day moving averages, which often encourages traders to continue buying. Mid-term futures show a shift, with increased open interest in EUR calls, particularly around the 1.1550 and 1.1600 levels. These points indicate where activity could occur if the Euro continues to strengthen.
Notably, Powell’s recent comments haven’t helped the Dollar much. While he wasn’t fully dovish, his tone allowed for different interpretations. Participants likely picked up on his cautious remarks, shifting away from previous optimism. Upcoming labor data is generating interest; if the numbers indicate slow wage growth or declining job creation, the Dollar could weaken further. Meanwhile, Draghi’s remarks supporting the ECB’s confidence helped sustain demand for the Euro.
In the near future, timing and price levels will be crucial. The exchange has formed a higher low, and as long as this level holds, buying interest is likely to continue. For those using options, the sentiment has shifted toward premiums on Euro upside, indicating a desire for further growth. Instead of chasing the current move, it might be better to look for near-term opportunities to capitalize on volatility around the 1.1550 and 1.1600 levels.
If support fails around last week’s breakout point, we could see selling programs activate. However, without strong external factors, the downside seems limited for now. Overall, the prevailing trend is a shift in rate expectations favoring Europe over the US, supported by incoming data. We will need to monitor whether this narrative remains valid when the next inflation and employment figures are released. Until then, a strategic approach is preferred over broad bets, especially given the current market sentiment.
