The Euro has increased by 0.2% against the US Dollar, gaining strength among the G10 currencies amid a small decline in the Dollar. The final Consumer Price Index (CPI) for the euro area was confirmed at 1.9% year-on-year for the headline rate and 2.3% for the core rate, matching earlier estimates.

Focus Shifts to Economic Trends

With the CPI release being the last major data for the week, attention now moves to broader economic trends. Expectations for future interest rate cuts have slightly improved, with markets now predicting about 25 basis points of easing by March, though this is lower than earlier forecasts. Despite a minor dip on Tuesday, the Euro continues to trend upwards, buoyed by the 50-day moving average at 1.1353. Near-term support is found around 1.1450, while resistance lies above 1.1600, suggesting possible trading ranges. This information carries risks and uncertainties and is meant to be informational, not a recommendation for specific financial actions. It’s important to conduct thorough research before making investment decisions, as the open markets come with inherent risks, including the potential total loss of investment. The Euro has ticked up by 0.2% against the Dollar, positioning itself strongly among G10 currencies. This rise reflects a slight weakness in the Dollar, but it’s also influenced by other factors. Consumer prices in the eurozone were confirmed flat at 1.9% year-on-year, exactly as the markets expected. The core measure, which excludes energy and food prices, held steady at 2.3%. This shows that while inflation pressures are decreasing, they haven’t disappeared completely. That report concludes the key scheduled data for the week in the eurozone. Now, speculators and traders will likely focus on longer-term discussions regarding interest rate directions, especially since policymakers in both the US and Europe have offered little clarity on timelines.

Insights on the Euro Market

Market pricing indicates that expectations for monetary easing in early 2025 are still alive but have slightly decreased. Markets are pricing in around 25 basis points by March, just not as strongly as a few weeks back. The trend has leveled off a bit. Technically, the charts suggest a positive direction for the Euro. After a brief drop earlier this week, the overall trend looks good. Prices are comfortably above the 50-day average, currently at 1.1353, acting as a springboard for further movement. Traders may see opportunities within a range, and fresh buying might occur if prices dip to 1.1450. However, breaking above 1.1600 might require a trigger from unexpected inflation data or a stronger risk appetite. For those involved in derivatives, expectations for volatility are low, suggesting that current pricing may be underestimating the chance of larger market movements. This could be a good time to reconsider calendar spreads or explore cost-effective directional strategies if those align with market ranges. Delta sensitivity remains somewhat positive for the Euro, but gamma will need careful attention if we push through key resistance levels. It’s crucial to avoid making large bets immediately. Instead, the market suggests a balanced risk-reward approach that could attract those who thrive in predictable, moderately directional environments. Any overconfidence in interest rate predictions—especially given the European Central Bank’s unclear guidance—may open doors for adjustments in mid-term options. We’ll keep a close eye on developments, especially as upcoming events may influence perceptions on yield differences and market stability. Remember, trading decisions should be aligned with risk management and liquidity needs. Excessive exposure during quieter market periods could increase vulnerability to price changes. Always view modeled outcomes as just one part of a much larger picture. Create your live VT Markets account and start trading now.

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Recent data from the Mortgage Bankers Association shows that mortgage applications in the US decreased by 2.6% for the week ending June 13, 2025. This drop comes after a significant 12.5% increase in the previous week. The market index fell to 248.1 from 254.6. The purchase index decreased from 170.9 to 165.8, while the refinance index dropped from 707.4 to 692.4. The average 30-year mortgage rate decreased slightly to 6.84%, down from 6.93%. Usually, when mortgage rates go down, applications increase. Despite the slight drop in rates, fewer people seem interested in borrowing. After the notable increase in applications last week, this 2.6% decline might indicate a change in demand or hesitation among potential borrowers, possibly due to expected rate changes or concerns about the economy. With the purchase index at 165.8 and the refinance index at 692.4, the decline in mortgage applications appears to affect various segments of the market. This suggests that borrowers may be reassessing what they can afford or are cautious about rates. The surge in applications the week before could have pulled some borrowers forward, leading to this week’s slowdown. Generally, we expect that even a small reduction in mortgage rates attracts more applications. However, this week’s data shows that households are considering other factors such as wages, inflation, and the overall economic outlook. This indicates that just lowering rates isn’t enough to spur consistent demand. These changes also affect how we view consumer spending. Fewer mortgage applications, especially when rates are stable or falling, might signal that spending could decrease. Lower transaction volumes could create new opportunities. This pause in the market allows time to adjust our expectations. Many are already considering how borrowers are less sensitive to minor rate changes, but fewer are thinking about the implications for future volatility, especially in long-term products. The reactions to rates might change significantly based on broader economic factors. As refinancing options become less appealing, it seems that homeowners who locked in lower rates are reluctant to move. This trend decreases liquidity in the housing market and limits the impact of lower rates on overall activity. Therefore, we need to rethink our assumptions about rate changes in the short to medium term. Long-term strategies in rate-sensitive markets may need a new approach. It would be wise to be cautious about direct exposure to mortgage-backed assets until we see consistent application growth alongside rate changes or a decrease in overall market volatility. We should monitor additional indicators, not just the headline rate. Factors like credit availability, application approval rates, and broader labor data will also play a crucial role. If lending standards remain strict even as rates drop, we can expect continued pressure on applications. In the coming weeks, it may be beneficial to revisit pricing models to account for delayed responses in applications, particularly around times when payroll and CPI data are released. If volatility remains while headline rates stabilize, the difference between short- and medium-term rates may expand, affecting how we view premiums. Some market spreads may be based on outdated ideas about borrower sensitivity, so it’s worth reassessing our structures.

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The Canadian Dollar (CAD) has stabilized after recovering from previous losses. The USD seems slightly overpriced compared to an estimated fair value of 1.3625. Recent evaluations indicate fluctuations caused by global geopolitical risks and ongoing core inflation highlighted in the latest Bank of Canada (BoC) summary. The BoC briefly considered a 0.25% interest rate cut. However, current forecasts show lower expectations for cuts by the end of the year compared to earlier predictions of a 50 basis point reduction. There is general anticipation of no major policy changes this year, with slight easing expected in 2026.

Technical Trends and Analysis

From a technical standpoint, USD gains in the mid-1.36 range provide temporary relief from a downward trend, although overall trends continue to be negative for the USD. Support is seen at 1.3635, which could help the USD limit small declines. Many expect the US Federal Reserve to keep interest rates steady after recent changes. All eyes are on how geopolitical tensions and economic events will affect market confidence and the behavior of assets, including cryptocurrencies, which are holding key support levels. Trading in foreign exchange is risky, mainly due to leverage. It’s essential to fully understand these risks before engaging. Seek professional financial advice if you’re uncertain about trading decisions. Currently, the Canadian Dollar is showing a solid consolidation after a phase of moderate weakness. The data indicates that the USD is trading above its fair value, around 1.3625, which suggests it may struggle if external shocks stabilize or if risk aversion decreases. The USD seems overextended at these levels, especially as short-term drivers like geopolitical disruptions fade. Central bank policymakers briefly considered lowering interest rates but ultimately decided against it. This choice was backed by persistent inflation, especially in core metrics, making it essential to maintain current rates. Traders who expected aggressive easing earlier in the year must now reassess their positions. Current pricing highlights decreasing confidence in rate cuts before the year ends, with expectations pushed to the latter half of next year.

Global and Local Market Influences

Charts indicate a top-heavy trend for the USD. While prices in the mid-1.36 range offer a small bounce, they do not signal a significant structural change due to prevailing market forces. A crucial support level has formed around 1.3635, which is now seen as a potential short-term floor. If this support level fails without strong reasons for USD strength, we may witness increased selling of the USD, particularly as commodity-linked growth picks up on improved global sentiment. Simultaneously, markets are looking for stability from Washington, with no immediate changes expected in interest rates from the Fed. Inflation indicators in the U.S. haven’t strengthened sufficiently to prompt action. Consequently, focus is shifting to political risks, military tensions, and the dependability of leading indicators. Asset classes sensitive to volatility, particularly cryptocurrencies, are managing to hold their support, suggesting high-risk instruments are not anticipating a drastic decline in sentiment. Regarding volatility, options pricing has shown a slight disconnection from realized movements in major currencies. Currently, there is an increase in premium without clear directional conviction, which often creates trading opportunities. For those managing derivative exposure, this is a critical time to pay attention to skew, implied vs. realized spreads, and relative value across correlated currencies. It’s important to remember that leverage amplifies both outcomes and misunderstandings. Rapid changes in direction linked to news releases—especially those about politics or inflation—can quickly convert a neutral position into a heavily directional one. Focus now should be on preparing for exits, hedging selectively, and understanding that while volatility may be low, it can still be damaging if misinterpreted. In the upcoming sessions, closely monitor movements near technical levels for signals of liquidity rather than reacting to headlines. The forward interest rate markets are quiet enough to warrant attention. Sometimes, a lack of action speaks louder than a surprising cut. Keep an eye on flows—especially during North American trading hours—for clues before they reflect in spot pricing. Create your live VT Markets account and start trading now.

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The latest BofA Global Fund Manager survey shows that “long gold” is the most popular trade for the third month in a row. This interest in gold stems from concerns about stagflation and geopolitical issues. Following gold, traders are also favoring “long Mag 7” and “short US dollar.” The “short US dollar” position might surprise some traders, as the dollar has remained steady compared to its April values against major currencies. Market charts suggest caution for anyone thinking of short positions without solid reasons.

Biggest Tail Risks For Fund Managers

The survey highlights key tail risks for fund managers. The risk that a “trade war could cause a global recession” has diminished since June. However, worries about “inflation leading the Fed to raise rates” and “credit events from rising bond yields” have increased. These risks are closely linked to the Federal Reserve’s actions. Furthermore, significant macro risks may arise from inflation or challenges related to Trump’s tax bill, requiring careful monitoring of these issues. This survey clearly shows fund managers’ sentiments, indicating where capital is flowing and how risks are assessed. The repeated emphasis on gold over three months reveals the strong focus on hedging against inflation and global uncertainty. Many view gold not just as a commodity, but as a safety net during turbulent economic and political times. The ongoing popularity of “long Mag 7” indicates that traders are still heavily invested in large-cap tech stocks, possibly overlooking the slowing momentum in parts of this sector. With high valuations and tighter interest rate expectations, we should question whether some portfolios are overly dependent on similar growth patterns. The situation with dollar positions is perplexing. Traders continue to short the dollar even without significant weakening. The DXY has remained stable, contradicting the pessimism reflected in market positions. Betting against the dollar seems less logical unless tied to strong oppositional bets on currencies like the yen or euro. Unless there’s a significant shift in US economic data or unexpected dovishness, keeping short positions on the dollar seems unconvincing. The perception of tail risks is also changing. Fears of a trade war and drastic demand drops are less pressing, likely because there isn’t a single dominant event causing global anxiety like tariffs did in past cycles. Instead, attention is now focused on inflation and credit strain. Any rise in inflation could push the Federal Reserve toward tighter policies, while increasing yields could put pressure on financing, especially for weaker companies.

Higher Borrowing Costs And Inflation

Rising borrowing costs and stubborn inflation indicate a shrinking safety margin. It’s not just about rising yields; it’s about when debt rollovers start to cause problems. This situation directly affects stock market volatility and credit spreads, especially for high-yield issuers. Powell’s comments make this situation critical. The market desires confirmation of rate cuts, but even small hesitations concerning wage growth or inflation could shake up expectations. Moreover, the budget impact from the previous tax policy remains a concern. Spending patterns under that legislation might come back into focus if fiscal paths diverge from monetary goals. We’re paying close attention to economic data. Key indicators like core prices, job strength, and inflation metrics (like trimmed mean or sticky CPI) could influence market sentiments again. Any new fiscal announcements or hints about tax discussions in 2025 could renew attention on funding balances and rating sensitivities. For those with strategies based on short-term fluctuations, these risks may not seem urgent. However, volatility sellers, interest rate traders, and spread strategies all need to reassess how far expectations can drift from actual pricing. We should stress-test around two scenarios: inflation falling below forecasts that keep policy stagnant longer than anticipated and persistent inflation that pushes central banks to act, even as recession fears grow. This issue isn’t just a short-term concern. It’s about what assumptions are overly priced in as we approach quarter-end. Are tightening fears genuinely easing? If so, how much is that reflected in swap curves and front-end futures? Have we seen actual adjustments in equity volatilities? It’s time to rethink duration sensitivity and refine exit strategies from crowded positions. While heavy investments in safe assets during uncertain times are not new, the lack of strong conviction is notable. We may be nearing a point where small surprises lead to significant market reactions. Create your live VT Markets account and start trading now.

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GBP/USD rebounded from a recent low of 1.3415 after a 1.2% drop, caused by disappointing UK inflation data for May. The recovery was also supported by a weaker US dollar, as traders awaited rate decisions from the Federal Reserve and the Bank of England. Both central banks are expected to keep interest rates steady, while focusing on future forecasts for the year. The GBP/USD structure weakened as it fell below critical support levels, needing to close under 1.3444 to continue a downward trend.

Risk Averse Market Climate

In a risk-averse market, the US Dollar gained strength, affecting GBP/USD as safe-haven flows increased after Donald Trump hinted at US involvement in the Iran-Israel conflict. The GBP/USD chart shows a bullish trend and is now in the last phase of an upward movement. Market players expect the Federal Reserve to maintain its current policies following a previous rate cut, while awaiting signals for future adjustments. Meanwhile, Bitcoin, Ethereum, and XRP remain stable above important support levels, managing recent geopolitical tensions and economic changes well. The rebound from the 1.3415 low in GBP/USD was not just technical. It followed the UK’s inflation figures missing expectations, indicating weaker price growth for May. This disappointed consumers led traders to rethink the Bank of England’s roadmap, putting pressure on the pound at first. However, the US dollar also softened, reflecting a change in sentiment before key central bank decisions. We’re starting to see a pattern. When both currencies face uncertainty in policy direction, short-term movements often come from minor data shifts or geopolitical news. Traders react cautiously, adjusting their positions rather than acting on strong conviction. This recent bounce likely shows that; some traders covered short positions instead of creating new bullish positions. This leaves GBP/USD in a weak position, where resistance is significant, and any further decline could expose important technical levels again. In the short term, neither side is likely to change interest rate expectations, with the Fed expected to keep rates steady and focus more on forward guidance. While fundamental changes are minimal, investors will be closely watching for any changes in tone from Powell and his team. The market is more interested in signals rather than immediate action. Even a subtle mention of slower growth or ongoing inflation could swiftly impact dollar-linked pairs.

Speculation Regarding Policy Normalisation

A similar situation is occurring with Bailey. Speculation about policy normalization advancing this year has been influenced by May’s inflation report. Traders are leaning away from rate hike expectations, adopting a more cautious approach. The lack of a clear commitment to either raising rates or easing could trigger short-term volatility, particularly around employment and retail data releases. Earlier trading saw safe-haven flows boosting the dollar after Trump hinted at increased US involvement in rising Middle East tensions. However, these moves didn’t last long, indicating that the market might not fully account for a prolonged conflict yet. Such narratives can lead to quick, significant reactions, so traders should remain aware of overnight risk and weekend gaps. The overall trend, as per the chart structure, suggests that this pair may be finishing the last stages of a bullish move. This is a point for caution. Rushing into trades during a rally can lead to trapping long-side momentum at unsustainable levels. If there’s a failure to close convincingly above previous resistance lines or if breakout attempts falter quickly, expect a downward rotation. The important 1.3444 level, which has already been tested, remains crucial—closing convincingly below it might trigger further selling. Volatility shifts aren’t limited to fiat markets. Those following digital assets, especially Bitcoin and Ethereum, have observed that these coins have held up relatively well despite ongoing global tensions and broader economic concerns. Their trading above known support levels shows a hint of confidence. However, caution remains, and leveraged bets are still thin. This hesitance in riskier areas of the market underscores a theme of cautious positioning. In the coming weeks, momentum-driven strategies will require careful monitoring, especially during important releases and central bank communications. When narratives around inflation, growth, or geopolitical risks change, they can do so quickly, allowing little time for manual adjustments. While the general sentiment appears to support the pound within current ranges, underlying uncertainty still exists. Focusing on managing downside risk and safeguarding gains will be more critical than chasing uncertain profits for the moment. Create your live VT Markets account and start trading now.

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The European Central Bank (ECB) will make decisions about monetary policy during each meeting. They are not sticking to a set plan because of new macroeconomic risks. Current risks include mixed signals from US trade policy and the ongoing conflict between Iran and Israel. The ECB stresses the need for a flexible approach. What this means is that the ECB won’t follow a strict path for adjusting interest rates or other policies. Instead, they will make decisions based on the latest data on growth and inflation at each meeting. This is a change from the past when policymakers provided more guidance about future actions. Now, the emergence of new risks has made them more cautious. These risks are not just theoretical. For example, the uncertainty from the US’s inconsistent trade messages can impact European exporters, which may lead to reduced investment and hiring. Energy markets are also very sensitive to unrest in the Middle East, and the Iran-Israel conflict adds extra pressure on supply chains and price stability. Recently, inflation has slowed, but not as quickly as hoped. Wage pressures continue in certain sectors, with some countries experiencing stronger domestic demand than others. Given this mixed economic environment, Lagarde and her team are increasingly relying on data, and this trend will likely last. For derivative traders, this means planning horizons will be shorter. They may need to adjust positions more frequently, especially around meeting dates or when new economic figures are released. With fewer clear signals from the ECB, traders may rely more on quantitative indicators like swap spreads or shifts in the OIS curve to gauge policy expectations. Watching real-time pricing of short-term interest rate futures could provide an advantage. Lagarde’s focus on the ability to move in either direction means that both interest rate hikes and cuts, while unlikely, are still possible. This leads to wider pricing ranges in rate options. Their reactive approach also makes it harder to reduce implied volatility, limiting consistent selling strategies in volatility as expiry approaches. Any trade that assumes a steady policy trajectory may quickly reverse due to unexpected news. As we face a period where economic releases and geopolitical tensions affect market movements, it’s crucial to align timeframes between positions and policy risks. Risk management systems should consider not only the direction of rates but also the increasing variability in possible outcomes. Practically, margin requirements may tighten at times, and spreads between interest rate tenors may widen after news events. Lagarde’s press briefings will be essential. Particular phrases that indicate changing concerns about growth or inflation will be scrutinized. Tone is also important—both buyers and sellers will analyze every response. We should view these meetings not just as economic updates but as answers to an ever-changing global situation.

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The FOMC meeting today is expected to keep the interest rate between 4.25% and 4.50%. This decision may overlook requests for rate cuts from US President Trump. US inflation is slowing and is close to the target, but Trump’s tariff policy could cause a temporary rise in inflation in July. The Fed is likely to watch how prices are affected and continue to keep rates steady during the summer, despite a slightly weaker job market.

Market Focus on Fed Forecasts

Markets will pay close attention to the Fed’s forecasts, especially the “dot plots” related to interest rates. In March, the forecasts suggested two rate cuts could happen later this year, possibly starting in September. There is anticipation for two cuts by the end of the year, which could affect the dollar depending on the Fed’s predictions. If the forecasts indicate only one cut, contrary to government pressure, it may significantly influence the dollar’s value. With the Federal Reserve expected to maintain rates at 4.25%-4.50%, the key focus will be on future expectations rather than immediate policy changes. Inflation has come down closer to the Fed’s target, allowing for some flexibility. However, inflation due to tariffs might become an issue in July, especially if July’s data shows an increase tied to trade policies. Chair Powell will likely emphasize caution, balancing softening job numbers with stable core inflation. Markets are pricing in a strong chance of rate cuts later this year, but much will depend on the updated Fed forecasts. In March, policymakers hinted at two cuts by year-end, with the first possibly in September. If this remains the case, we should expect limited short-term volatility.

Possible Repercussions on Dollar and Yields

If the new forecast indicates a more cautious approach—suggesting only one rate cut instead of two—it may lead to a sharper change in the dollar’s value, which would go against broader market expectations. The yield curve currently indicates that the market is prepared for more easing, but that could change quickly if the Fed shows hesitation. For short-term rate instruments, we should anticipate slight flattening if guidance indicates a hawkish stance. Although the main rate may not change today, focus will quickly shift to the projected long-term path. The terminal rate is where policymakers may emphasize key messages, particularly if they prioritize inflation near the target while GDP remains stable. We need to closely watch how the front-month SOFR futures react after the announcement. If the median of the dot plot changes or indicates a slower pace of easing, treasury yields may rise and support the dollar. In this case, it might be wise to pull back on rate-cut bets in the September and November contracts if there’s any weakness during the day. On the other hand, if policymakers lean towards two cuts, as previously suggested, it could signal further declines in the dollar, especially without any new hawkish surprises. Monitoring two-year treasury yields will provide immediate directional insights—sharp moves above 4.8% could challenge the dovish outlook currently priced in. Overall, we are preparing for scenarios that deviate from regular projections rather than focusing solely on the announcement itself. This is more about anticipating future adjustments than current positioning. The key lies in how we respond to the tone and extent of forecast changes—not just the specific numbers. Create your live VT Markets account and start trading now.

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European markets opened with slight changes as traders watched for news from the Middle East. The possibility of US involvement in the Iran-Israel situation kept many on edge. Still, there was a hint of optimism with S&P 500 futures rising by 0.2%. Traders are mindful of potential headlines that could impact the market.

Focus on the Federal Reserve

Next, attention will turn to the Federal Reserve’s policy decision. This decision comes right before a US holiday, adding to market concerns. European stock indices showed only small movements at the start—reflecting ongoing geopolitical tensions rather than immediate panic. The ongoing situation between Iran and Israel, with the US possibly getting involved, creates a sense of alertness without a rush to sell. Traders are not rushing towards safe-haven assets yet, but a cautious holding pattern is forming. This wait-and-see stance is evident in futures pricing and implied volatility. In the US, the slight 0.2% rise in S&P 500 futures indicates that traders believe any upcoming developments may be manageable, or at least expected to some extent. While there isn’t aggressive buying, capital is not being withdrawn either. This market behavior shows caution rather than indifference. Everyone is keeping an eye out for headlines that could significantly change market sentiment. However, any bit of calm may be challenged later by an important decision from the Federal Reserve. This comes closely before a national holiday in the US, when trading activity often drops. With fewer traders in the market, any surprising comments from the Fed could lead to sharp price changes, and we’re paying close attention to this.

Expectations from Powell

We expect Powell to keep the policy rate the same. The key question is whether the guidance will suggest patience or hint at another interest rate hike if inflation remains high. Given a minor uptick in core prices recently, any comments downplaying disinflation could unsettle what has become a confident short-vol trade. Some market players expect rate cuts as early as summer, though that seems overly optimistic in light of current data. The anticipation of rate cuts has influenced swaps and bond futures markets, leading to lower implied yields for certain time frames. If we see a change in stance on Wednesday—even just rhetorically—the yield curve may need to adjust again, which could lead to more unpredictable price movements, especially with positions still directional in rates-sensitive contracts. In the meantime, oil prices are playing a significant role in market correlations. Brent crude remains near $90 a barrel, raising inflation concerns without causing the panic seen in past conflicts. However, if a supply disruption occurs or the Strait of Hormuz is threatened, market dynamics could shift rapidly. We are closely monitoring implied volatility in energy options for any signs of changes in market sentiment. Overall, macro traders should be cautious. Current positioning in derivatives has been based on steady Fed communication and a controlled crisis in the Middle East. However, this perspective leaves room for heightened risks if either situation worsens. There’s not enough hedging activity, so surprises could lead to mispricing in the market. In the coming days, we should pay attention to calendar spreads, especially in short-term volatility, and watch for any sudden changes in market sentiment—especially in equities that reflect macro trends. While there is still demand for downside protection in index options, the increases in skew are modest. If this shifts, it could indicate that fear is escalating faster than the market can respond. With reduced trading activity expected due to the US holiday, any breaking news could lead to exaggerated price movements in either direction. This is crucial to consider, as lower liquidity can amplify reactions, especially for highly sensitive options nearing expiration. Time for repositioning may be limited if caught off guard. We plan to stay flexible in the coming days—ready to reduce exposure when signals become unclear, and willing to re-engage once the situation stabilizes. Create your live VT Markets account and start trading now.

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During the European trading session, the UK’s Consumer Price Index (CPI) report was released, meeting expectations and not expected to change market prices. The upcoming agenda includes the final CPI reading for the Eurozone and speeches from several European Central Bank (ECB) officials. In the American trading session, the US Jobless Claims will be announced earlier due to the Juneteenth holiday. Initial Claims are expected to be 245K, down from 248K, and Continuing Claims are predicted to be 1,932K, slightly lower than the previous 1,956K. Initial Claims have been stable within the 200K-260K range since 2022, while Continuing Claims have reached a new high for this cycle. Typically, claims rise during the summer, and the increase in Continuing Claims likely points to job search challenges amid economic uncertainty, rather than a rise in layoffs. Later, the Federal Reserve (Fed) will reveal its decision on the Federal Open Market Committee (FOMC), which is expected to keep rates unchanged while examining the impacts of recent policy and economic events. The Fed’s Summary of Economic Projections (SEP) suggests two rate cuts in 2025. There is also growing concern over the Israel-Iran conflict, as the chances of direct US involvement increase. Traders were initially worried about an attack during the Asian session, which did not happen, but the next 24 to 48 hours might be crucial. Overall, the current data offers a stable ground for risk positioning, but small changes could shift the balance. Much of the recent market behavior reflects a lukewarm response to the morning’s inflation report. The UK CPI meeting predictions no longer significantly influence broader monetary expectations—markets have shifted their focus from short-term UK data to more structural pressures and policy differences. This is evident in how little asset prices moved after the report. Eurozone data will be out soon. While a final inflation report rarely causes big movements, comments from monetary officials could shift expectations if their tone changes from previous statements. Lagarde’s past comments suggest few surprises, but Villeroy and others might sometimes present different views. If any of them sound more hawkish than expected, short-term rates could react. There’s no need to expect a major shift in policy, but even small comments could influence the curves slightly. Due to markets being closed mid-week, the US has an accelerated schedule for releasing data. Jobless claims present an interesting contrast: new registrations remain stable, while long-term numbers, which are revised slowly, indicate some issues. This discrepancy is significant. Initial Claims show no clear upward trend, yet the persistent Continuing Claims suggest that it’s becoming harder to match job seekers with openings. This doesn’t indicate a rapidly weakening job market but rather a slowdown in rehiring after layoffs from months ago. In previous cycles, summer often brought higher claims due to temporary shutdowns or seasonal hiring changes. This situation appears similar. However, there’s a new tension: unlike in past years, many indicators are now leveling off. The labor market issues—whether from geographic mismatches or sector cool downs—are no longer isolated. This prompts the market to reconsider whether the Fed can tolerate higher unemployment levels than previously thought. Next, attention will shift to Washington. Market participants expect the FOMC to keep the target federal funds range unchanged. However, the updated economic projections will be more intriguing. Powell has made it clear that inflation outcomes are key for rate cuts. But the language around economic activity and projections for next year will be just as important. Dot plots and long-term forecasts may reveal growing disagreements within the committee, which often leads to increased bond volatility. Geopolitical tensions also need to be noted. The increased discussions about risks in the Middle East have reduced liquidity during certain trading hours, particularly in Asia. Although no immediate escalation occurred overnight, market hedges remain costly and are likely to continue being so. Equity futures, interest rate forwards, and certain commodity-linked derivatives show wider tail distributions, indicating that investors are remaining cautious rather than opportunistic for short-term gains. During these times, earlier beliefs about market movements become less reliable. Everyone is waiting for the next major catalyst to break the range, but with each piece of data reinforcing stability instead of volatility, time premiums decrease, and realized volatility remains low. This pattern often frustrates momentum traders, especially in derivatives where time decay happens faster than confidence builds. So, instead of chasing market moves, it’s wiser to observe closely and act gradually. Herd behavior tends to surge when traders get weary of stagnant ranges. It’s often the second-tier data—like labor components, service prices, and sentiment measures—that shift the risk balance. Primary data rarely surprises anymore; changes usually begin at the margins.

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US stocks dropped on Tuesday as the conflict between Israel and Iran continued without a quick resolution. President Trump left the G7 early to deal with the issue, while the US military increased support for Israel, despite falling global stock markets and rising tensions. WTI Oil prices climbed more than 2.6%, reaching $73.56. This rise has raised concerns at Apollo Global Management about possible stagflation. Higher oil prices could affect US inflation and GDP, with projections suggesting a 0.4% rise in inflation and a 0.4% drop in GDP if prices stay high.

Chevron’s Market Performance

Chevron saw its stock gain 1.8% on Tuesday due to climbing oil prices. The company purchased lithium-rich land in Texas and Arkansas, and announced possible layoffs under the Worker Adjustment & Retraining Notification Act. Chevron stock reached $148.00, close to its 200-day Simple Moving Average at $149.59, its highest since early April. If oil prices keep rising, Chevron could aim for a $160 resistance level, potentially hitting $168.00 if the momentum continues. This recent market dip, caused by the ongoing tensions between Israel and Iran, shows how geopolitical issues affect asset pricing, especially in sectors like oil and defense. As the US government shifts focus from diplomatic talks to strengthening its military presence, cautious sentiment is emerging in equity markets. We’ve seen broad selling in US indices, which may continue if the situation remains unpredictable or escalates.

Energy Markets and Geopolitical Shocks

Energy markets are reacting as expected during geopolitical conflicts, with WTI crude closing more than 2.6% higher. A price of $73.56 per barrel indicates that market players are starting to consider a potential long-term supply shock, especially if production or transport in the area faces direct threats. Institutional investors like Apollo are voicing concerns about the broader economic effects of these oil price changes—specifically, the possibility that inflation may not just remain stubborn but might speed up, hindering domestic growth. The suggested impact of a 0.4% rise in inflation and a 0.4% drop in GDP if oil prices stay high is significant. While these numbers aren’t disastrous by themselves, any continued rise in energy costs could complicate decisions for the Federal Reserve. Recently, policymakers moved to a more data-driven approach, making it tougher for them to ease tightening measures if overall consumer prices start to rise again. Chevron’s stock gained 1.8% in this context, reflecting strong investor interest in firms benefiting from rising oil prices. The company is not only capitalizing on higher oil prices but is also diversifying. Its recent investment in lithium land in Arkansas and Texas expands its resource base during a time when electric vehicle supply chains are changing. However, the announcement of potential layoffs serves as a reminder that financial decisions can come with costs, which may require adjusting forecasts for short-term employment expenses. Looking at technical trends, Chevron’s ability to exceed $148.00 and approach its 200-day simple moving average sets the stage for an important decision point. If WTI keeps trending upward and surpasses $75 in the coming days, the stock could soon target $160. If momentum traders jump back in, $168 is possible, but achieving this would require both energy prices and overall market sentiment to align—an outcome that remains uncertain amid various economic factors. At this time, directional bets should be made cautiously, as short-term options are increasingly subject to fluctuations and associated risks. Price movement may seem justified on its own, but without sufficient volume and structural confirmation in energy inputs, these trades may not hold. We’re closely monitoring correlations between oil prices, spreads on high-yield bonds, and VIX levels to anticipate any shifts in how traders are responding to current geopolitical events. Keep an eye on short gamma positions near current oil resistance; the crowded nature of these trades increases the likelihood of sharp reversals. This is not a quiet moment—it’s more like a wedge pattern forming, both in volatility compression and market positioning. Create your live VT Markets account and start trading now.

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