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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Inflation pressures in the UK are expected to ease a bit, even after a significant rise in April. The annual inflation rate for May is projected to drop to 3.4% from 3.5% in April. At the same time, core annual inflation may decline to 3.5%, a decrease from 3.8%. April saw an unexpected rise in services inflation, which may decrease in May. A mistake in data from the Department for Transport, particularly regarding vehicle excise duty, will be corrected in the May report by the ONS. Additionally, high airfares in April coincided with Easter, which will not occur in 2024 as Easter was in late March.

Price Pressures And BOE Action

Even with the anticipated decline, the BOE is still worried about price pressures. With inflation above 3% and the retail price index over 4%, consumers are feeling the impact of rising costs. The BOE aims to bring inflation down to 2%, requiring further action. The upcoming inflation report is not expected to change views on BOE meetings. Current projections indicate an 88% chance of keeping the bank rate steady, with possible cuts anticipated, including a 25 bps reduction around September and a total of 50 bps cuts by year-end. Though May is likely to show some cooling in both headline and core inflation, the overall journey to the Bank’s target is still a long way off. The expected drop in this month’s data is mainly due to technical corrections and temporary factors from last month that inflated prices. The spike in services inflation in April, largely due to travel costs and a classification error, is expected to unwind, helping to lower the month-on-month rate. The Office for National Statistics has already pointed out that the previous rise was due to mistakes in recording vehicle-related duties, which are now being adjusted. This adds credibility to forecasts of a moderate pullback. Therefore, we are looking at a short-term rebalancing rather than a significant economic change. This distinction matters. Mann and the committee continue to stress that domestic price pressures, especially in services, remain too high for any quick changes. They are closely monitoring wage growth, stubborn housing costs, and ongoing supply issues—all of which affect core inflation readings over time. While the headline number may ease slightly, it needs to be viewed in context; one or two data points will not shift the policy direction.

Expectations And Market Reactions

Expectations for the next few MPC meetings remain stable. Markets seem to have ruled out a summer rate cut, with September appearing more likely for a modest reduction. Nobody is anticipating a swift change in policy, and the implied forward curve stays cautious but steady. For shorter-dated derivatives, there is little reason to take aggressive positions against the current policy. Market volatility has decreased, and unless there is unexpected wage data or global shocks, the front-end is likely to remain within a range. Further out, slight steepening could happen as subdued inflation data brings the bank closer to its medium-term goals. Price movements have already shifted toward a dovish outlook since earlier this year. The potential for repricing has become limited, especially for one-year contracts. We have observed that any upside surprise in inflation figures usually triggers a stronger reaction than equivalent dovish news, showing continued sensitivity to inflation risks. What is crucial now is not just the headline drop, but how it affects rate expectations for the second half of the year. September is still a possibility, especially if core metrics decline along with headline inflation in the upcoming reports. A genuine downward trend could support the idea that some policymakers are waiting before making any changes. In the coming weeks, any positioning should focus on gradual changes rather than major shifts. Data dependence is high. We’re in a phase where small economic changes will significantly influence pricing models. Be mindful of this asymmetry; while there may be limited movement in either direction, the reaction remains sensitive to ongoing trends. Regarding implied rate volatility, it’s becoming less advantageous to position around short-term policy differences, given the BOE’s clear wait-and-see stance. Cross-market trades based on major central bank differences could gain traction, especially if the ECB eases this summer while other central banks maintain their positions. This situation is worth watching. Create your live VT Markets account and start trading now.

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Asian trading saw a slight weakening of the U.S. dollar as markets adjusted their risk appetite. The People’s Bank of China (PBoC) set the USD/CNY mid-point at 7.1761, which was lower than expected. Chinese officials highlighted that consumer spending is the main driver of growth in China. In Japan, Prime Minister Ishiba talked about ongoing trade issues with the U.S., proposing cash handouts to help with rising prices. Tensions between the U.S. and Iran continue to affect oil prices and stock markets, though no U.S. military actions have taken place. In May, Japan’s exports fell by 1.7% compared to last year, which was better than expected. Japanese manufacturers reported a dip in sentiment in June, with the index falling from +8 in May to +6. The market reacted to these reports amid international concerns, causing Brent crude oil prices to ease slightly. In the financial sector, the U.S. plans to reduce capital requirements for bank treasury trades. New Zealand’s current account deficit decreased in the first quarter, alongside a small rise in consumer confidence. Additionally, BlackRock suggested that the Federal Open Market Committee should stop Quantitative Tightening. Globally, concerns about military developments lingered, leading to brief changes in investor confidence. We observed a small dip in the U.S. dollar during early Asian trading hours, indicating a minor reduction in defensive strategies. The PBoC set the USD/CNY reference rate lower than market expectations, showing a strong approach to managing currency values. With officials emphasizing domestic consumption as the main growth factor, this signals careful support without broader stimulus for now. In Tokyo, the Prime Minister addressed trade tensions with the U.S. and mentioned cash handouts to tackle inflation. This seems more like a political response to domestic sentiments rather than a structural change. Export numbers were mixed. Although May saw a 1.7% annual decrease, it was not as bad as feared. However, business optimism is slowly declining. Sentiment dipped again in June, suggesting that caution may grow among investors looking ahead. Oil prices decreased slightly. Even with ongoing tensions between the U.S. and Iran, the lack of direct military action helped to ease immediate concerns. The easing of Brent prices likely reflects a fatigue in market positioning rather than new information. The market’s reaction follows a familiar trend—brief changes in appetites followed by stabilization. Meanwhile, the U.S. has moved to relax capital requirements for bank treasury activities, which should improve liquidity, especially in fixed-income markets where treasury holdings play a significant role in balance sheet management. Further south, New Zealand reported a narrowing current account deficit and a small increase in consumer outlook, which offers some relief. While these changes are minor, they support a reduced downside risk in local assets. BlackRock’s suggestion to pause Quantitative Tightening could influence market strategies as the Federal Reserve approaches its next decisions. When large institutions make policy suggestions, it often doesn’t lead to immediate price changes, but it does shape strategic conversations. It wouldn’t be surprising if the yield curve begins to reflect a slower pace of change. Globally, there is a sense of caution. Political tensions haven’t sharply escalated or eased. Traders remained cautious, keeping a careful approach in their strategies, suggesting a focus on instruments that benefit from reduced volatility in the short-term. Where hard data beat expectations, there was a tendency to incorporate those into analyses in a tactical way rather than a structural one. Although Japan’s news and regional export flows were not as bad as expected, enthusiasm remains muted. Given the weak business confidence, this response makes sense. From our perspective, increasing positions in low-volatility and yield-carry assets makes sense, especially in currencies with stable policy outlooks. We recommend avoiding directional bets based on upcoming macroeconomic triggers, as many have already been priced in. As the week progresses, we will monitor participation levels and funding spreads closely, paying more attention than usual to cross-currency basis. Any widening would suggest that larger players are preparing for lower-volume sessions rather than committing to new trends.

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