Since the pause on mutual tariffs began on April 9, markets have been adapting to a more optimistic global economy, ignoring fears of a slowdown. Various soft data indicators support this positive outlook. Expectations are that global growth will continue alongside steady disinflation. Central banks are also focusing on easing policies to help achieve this.

Key Risks

However, there are important risks to consider: the potential return of trade conflicts and inflation. The market often overlooks the risks of renewed trade wars since previous conflicts have seen quick de-escalation. As we near the end of a 90-day tariff pause, uncertainty remains, though markets seem to downplay concerns. Still, even small trade issues can change growth predictions and affect the markets. Inflation poses another significant risk, and it’s more likely to cause issues than trade conflicts. Strong economic activity driven by easing policies, tax cuts, and deregulation could lead to higher inflation. Although inflation is a lagging indicator, recent data, such as US PMIs, indicates growth. The rise in long-term yields, linked to stronger growth and inflation risks, is noteworthy. The 10-year US yield is at 4.45%, reflecting current risks, while the policy rate sits between 4.25% and 4.50%.

Inflation Risks

If inflation risks persist, long-term yields may increase, impacting various markets and future interest rate expectations. We’ve seen how the halt in tariffs boosted overall market sentiment. After the announcement, markets quickly adjusted their outlook for global demand, putting aside earlier concerns about widespread economic stagnation. This shift was evident in surveys and forward-looking indicators, particularly in the services and manufacturing sectors. This trend seems to be continuing, as consensus builds around the idea that growth can persist without reigniting inflation pressures. Monetary authorities have responded with a more supportive approach. This has encouraged capital to flow into risk assets, driving recent equity gains and narrowing credit spreads. The belief driving these movements is that central banks feel confident pausing or even easing in the upcoming months. Bond markets seem to endorse this view, though not without some caution. There’s a current tendency to rely heavily on past behavior. Prior trade disputes have followed a familiar pattern of sudden flare-ups, often followed by equally quick resolutions. Therefore, markets feel less need to react strongly until tangible measures are reintroduced. Yet, this mindset risks underestimating how even a minor change in posture could harm sentiment and disrupt investment flows, especially given how much pricing relies on future certainty. Goolsbee effectively highlighted that recent activity data shows signs of gaining momentum, particularly in consumption-driven economies. This can quickly lead to inflationary pressures, especially if monetary policy seems too loose in hindsight. While inflation may lag, forward indicators like PMI inputs and wage growth suggest that pricing power is returning in some sectors. This development is crucial for traders. The charts indicate that fixed income markets have started to react. Movements in long-term yields now reflect shifts in inflation risk premia, not just rate expectations. A rise in 10-year yields from 4.20% to 4.45% does not happen in isolation—it signals a reevaluation of the long-term real rate, affecting duration sensitivity and impairing convexity-neutral positioning. During his last appearance, Powell hinted that surprises on the inflation front could delay the easing cycle. This adds further volatility to terminal rate timelines. We see the ripple effects influencing equity volatility curves and correlations across assets. Maintaining short volatility positions or expressing carry-trade views has become costlier without tighter hedges. Given this context, the current pricing in rate forwards and volatility markets seems overly optimistic. Most metrics favor scenarios where no policy reversal occurs, downplaying tail risks. It’s not just about inflation exceeding targets; it’s also about how that interacts with limited fiscal space in larger economies. Legislators are unlikely to initiate large stimulus packages again if inflation returns, leaving central banks to act alone. We should closely monitor credit markets. If long rates continue to rise, funding costs across leveraged sectors will increase. Compression in high-yield spreads could quickly reverse if macro data confirms rising inflation. This could tighten financial conditions without central banks adjusting short rates. Shifting into shorter-term diagonals and reducing exposure to steepeners may limit volatility connected to yield curves. Positioning in breakevens and select swap structures now offers asymmetric payoffs for when inflation reports exceed expectations later this summer. While this shift may not happen immediately, the risk is more present than not if economic activity continues to grow. Future PMI reports and inflation data will guide whether these trades begin to unwind. For those engaged in derivatives or spread positions, reactions to even slight surprises are likely to be quick as current positioning lacks strong defenses. We expect volatility markets, especially in rates and FX, to respond more sharply than equity indices, given that equities are relatively insensitive to small shifts in monetary policy expectations during growth cycles. Close monitoring is essential, and adjusting exposures in line with inflation-linked instruments may offer better short-term protection. Create your live VT Markets account and start trading now.

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Data from the US Mortgage Bankers Association for the week ending May 30 shows a 3.9% drop in mortgage applications, compared to a smaller 1.2% decline the week before. Both home purchases and refinancing saw reductions, impacting the overall market. The market index fell to 226.4 from 235.7, while the purchase index dropped from 162.1 to 155.0. The refinance index also decreased from 634.1 to 611.8, reflecting less interest in refinancing. The average 30-year mortgage rate slightly fell to 6.92% from 6.98% the previous week. These high rates continue to challenge the mortgage market. This week’s report showed a more significant drop in mortgage activity compared to the week prior. Homebuyers and current homeowners are hesitant in a high borrowing environment. Both purchase and refinance volumes decreased, and although the change in the average 30-year mortgage rate was slight—down from 6.98% to 6.92%—it wasn’t enough to increase demand. The overall market index is now at its lowest level in nearly a month, highlighting how sensitive the housing financing market is to rates. With refinancing volume falling further into the 600s, it indicates that homeowners lack motivation to change their existing mortgages. Many likely secured lower rates in 2020 or 2021. The decrease in activity on both sides of the mortgage market shows a rigid demand structure. Rates are too high to attract new buyers, yet not high enough to change sentiment significantly since the adjustments have been small. This results in a stable environment for fixed-income assets, reflecting stagnation rather than sudden changes. Last week, Powell mentioned that inflation seems to be declining slowly, but the labor market remains strong. This makes it harder to predict the Fed’s next steps in the short term. While short rates may hold steady, long yields could shift due to changing inflation expectations instead of tighter monetary policy. As such, we don’t expect significant changes in rate expectations based solely on current mortgage trends. However, the reluctance of borrowers to return to the market could limit upward pressure on yields from consumer-driven growth. Fewer applications can slow housing turnover, potentially affecting broader consumer credit metrics in the medium term. The 10-year bond showed only a slight decrease alongside this soft report, indicating that bond markets are looking beyond housing data, focusing instead on inflation and payroll growth as the next catalysts. The muted response in treasuries suggests that expectations for the Fed’s position haven’t changed significantly, implying a stable front-end. In the next few weeks, it would be wise to monitor new inflation data rather than past housing figures. While the drop in applications is notable, it lacks power without strong confirmation from broader price pressures. We do not expect the mortgage market alone to shift sentiment in rate markets. Current conditions favor premium capture and carry strategies over position-driven bets on direction—at least for now. Sensitivity is particularly high at the long end, especially if inflation surprises upward. In such cases, yields could spike quickly, activating duration stops in leveraged portfolios. Being prepared means understanding where the risks lie and managing exposure accordingly. These figures provide insight but not definitive signals. The real indication will come when price data either confirms or contradicts this weakened credit appetite.

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Interest rate expectations have stayed stable because there haven’t been any major changes in the economy. This stability has led to one of the longest periods of market calm, and traders are now waiting for new information. For the Federal Reserve, there’s a 96% chance that the interest rate will stay the same at 49 basis points. The European Central Bank has a 99% chance of lowering the rate to 55 basis points. The Bank of England shows a 97% chance of keeping the rate unchanged at 38 basis points.

Regional Rate Expectations

The Bank of Canada has a rate of 41 basis points, with a 73% likelihood of no change. The Reserve Bank of Australia has a rate of 75 basis points and an 82% chance of a rate cut. The Reserve Bank of New Zealand stands at 31 basis points, with a 68% probability of no change. The Swiss National Bank has a rate of 53 basis points and a 72% chance of lowering it. The Bank of Japan is at 18 basis points, with a 99% chance of taking no action at the next meeting. Market stability is likely to continue until new information, like US non-farm payrolls, CPI, and the FOMC decision, is released. This recent period without significant economic changes has led to a sense of comfort in global rate markets—a pause that rarely lasts long. With central banks steady and clear odds of rate movements, we see less market volatility and tighter trading ranges. The markets are waiting. The figures mentioned earlier show a clear trend: policy decisions are being influenced by expectations leaning toward stability or slight easing, depending on the area. Jackson’s 96% chance of no change indicates a lack of desire for action at this time, as the cost of poor timing is seen as greater than staying put. The same reasoning applies elsewhere. Müller’s high likelihood of a rate cut, with market pricing at 99% certainty, reflects expectations already factored in rather than any surprising developments ahead.

Market Response to Economic Data

For several weeks, market movements have been very calm, and the lack of strong signals has kept gamma sellers active while volatility buyers remain cautious. When rates hold steady and future paths seem priced in, opportunities sharply decrease. Most of the outcome is often predictable—success comes from reacting to data rather than guessing the headlines. In this light, we have closely examined short-term interest rate markets. What stands out is not differences in policy views but the lack of excitement around known events. With narrow trading ranges persisting, there’s little reward in positioning early, especially against known data cycles. Waiting for more significant catalysts is often wiser—and those are coming soon. Key reports on employment, inflation, and US policy statements are expected to shift market expectations from their recent calm. Until then, interest rate curves will likely drift, and trading volume may thin before decision days, resulting in mispricings amid little underlying change. Mason’s hold at 38 points and Thomas’s stance at 41 points show resilience in market expectations. We do not see surprises here—not because they are impossible, but because pricing has tightened the chances of anything outside of significant data events. Meanwhile, Turner’s 75 basis points has room for bigger changes. However, due to the high chance of a cut, those seeking volatility in AUD instruments will need to consider timing as well as direction. Not all central banks share this cautious approach. Huang’s 18-point rate, with a strong expectation for no changes at the next meeting, highlights policy delays. This isn’t new, but it reminds us that differing paces can create brief mispricings if one region is surprised by data while others remain stable. Right now, we aren’t pursuing low-confidence speculation. Instead, we’re observing how compressed premiums respond to actual volatility once scheduled events occur. More information is on the way, and when it arrives, adjustments will not be casual. Tight ranges can snap with small mistakes, making forward pricing critical. It’s better to prepare now while the uncertainty is manageable. Create your live VT Markets account and start trading now.

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EU trade commissioner Maroš Šefčovič shared that he had productive talks with US trade representative Greer. He mentioned progress on tariffs but didn’t provide specific details. Šefčovič cautioned against expecting immediate breakthroughs. Much of what has been discussed in negotiations remains unclear. His remarks indicate that while discussions with the US are moving positively, no agreements are close yet. There’s progress, but it’s careful and not rushed. Both sides seem eager to improve relations, especially regarding tariffs. However, they are cautious about making commitments in public. The absence of specific numbers or clear steps suggests that any significant changes in trade agreements won’t happen suddenly. When they do occur, they will likely be small, occurring gradually rather than all at once. This slow pace may affect how some market participants adjust their pricing in the coming weeks. We can anticipate that markets sensitive to trade between the US and EU will remain stable for now. This doesn’t mean there isn’t any behind-the-scenes activity; it simply indicates that the situation appears cautious. Typically, we see stronger reactions when deadlines approach or when regulatory changes are announced. Without concrete changes or a clear plan, we expect things to remain steady. Historically, situations like this lead to adjustments, but not drastic ones—more like gentle shifts. Even if tariffs are adjusted slightly, it will take time to see their impact. Therefore, short-term instruments probably don’t need a significant price change yet—there’s nothing strong enough to warrant it. We are also watching for any moves from Greer’s office. If they publicly provide more details about the negotiations, it could signal a need for quicker reactions. For now, the low-information environment suggests we should mix patience with some strategic adjustments—not a complete withdrawal, but also not fully exposed. Practically, this means maintaining positions where suitable while assessing which areas are most vulnerable to policy changes. This often involves focusing on medium-term instruments and sector-specific strategies instead of broad adjustments. That’s where we will concentrate our initial modeling efforts, especially if clearer hints emerge in the next few cycles. We will keep an eye on official transcripts and follow-up briefings, as they often contain subtle hints about changes that don’t make the news. These hints have sometimes come before market corrections, so even minor shifts deserve attention.

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When you dive into the world of cryptocurrency, you’ll encounter many new terms and metrics. One important measure is the Average Buy Profit (ABP), which helps you understand how profitable your investments are. The ABP shows the profit on a token based on its average purchase price. For example, if you buy Ethereum at $2,000 and again at $3,000, your average purchase price becomes $2,500. If Ethereum’s price then rises to $3,500, the ABP is $1,000 profit per token. ABP also offers insights into market sentiment. A positive ABP means a bullish market—tokens bought at lower prices are now making a profit. On the other hand, a negative ABP indicates a bearish sentiment, where tokens bought at higher prices could lead to losses. ABP charts use green and red bars to display profit and loss scenarios. Recent data on Ethereum shows that there were profit-taking actions early in the week, followed by losses midweek, and then a recovery later on, which indicates changes in the market. Ethereum’s current condition is linked to Bitcoin’s movement. Resistance zones like the $2,675 level may suggest temporary selling pressure. Traders should manage their positions carefully as dips can happen in the short term. Profit-taking is common in crypto markets. It helps to mitigate risk and doesn’t always signal a bearish trend. Instead, it often reflects market strength, with investors securing profits instead of panic-selling. This article explains the Average Buy Profit (ABP) as a helpful measure to see if asset holders are generally in profit or at a loss. In simple terms, ABP compares current prices with buyers’ average entry prices. When an asset trades above this average, green bars appear on an ABP chart, signaling profit. Conversely, when prices fall below the average purchase prices, red bars indicate unrealized losses. Recently, we’ve seen Ethereum’s ABP fluctuate. Early in the week, the chart showed green, suggesting investors were taking profits. Midweek, the chart turned red as prices fell below higher entry points. By the end of the week, green returned, signaling a recovery. This shifting pattern is significant, as it indicates a market responding not only to internal factors but also to external ones like Bitcoin’s performance. In concrete terms, the $2,675 level seems to serve as a short-term ceiling where sellers are willing to exit. Observing price movements in this zone can help shape expectations. If prices struggle to break through, it may suggest caution among traders. Earlier in the week, profit-taking occurred, but data shows there were no sharp liquidations following it. Instead, it reflected a disciplined strategy, which is characteristic of a healthier market. This suggests that investors are not panicking but are making careful adjustments. Reflecting on last week, the focus should now be on identifying where similar strategies might occur again. If prices retreat but don’t fall below prior lows with significant volume, it could indicate that selling pressure is light. Conversely, if there’s a quick drop below recent support with strong activity, a more conservative approach would be advisable. From a broader perspective, it’s crucial to watch whether prices can move consistently above the recent resistance zone, ideally with good breadth and volume. This could indicate sustained recovery and reduce the chance of larger pullbacks. Resistance only matters if it’s maintained—once it breaks and is confirmed by market structure, the risk-reward balance would change again. Regularly monitoring these indicators allows for ongoing adjustments. The ABP, when combined with price action and external signals, provides a solid overview of market sentiment. It reflects traders’ actions and their impact on the current market. Volatility may return soon, especially as we approach critical macro periods or when related assets hit key technical points. As we navigate through this phase, strategies that allow for low-risk re-entries while safeguarding against downsides will be particularly effective. Absent any major market shocks, this approach continues to effectively gauge real-time conviction.

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The dollar is slightly weaker this morning in Europe, with only small changes across the board. The EUR/USD has gone up by 0.3%, now just over 1.1400. Both GBP/USD and AUD/USD have gained 0.2%, reaching 1.3540 and 0.6475, respectively. The USD/JPY has dipped 0.1% to 143.90, showing no clear trend. Traders are watching updates, including a court decision on Trump’s tariffs and potential trade deals, along with ongoing discussions between the US and China. Trump indicated it’s challenging to reach an agreement with Xi. In other markets, US futures rose, with S&P 500 futures increasing by 0.2%, which had a positive impact on European indices. The DAX and CAC 40 indices rose by 0.8% and 0.7%, respectively. Currently, the dollar is easing against several currencies, suggesting lighter trading volumes and little momentum. The euro has slightly moved ahead, staying just above 1.1400, while the pound and Aussie dollar have made small gains. These changes might still be significant in the near term if they continue to build on existing support levels. The dollar-yen pair is slipping without displaying strong movement. This narrow trading hints that traders might be waiting for clearer signals regarding policies or upcoming data releases. Conversations around trade policy and US-China relations are still being processed, especially with potential obstacles between the US administration and Beijing officials. When Trump mentions difficulties in dealing with his counterpart, it often creates market uncertainty. This uncertainty gets factored into prices quickly, leading to cautious positions in currency markets. While leaders often speak broadly, their choice of words can significantly influence market direction. In the stock market, the rise in US futures seems to be helping European indices. The expected 0.2% increase in the S&P 500 is giving a slight boost to nearby markets like the DAX and CAC 40. This suggests a broadly positive risk sentiment, even if it’s somewhat fragile. Recent price movements indicate that traders are influenced more by news and sentiment than by solid economic data. Right now, implied volatility across major contracts is low, but this could change quickly if new trade decisions or legal rulings create fresh risks. Looking ahead, the dollar’s recent movements suggest that markets are not yet expecting major disruptions. However, correlations between different assets, particularly between indices and major currency pairs, are returning. This means we could see quick fluctuations again. If we get close to key resistance levels in pairs like EUR/USD or GBP/USD, this might trigger breakouts or reversals, depending on upcoming data and news. Given the close relationship between equity and forex markets, we’re closely monitoring the opening reactions from US futures. Right now, it’s not just the numbers we’re watching, but how short-term traders respond to them and whether liquidity remains steady throughout the week. Cautious hedging behavior continues, with low expectations for significant monetary changes. This means trading ranges could stay tight unless an unexpected force arises. Front-month options are pricing in low volatility, with a normal skew and no immediate signs of one-sided demand. However, quiet periods can change quickly if positions get skewed in one direction. Currently, there’s little interest in making bold bets. Most of the recent shifts appear to be due to short-covering rather than strong new convictions. Traders should pay attention to forward guidance not just from policymakers, but also from trading activity around auction or option expiry dates. It’s important to see how this sentiment develops into stronger beliefs—whichever direction that might be.

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UK’s service sector PMI for May has been revised to 50.9 from a preliminary 50.2, indicating a small improvement from April’s 49.0. The Composite PMI also increased to 50.3 from an initial estimate of 49.4, up from 48.5 in the previous month. Business activity has seen a slight uptick, with optimism reaching its highest level in seven months. However, new orders and employment numbers continue to decline, highlighting ongoing challenges in the sector.

Decline in New Orders

Total new orders have dropped due to cuts in business and consumer spending. The service sector has experienced eight consecutive months of employment declines, the longest stretch of job losses since 2008-10, excluding the pandemic years. Input costs rose mainly due to higher wages, although the inflation rate slowed from April’s peak. Competitive pressures led to the slowest increase in service prices since October 2024. This update shows that while overall activity in the service sector has slightly improved, demand remains weak and is putting pressure on businesses. A PMI reading above 50 indicates expansion, but just barely crossing that mark suggests more stability than strong growth. There’s a noticeable gap between business expectations and real demand. Confidence among service providers has risen, reaching its highest point in over six months. This optimism may be driven by hopes of lower interest rates or easing inflation in the future. However, this renewed confidence contrasts with ongoing job cuts and a further drop in new orders, indicating that businesses remain cautious about hiring and spending.

Continued Reduction in Employment

The ongoing reduction in employment has now lasted for eight months, signaling that profit margins are still under pressure and businesses are reluctant to increase wages. This level of sustained job loss hasn’t been seen in over a decade, excluding the unusual circumstances of 2020 and 2021, which highlights the stress in certain areas of the sector. Price data indicates a slight easing. Input costs have risen, mainly due to increased wage demands, but the pace of growth has slowed compared to April. Companies have also reduced price increases, resulting in the weakest rise in service charges in over six months. Many businesses are choosing to absorb higher costs rather than pass them on, aiming to maintain their position in a challenging demand environment. Looking ahead, it is essential not to be misled by the slight PMI increase. Focus on forward-looking factors such as hiring plans, pricing trends, and the gap between expectations and current activity will shape the coming weeks. While the PMI rise may temporarily boost sentiment, this is unlikely to last without confirmation from broader consumer spending or business investment data. As policy approaches a potential turning point, the response to minor economic data changes will be more sensitive. Volatility may increase with minor data fluctuations. It’s essential to stay agile until there are clear signs of improvement, rather than relying solely on appearances. Create your live VT Markets account and start trading now.

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The eurozone’s May services PMI reached 49.7, up from the preliminary 48.9. This suggests slight growth in business activity, but the overall outlook points to an economy close to stagnation. The composite PMI improved from 49.5 to 50.2, just above the point indicating growth, though May showed slower growth. Demand weakened, especially in Germany, and low business confidence due to uncertainty contributed to this slowdown. The eurozone economy has seen growth for five straight months. Manufacturing remained stable, while the services sector experienced a decline in activity. To counter rising tariffs and uncertainty, the European Central Bank (ECB) may consider interest rate cuts and fiscal measures, particularly in Germany. The ECB might lower interest rates on June 5, despite rising costs in the services sector, as prices for goods are falling. Southern Europe, with strong growth in Italy and moderate growth in Spain, offset losses in France and Germany. Supporting growth in southern Europe and Germany’s fiscal policies could strengthen the services sector this year. Confidence in recovery has improved slightly but is still weak when viewed historically. Although May’s final PMI readings showed a slight lift, the overall trend remains disappointing. The score just above the neutral 50 level suggests growth, but only barely. Much of the increase came from services, indicating unclear momentum in key economies. Germany has struggled again, facing weak domestic demand and declining business sentiment, both impacting output. France has not helped the situation. It showed further drops in private sector activity. On a positive note, Italy and Spain contributed more resilient services demand, likely due to stronger internal consumption and stable employment. However, this performance may not be enough to counter the overall softness in the euro area, especially as seasonal boosts, like early tourism demand, might diminish. Goods inflation has decreased significantly, providing the ECB with a possible reason to cut rates, even with high service input prices. Wage growth could still complicate efforts to manage inflation expectations, but trends support a slightly looser monetary policy. Traders in short-term rates have shifted their positioning. Price pressures vary across the region, increasing the sensitivity to regional data. The forward curve has steepened slightly in anticipation of a June rate cut, lowering short-term yields while maintaining caution for longer contracts. The difference between input costs and output prices in manufacturing and services suggests shrinking margins in some areas, limiting sustained profitability in certain sectors. From a strategy perspective, diversifying across regions seems more favorable, especially focusing on Southern markets where demand is stronger. What’s important is the difference in confidence levels. Although some areas have returned to positive sentiment, historically, confidence remains low. This might continue to restrict hiring plans and capital spending, especially in struggling service sectors. Expect month-to-month volatility moving forward, as PMIs hover around neutral levels. Any positive surprises in German orders or French consumer spending could change the growth outlook for Q3, especially with clear fiscal direction. Conversely, disappointments might reverse recent rate expectations. The focus should now be on regional data and second-tier indicators rather than just headline inflation and PMI numbers. Expanding the view to include wage settlements, industrial orders, and corporate lending could provide better insight for positioning. What mattered in the last cycle—early moves, reliance on guidance, and strong policy signals—has begun to fade. The risk-reward dynamic remains uneven. Positive revisions can lead to sharp increases in rate-sensitive products, but disappointing data often reinforces the ongoing trend of underperformance, particularly in Western Europe. There’s no need for strong convictions in either direction; liquidity is thin, and even slight changes in forward-looking indicators are impactful. As summer expectations build, tactical strategies may benefit from reassessing exposure to consumer-driven sectors. The stark difference in retail activity between North and South offers opportunities, especially if inflation driven by wages acts unevenly across the region. A close eye on upcoming ECB communications and national updates is crucial, but less significant data releases may also play a substantial role in shaping short-term sentiment.

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France’s May final services PMI was adjusted to 48.9 from an original 47.4. The last reading was 47.3. The composite PMI also increased to 49.3 from a preliminary 48.0, compared to the previous data of 47.8. The higher PMI indicates a slower decline in business activity. The drop in new orders and employment was less severe than in previous months, suggesting the private sector might soon exit this downturn. However, the composite PMI remains below the growth threshold.

Current Market Conditions

Market conditions are still tight as both domestic and foreign demand continues to decline, though at a slower rate. There are slight signs of increasing demand, but optimism for future improvements has faded, causing concern among service providers due to ongoing uncertainties. In May, profit margins in the service sector fell due to rising input costs, mainly due to wage pressures. At the same time, output prices decreased, indicating that companies struggled to pass these increased costs onto customers. This situation may lead the European Central Bank (ECB) to consider lowering rates further, with two more cuts expected this year. The upward revision in the French services and composite PMIs shows a small change in sentiment, indicating that the business environment remains tough but isn’t getting worse as quickly. Even though a figure below 50 indicates contraction, the narrowing gap suggests that this contraction is easing. The data indicates that businesses are not expanding yet, but the pace of decline has softened somewhat.

Potential Turning Point

When new orders and employment slow their decline, it often means we’re approaching a turning point. Morale may still be cautious, but signs of stabilization could be emerging. However, since the figures are still below the 50-mark, the risk of renewed weakness remains. These changes in indicators alone may not look promising, but they suggest that the downward trend is not worsening. We’ve noticed that pricing power in services is shrinking. Input costs, especially labor-related, continue to rise, while output prices are falling. This means firms struggle to pass higher costs to their customers. This squeeze on margins is an important sign, especially when considering future monetary policy. The mismatch between costs and prices might justify the ECB’s potential easing, especially if inflation pressures, like wage increases, persist. Realistically, if output prices keep showing weakness and wage inflation stays stubborn, a push for lower rates is more likely in the latter part of the year. Despite some providers hoping for better demand, the general feedback remains weak. With expectations for the future subdued and confidence not fully returning, we’re viewing these revisions as somewhat positive but not defining. The trends still carry significant uncertainty, and there’s little indication of a strong rebound soon. What’s crucial now is how activity performs in June and whether these contractions ease into neutral territory. We’re closely monitoring pricing strategies, as this will indicate how companies manage cost pressures without making deeper cuts to staff or investments. If margins continue to decline, monetary support may become more likely—not immediately, but in the coming quarters. Create your live VT Markets account and start trading now.

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The USDJPY pair is stable near recent lows as traders await important US data releases. The USD has slightly weakened because interest rate expectations have already been priced in. The market is in line with the Fed’s forecast, which predicts two rate cuts in 2025. However, strong US data is needed to change this view. Key upcoming data includes the ISM Services PMI, US Jobless Claims, the NFP report, and the CPI. Recently, the JPY weakened but regained some strength due to trade tensions. Japan is thinking about reducing super-long bond issuance, which could impact the yen’s value. There is still uncertainty about a potential rate hike, with an expectation of 18 basis points of tightening by the end of the year. Japanese inflation data supports this expectation, and the US-Japan trade deal will affect future policies. On the daily chart, USDJPY fluctuates around the 142.35 level. Buyers are looking to push the price up toward 148.32, while sellers aim for a drop below 142.35 to reach 140.00. On the 4-hour chart, resistance is seen at 144.44, with buyers wanting to break above this level. The 1-hour chart indicates minor support at 143.67, with strategies targeting a breakout above 144.44 or a drop to 142.35. The upcoming data includes US ADP, ISM Services PMI, Japanese wage data, and US Jobless Claims, culminating in the US NFP report on Friday. Currently, the USDJPY pair is near the lower end of its recent trading range, close to 142.35. This stability shows that markets are mostly in a wait-and-see mindset. With rate expectations on the dollar already accounted for, especially thoughts of no further hikes and a couple of small cuts next year, the dollar has found fewer reasons for strength recently. Traders seem cautious about taking strong positions until new US data creates fresh momentum. Several important indicators are on the horizon, including the ISM Services PMI and jobless numbers, along with the crucial non-farm payroll figures. Each data point will help build a clearer picture of whether the labor market is slowing down or remaining stable. If job numbers exceed expectations, markets might start questioning the timing of rate cuts, which could push the dollar higher. Conversely, weak payroll figures could confirm current pricing and gradually lower the dollar. Meanwhile, yen dynamics have changed slightly. Earlier weakness has shifted to a more balanced view, partly due to expectations of tighter policy by year’s end. Talks about changing bond issuance, especially for long-term bonds, have impacted JGB yields and the yen. Still, the idea of a 25-basis-point move in the coming months is not seen as certain. The market anticipates only 18 bps of tightening, indicating hesitation about how far the Bank of Japan will go without strong wage growth or an increase in domestic demand. On the technical front, the 4-hour chart reveals that bulls are looking for a break above 144.44 as a clear sign of regained momentum. Without this breakthrough, upward attempts may stall again. The daily chart shows a large consolidation range forming, and many traders are preparing for a wider range, possibly between 140.00 and 148.32. The narrow range near 143.67 on the 1-hour chart indicates that the market is waiting for a catalyst, which will come from the next major data release. Next week, the Japanese wage data should be watched carefully. A rebound here could strengthen domestic rate hike bets, which would likely put pressure on USDJPY, especially if paired with soft US data. Jobless claims are considered a mid-tier event, but consecutive higher readings could create noise around Fed expectations and add volatility to very short-term rate futures. As Friday’s payroll figure approaches, it’s not wise to take large positions based on speculation. Until USDJPY moves above 144.44 or below 142.35, most directional confidence is linked to these key levels. The focus remains on observing how these levels react to unexpected data. There’s a contradictory tone in the market where JPY strength could rise without dollar weakness. This situation would favor shorter-dated implied volatilities, especially leading into Thursday night. The week’s end might result in either a breakout or a return to previous levels, but significant reactions are expected.

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