Canada’s housing starts in May reached 279.5K, exceeding the expected 245K. The earlier figure was revised from 278.6K to 280.2K. Before the data was released, the USD/CAD exchange rate was at 1.3564, its lowest since October. This indicates that construction is still active, even as prices drop in some areas.

Stronger Than Expected Construction

These numbers reveal that homebuilding in Canada is much stronger than anticipated. In May, new housing projects began construction, surpassing forecasts by over 34,000 units. Revisions to April’s figures also pushed this number higher. Despite declining prices in many provinces, developers seem confident, possibly due to ongoing demand from migration and population growth. We cannot overlook that government initiatives aimed at increasing housing supply, especially in busy city areas, could be impacting these numbers sooner than expected. From a trading perspective, if we consider the overall economy, a high rate of construction could pressure the Bank of Canada to change its current policy. Strong construction activity might counterbalance dropping prices in the bank’s inflation assessments, potentially limiting expectations of aggressive rate cuts soon. The USD/CAD exchange rate reacted to this, with the loonie strengthening before the release and reaching its lowest point against the U.S. dollar since last fall. For traders, the implied volatility around interest rate expectations seems slightly off. With stronger housing data, it becomes harder to justify multiple rate cuts this year, especially since other indicators, such as employment and retail numbers, haven’t shown a significant decline. This may lead to broader shifts in short-term rate derivatives, particularly in mid-to-late tenor contracts.

Reassessing Market Strategies

While patience is necessary, we should closely monitor cross-asset correlations, particularly how housing trends influence Canadian bank stocks and local government bond spreads. Traders involved with CAD-linked instruments may want to reassess their positions, as physical demand appears stronger than previously realized. If market prices continue to reflect a struggling consumer sector while housing remains steady or grows, we may need to rethink duration risk. We are preparing for a scenario where rate policy is less aggressive than currently priced, which could challenge the performance of short-end receivers. It’s a delicate balance now as local fundamentals weigh against global disinflation trends. Create your live VT Markets account and start trading now.

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The Pound Sterling is holding steady around 1.3580 against the US Dollar as traders wait for updates from the Federal Reserve and the Bank of England. Both banks are expected to keep their interest rates unchanged, with the Fed targeting a range of 4.25% to 4.50%. Traders are closely watching for guidance from the central banks, as any signs of future rate changes could affect the market. The US Dollar Index has dropped near 98.00, and ongoing events in the Middle East have added to market uncertainty.

Geopolitical Tensions Impacting Markets

The Bank of England is likely to keep its borrowing rate at 4.25%. Recent employment data from the UK shows slower growth as employers face increased costs from social security contributions. Tensions in the Middle East, especially between Israel and Iran, could affect risk-sensitive assets like the Pound Sterling. Rising military actions have intensified conflicts, impacting major oil shipping routes. Technical analysis indicates that the Pound Sterling is hovering below 1.3600 against the US Dollar. The short-term trend appears positive, with potential resistance at 1.3750 and support at 1.3434. The 14-day RSI is around 60.00, and a breakout could lead to upward movement. Currently, Sterling remains firmly under the 1.3600 mark against the US Dollar, with market participants cautious ahead of the central bank announcements. Both the Federal Reserve and the Bank of England are expected to maintain their current monetary policies, with the Fed’s upper limit at 4.50% and Threadneedle Street likely keeping UK rates at 4.25%. Traders are focused more on potential future directions indicated by policymakers rather than immediate rate changes. Subtle shifts in tone during press conferences can significantly impact market sentiment.

Potential Market Shifts and Volatility

With the Dollar Index slipping towards 98.00, dollar bulls are feeling uneasy. This decline suggests weakening confidence in the dollar’s strength, although a complete reversal hasn’t occurred yet. Geopolitical tensions amplify this uncertainty, affecting market sentiment throughout the day. Tensions in the Middle East, primarily between Tehran and Jerusalem, could lead to sharp volatility, especially for currencies and commodities tied to energy. The transportation of oil through key routes now includes additional risk premiums. The Pound Sterling often reacts more significantly to global sentiment changes than to domestic factors due to its trade and financial exposure. In the UK, data from the Office for National Statistics shows slower employment growth, partially due to rising costs for employers. This trend hasn’t yet influenced inflation significantly, but it may affect the Bank of England’s policy in the coming months. Increased National Insurance contributions are raising hiring costs, which might eventually impact wage expectations and broader economic indicators. On the charts, the Pound is showing a gradual rise but hasn’t yet surpassed resistance near 1.3750. Despite recent stability, the relative strength index near 60.00 indicates building momentum. If it breaks through 70 with strong volume, we could see a sharp move. The support level around 1.3434 has proven reliable and will be critical in case of external shocks. Our current strategy focuses on smart positioning within this range rather than chasing a breakout. Although implied volatility is still low, we’re monitoring option flows closely, especially weekly puts that expire just after the BoE announcement. They show early signs of positioning bias, but a clear divide between hedging and speculation hasn’t emerged yet. The derivatives market shows cautious optimism that could turn bullish if the Pound achieves a daily close above that short-term peak. Until then, straddles and wider spreads remain in demand. Short-term movements are sensitive, so changes in direction may occur quickly. Alternative analysis suggests a tendency for upward moves, though gamma coverage is weaker than usual. While broader macro themes are important, immediate reactions to language and data will drive short-term price movements. Quiet momentum is building. Create your live VT Markets account and start trading now.

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OPEC’s latest monthly report predicts a strong global economy in the second half of 2025, following a better-than-expected first half. They expect non-OPEC oil supply to rise by 730,000 barrels per day (bpd) in 2026, down from their earlier estimate of 800,000 bpd. They also anticipate that US shale production will stay stable that year. In May, OPEC+ increased crude output by 180,000 bpd. Oil prices saw WTI crude reaching $77.49, but later dropped to $71.98, which is $1.00 lower. This drop was influenced by improved relations between Iran and Israel. Overall, the report suggests a positive view for the global economy as we approach 2025’s second half. OPEC, which stands for the Organisation of the Petroleum Exporting Countries, is now expecting slower growth in non-OPEC oil supply for 2026, cutting back their forecasts. They note that US shale oil production is likely to remain stable, which means fewer disruptions. Meanwhile, OPEC+ increased its total crude production by 180,000 bpd in May, even as they try to stabilize prices through coordinated supply measures. In the oil market, WTI crude futures rose towards $77 earlier this month but fell back to just under $72 by the session’s end. This decrease in price is largely tied to signs of improved relations in the Middle East, easing concerns of new conflicts that typically drive up energy prices. The combination of a tightening supply outlook for next year and easing geopolitical tensions suggests it’s time for caution. For traders dealing with crude oil derivatives, especially futures and options, the message is clear: we find ourselves in a situation where economic optimism is balanced by the realities of supply adjustments and lower headline risks. The revised expectations for non-OPEC output point to smaller chances of oversupply in 2026, especially as US shale contributions are likely to remain steady. This might help support prices next year. However, the increase in May production may limit price rises unless demand strengthens or new policies from OPEC+ emerge. Volatility in oil often increases with changes in sentiment. The recent price drop, despite generally solid supply data, indicates that sentiment may now be more influenced by reduced geopolitical risks than supply concerns. We should continue to monitor this trend and watch for key producers to signal future supply coordination. With the relatively small price changes—even amid increased output—implied volatility for short-term contracts may be nearing a reevaluation point. Demand for tail risks could decline if Middle East tensions stay calm. The gap between near-term futures may also narrow, so those managing calendar spreads will need to adjust their strategies more carefully. Currently, signs of breakout risk on the upside seem minimal, which may indicate that options skews are overpriced—particularly for longer contracts. Traders should reassess their positions, focusing on delta and vega exposures, as the market appears to be adjusting more to macro growth rather than just physical supply factors. The update weakens any assumptions that rapid US shale growth will disrupt the balance in 2026. OPEC’s revised outlook reduces uncertainty around future supply but emphasizes a market more influenced by demand dynamics rather than unexpected supply changes. We must keep monitoring forward curves, particularly from Q3 onwards, to see if the focus shifts back to demand. While market direction may not change dramatically, price discovery remains active. As we move into the coming weeks, it’s vital to keep positioning flexible and responsive.

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The Euro has gained 0.2% against the US Dollar, recovering from a recent geopolitical setback. This positions it as a moderate performer among G10 currencies. Attention is on the upcoming meetings of the Federal Reserve and European Central Bank, as their decisions may influence monetary policy. The Euro’s rise is linked to the ECB’s steady stance and a softer outlook from the Fed.

Euro Trending Up

The Euro is on an upward trend, nearing multi-year highs with an RSI indicating strong buying momentum. This week’s key data includes ZEW sentiment figures and ECB events, with the Euro expected to range between 1.1500 and 1.1650. All projections carry risks, and thorough research is essential. Financial markets involve high risks, including the potential for complete loss, and any information here should not be regarded as financial advice. That slight increase in the Euro—up by 0.2%—might not seem large, but it represents more than just numbers. It’s part of a tug-of-war between differing approaches from the central banks in Frankfurt and Washington. While the US Federal Reserve is taking a cautious stance, the European Central Bank is maintaining a steady, neutral position. This balance, with the ECB appearing calm compared to the Fed’s softer tone, is helping to push the Euro up. On the technical side, the Relative Strength Index (RSI) shows renewed buyer interest, adding momentum to the current move. We are approaching levels not seen in years, which brings both excitement and caution. The market tends to overshoot when momentum builds, so this should be considered when determining risk. The move towards the 1.1650 level may look appealing, but there is also risk; as we approach longer-term resistance, the potential for overextension increases.

Upcoming Events and Implications

Short-term events could either support or disrupt this trend. The ZEW sentiment survey is particularly important, as it provides early insights into institutional confidence in the Euro Area. Keep an eye on how the gap between Eurozone and US economic sentiment changes, especially with forward-looking indicators like expectations indices. A significant difference in outlooks could shake confidence in current trends. For the upcoming central bank meetings, traders should pay attention not just to the decisions, but to the language used—what is emphasized, what is left out, and how the markets interpret the tone. Rate expectations are sensitive to small changes in phrasing during press conferences or meeting releases. If the ECB maintains its neutral stance while the Fed shows more patience, this difference might continue to support long-Euro positions, though with caution. In terms of price range, we’re looking at 1.1500 to 1.1650. Breaks above the upper limit may occur if sentiment data or ECB statements are dovish. However, moving past these levels requires broader shifts in the rates market, which currently looks lukewarm. Trading volumes have been low, amplifying short-term moves. It’s worthwhile to check correlations with bund yields and US Treasury notes, which might disconnect temporarily before realigning after the FOMC meeting. We’ll monitor changes in implied volatility around ECB and Fed speaking events, which can lead to short-term chaos in options markets. Unlike spot trades, derivative instruments often anticipate moves that haven’t yet occurred in the cash market. This week’s ZEW reading could prompt positioning shifts before the Euro starts moving significantly. These conditions aren’t ideal for holding open positions without flexibility. Being adaptable is often more important than strong conviction, and any range strategy should include clear stop-loss measures. Market data has been unpredictable, and developing a view based only on direction, without considering timing, risks exiting positions too early or too late. If there’s a strong reaction to central bank speeches, particularly if policy divergence narrows instead of widening, the Euro could spike and then quickly drop. This would indicate a market more focused on economic surprises than policy rates. The best trades during such weeks tend to be reactive rather than predictive, meaning it’s wise to wait for confirmation through price movement and data alignment before increasing exposure. Create your live VT Markets account and start trading now.

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Crude oil prices are stabilizing as concerns about supply decrease, following tensions in the Middle East. Israel claims to have destroyed a third of Iran’s missile launchers, and the EU is open to accepting a 10% tariff from the US under certain conditions. India plans to finalize a deal with the US by July 9, while the US is encouraging Vietnam to reduce its reliance on Chinese technology. The European Central Bank, represented by Nagel, has not signaled any pause or rate cut at this time. Italy’s final Consumer Price Index (CPI) for May remains at 1.6%, unchanged from the preliminary figure, and Swiss producer and import prices fell by 0.5% in May.

Market Dynamics

In the markets, the New Zealand dollar is performing well while the Swiss franc and Japanese yen are lagging. European stocks have risen, with S&P 500 futures up 0.6% and US 10-year yields slightly increasing to 4.444%. Gold prices dipped 0.5% to $3,413.62, and West Texas Intermediate crude dropped 3.4% to $70.45. Bitcoin saw a 2.1% rise, reaching $106,981. Despite ongoing tensions between Iran and Israel, markets are showing cautious optimism. Equities are moderately higher, and the dollar is slightly down. Major currency pairs like EUR/USD and AUD/USD are mostly stable. Attention is now on upcoming central bank meetings, including those of the Bank of Japan, Federal Reserve, Swiss National Bank, and Bank of England. With geopolitical tensions easing, markets are beginning to adjust. The reducing tension between Iran and Israel, along with both sides showing a desire to avoid escalation, has lessened fears of broader disruptions, especially in energy. Oil prices, once driven by worries about supply shocks, are now at lower levels due to broader economic signals indicating demand may not increase as much as expected. Traders reacting to short-term commodity contracts may need to adjust their strategies, especially if upcoming inventory data shows a slower pace of stock drawdown. The European Central Bank is maintaining a cautious approach, as Nagel indicates there is no inclination for a rate cut soon. This stance may lead to flattening trades across euro curves since inflation remains close to recent estimates. Italy’s steady inflation rate of 1.6% gives little reason for immediate concern. Those expecting significant monetary easing should reconsider how persistent the ECB’s patience might be—especially if core prices hold steady. In Switzerland, falling import and producer prices indicate weaker cost pressures. This softer price trend could strengthen expectations for a more dovish approach from Zurich. However, it’s crucial to stay aware of broader European data trends and currency strength, especially considering the franc’s relative weakness compared to previous safe-haven behaviors.

Shifts in Asia-Pacific and Market Outlook

In the Asia-Pacific region, the strength of the New Zealand dollar relative to the more cautious Swiss franc and yen shows a shift away from traditional risk-averse positions. This shift may also influence positive trends in equity markets. The S&P 500 futures have increased by 0.6%, suggesting improving risk sentiment. Alongside increasing US 10-year yields, this indicates that markets are not expecting immediate dovish action from the Federal Reserve, despite ongoing economic noise. This creates a subtle change for interest rate-sensitive investments. Bond traders may be adjusting to slight increases in the US yield curve in anticipation of next week’s policy decision. The 10-year yield of 4.444% does not indicate strong concern, suggesting rates are unlikely to decrease soon unless there is a significant downturn in US economic data. Spot gold’s 0.5% drop to around $3,413 adds further insight. As immediate risks fade, some safety premiums are being released. Investors holding long positions in precious metals may need to reassess their strategies due to softer inflation trends, improved dollar liquidity, and renewed interest in equities. On the other hand, Bitcoin’s increase of over 2% shows a different trend. Currently priced at around $106,981, this rise suggests continued speculative interest, possibly driven by a temporary preference for digital assets. While not a clear signal, it indicates that some investors are still looking to invest in higher-risk instruments. On the macroeconomic front, headlines indicate that India is working towards a near-term deal with the US, aiming for greater alignment amid shifts in supply chains in Asia. The US is also encouraging Vietnam to reduce its dependence on Chinese infrastructure, emphasizing a persistent policy stance that could impact sector-specific equity valuations in the region. The market remains focused on upcoming decisions from central banks. Traders must navigate a range of event risks. The Bank of Japan, typically more dovish, may introduce variables into the mix. If there is any deviation from its usual policies, it could lead to volatility, given the crowded positions against the yen. The Federal Reserve’s stance will reveal how strong the underlying US economy truly is. Additionally, clarity from the Swiss and UK central banks will be crucial, though the National Bank may have to act sooner than the Bank of England if domestic price pressures remain subdued. All of this introduces various potential paths forward. However, market pricing is becoming more nuanced, with macro signals differentiating between hawkish sentiment and actual tightening measures. Create your live VT Markets account and start trading now.

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NZD/USD has sharply risen to nearly 0.6040 as demand for riskier assets increases, despite ongoing tensions between Israel and Iran. Israel has targeted Iranian military and nuclear facilities to slow their progress on nuclear weapons. This week, many expect the Federal Reserve to keep interest rates between 4.25% and 4.50%. This decision could affect the USD, which has slightly dropped, bringing the US Dollar Index down to about 98.00.

Currency Movements

In currency movements, the New Zealand Dollar has performed well against the Japanese Yen. We are waiting for the retail sales data for May, which is expected to decline by 0.7%, to understand consumer spending trends better. The Federal Reserve’s future guidance is vital for market sentiment. Any future rate changes will depend on the Fed’s economic outlook and policies. The Fed’s views on inflation and employment will shape upcoming monetary policy. The recent rise in NZD/USD, nearing 0.6040, showcases growing interest in higher-yield investments. This increase is happening alongside ongoing geopolitical concerns in the Middle East. Israel’s strikes in Iran are designed to hinder nuclear development progress. Although these events usually create caution in the markets, current trends suggest that investors are downplaying some risks. Central to this situation is the Federal Reserve. They are expected to keep interest rates in the 4.25–4.50% range this week. This decision won’t happen in isolation. A hold, paired with cautious messaging, may allow non-dollar currencies to gain strength, depending on how the Fed communicates its future outlook. The recent softness in the US Dollar Index – now just below 98.00 – indicates a temporary favoring of other currencies as central bank rate differentials are reevaluated.

New Zealand And Japanese Yen Analysis

The New Zealand Dollar’s performance against the Japanese Yen is noteworthy as it continues to rise, likely due to differing policy approaches. We are closely monitoring retail sales in New Zealand, expected to drop by about 0.7% for May. If this decline is confirmed, it could indicate weakening consumer spending and dampen economic optimism. The Reserve Bank has stressed the importance of reacting to new data, including inflation rates, labor market indicators, and global risk shifts. This week, the markets will scrutinize every word from the Fed, not just for the rate decision, but for cues on future economic conditions. Our focus is not only on immediate statistics. The overall message regarding inflation management and employment goals will influence future demand for currencies. Market positioning will need to reflect the tone of this week’s decision more than the decision itself. If the Fed seems less vigilant about inflation, we might see a weaker dollar and a boost for the Kiwi and Australian dollars. However, if retail sales unexpectedly show resilience, any bounce could be seen as supportive of growth. Yet, it may not be enough for central banks to change policies quickly. Timing is essential here. Investors should position themselves carefully, especially in forward-dated structures that inherently reflect expectations about the Fed’s next moves. We will be monitoring implied volatility on short-term options as a measure of market expectations. If pricing remains stable after the decision, it could suggest that participants are anticipating more than just interest rate holds – they may be waiting for key turning points. During such times, models based on past volatility may not provide adequate protection; flexibility is crucial. Create your live VT Markets account and start trading now.

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The Canadian Dollar (CAD) is holding its ground against a weaker US Dollar (USD). Its performance during the recent Israel/Iran conflicts has been average compared to other major currencies. Even with rising oil prices, the CAD has not seen significant gains and has been outpaced by the Norwegian Krone (NOK) and Mexican Peso (MXN). The relationship between CAD and West Texas Intermediate (WTI) crude oil is currently low, showing a negative 1-month correlation of -17% and a 10-day correlation of -38%.

Impact of Geopolitical Events on CAD

Disruptions in Iranian oil supply or shipping could lead to higher crude prices, which might benefit the CAD. Right now, the strength of CAD mainly comes from the weakening USD. Progress made at the G7 meeting could also provide additional support. Currently, the CAD is trading close to its fair value estimate of 1.3588. The USD continues its downward trend, with resistance levels around 1.3650/1.3660 and 1.3730, suggesting potential further declines towards 1.34. Investors should be mindful of risks and conduct thorough research before acting. The USD is facing pressure, and ongoing losses could further impact the CAD. Discussions around geopolitical tensions, interest rate decisions, and China’s economic outlook will keep global markets active and influence currency trends. The Canadian Dollar has remained steady, mostly due to the general weakness of the US Dollar. Since the escalation of tensions between Israel and Iran, the CAD has been relatively balanced among major currencies—not too strong or too weak. In contrast, currencies like NOK and MXN have performed better, indicating that oil prices have not positively impacted the CAD as expected. Despite oil prices rising, the Canadian Dollar’s response has been muted. Recent data shows a slightly negative correlation of -17% between CAD and WTI crude over the last month, and a -38% correlation over the last 10 days. This suggests that oil, which typically supports the CAD, hasn’t been providing the usual lift. However, should tensions in the Middle East disrupt oil supplies, crude prices might increase significantly. In such a scenario, it would be important to monitor if the CAD and oil prices reconnect. The effect on the CAD would depend on not just the price change but also the Bank of Canada’s response and shifts in market expectations around interest rates.

Factors Influencing CAD Movement

Currently, the CAD is trading close to what many models suggest is fair value, with 1.3588 serving as a benchmark. The continued downtrend of the USD suggests potential for more strength in CAD, provided there are no sudden reversals in US economic data. There are resistance points around 1.3650–1.3660 and again at 1.3730. If pressure on the USD persists, a drop to around 1.34 is possible. In the upcoming weeks, it will be crucial to observe not just interest rates or oil prices, but how they interact with external risks—especially concerning China’s economy, outcomes from the G7, and any new central bank announcements. These elements will shape capital flows and consequently influence volatility and market trends. Traders focused on CAD should pay attention to daily trading volumes, positioning data, and expectations for interest rates. We’ve noticed that currencies are reacting more swiftly to changes in forward-looking guidance, and CAD is no exception. If global risk sentiment shifts, movements could occur rapidly. Keeping an eye on the USD downtrend is critical. If it continues to decline, more strength for CAD could follow. But be watchful for changes. A shift in geopolitical dynamics or unanticipated strength in US economic data might quickly bolster the USD, especially if bond yields rise above current expectations. In this fast-moving market, simply reacting to headlines or one-off price changes won’t suffice. Maintain a close watch on movements across different assets—particularly commodities and yields—and avoid relying too heavily on historical correlations that may not be relevant at this time. Create your live VT Markets account and start trading now.

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The EU is reportedly willing to accept a 10% flat tariff rate from the US if certain conditions are met. Earlier negotiations were tough, influenced by a past threat of a 50% tariff from Trump, which pushed talks to speed up. From the market’s perspective, businesses expect an average tariff of around 10%. Many are preparing for tariffs between 10% and 20%. The original deadline of July 8th for trade discussions, set in April, is no longer a priority.

Negotiation Dynamics

US Treasury Secretary Bessent indicated that the deadline could be extended for countries negotiating sincerely with the US. This has eased the urgency of the deadline. Markets are optimistic about global growth. Positive indicators include potential trade deal progress, fiscal expansions, and central bank easing. A key risk to this growth is the potential failure of an important bill. If it does not pass, growth expectations may change, affecting risk assets. However, the chances of this bill being rejected are currently low. Another risk to consider is inflation. Current data shows a trend of disinflation, but inflation often lags behind other economic indicators. The EU seems open to settling for a 10% flat tariff on certain goods from the US, as long as conditions are met. Talks have become more flexible since earlier pressures from increased tariffs in the past. Negotiations are now seen as less urgent, especially after Bessent highlighted that countries negotiating in good faith won’t be rushed. This shift has brought down short-term urgency, leading to reduced volatility around these talks. Traders are refocusing on broader economic indicators now, moving away from strict deadlines. Market reactions indicate that businesses are prepared for a 10% tariff, with many expecting rates between 10% and 20%. Current corporate guidance supports this outlook, so there’s little need for significant shifts right now.

Policy Visibility

In the near term, attention should remain on policy visibility and upcoming legislation over the next month. One particular bill is expected to pass, but if it stumbles, it could lead to changes in growth forecasts. This would impact equity risk pricing and may cause some temporary pressure on cyclical stocks. Disinflation trends are still a major factor. Recent data supports this, but it’s important to remember that inflation data can lag. Core inflation measurements might respond slowly. When traders rely too much on initial inflation readings, abrupt adjustments can occur. However, weak consumption and moderate wage growth should keep inflation expectations stable for now, unless a surprising monthly report shifts them. Instruments linked to interest rate expectations align with a dovish stance from central banks. Implied volatility remains below the averages of recent months, consistent with the current policy signals. There’s room for surprises, particularly if growth exceeds expectations in Q3, but the general trend is largely priced in. Assuming that US-EU trade talks alone will significantly change market trends would be misleading. Trade news might lead to temporary volume spikes or slight shifts in short-term curves, but without unpredictable changes in terms, the market reaction should stay subdued. As a result, there’s a rebalancing towards macroeconomic indicators. Traders should consider the risk of being overly confident about disinflation. Delays in data, even by weeks, can lead to significant shifts in pricing. This aspect is crucial to monitor. The market is settling back into a pattern where it responds to a few key indicators, none of which provide a complete picture on their own. Trading based purely on headline updates tends to have a short lifespan. Moving forward, it will be the interplay of policy direction, corporate adjustments, and the pace of inflation shifts that really matters. Create your live VT Markets account and start trading now.

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### GBP/USD Remains Steady GBP/USD held steady at the beginning of the week, trading above 1.3550. The currency pair stayed within a tight range as traders awaited key meetings from the Federal Reserve and the Bank of England. On Friday, the US Dollar received a boost from safe-haven buying amid growing geopolitical tensions between Israel and Iran. Although GBP/USD ended the previous week lower, it bounced back on Monday morning, trading around 1.3570. Technical analysis shows a weakening bullish trend, with GBP/USD staying near an ascending channel pattern and remaining above the nine-day Exponential Moving Average (EMA), suggesting short-term strength. The 14-day Relative Strength Index (RSI) is above 50, indicating a positive outlook. The Pound Sterling showed resilience against the Dollar, reaching a 39-month high above 1.3600. After a period of consolidation, GBP/USD gained momentum mid-week, peaking near 1.3635, its highest since February 2022. This trend highlights the exchange rate’s strength in recent weeks. ### Market Positioning and Central Bank Meetings At the week’s start, GBP/USD stabilized above 1.3550, with little desire to break out of its range as traders focused on central bank policy signals. Market positioning remained cautious due to the upcoming meetings of the Federal Reserve and the Bank of England. These events can quickly change market sentiment regarding interest rates and economic forecasts. On Friday, the US Dollar clearly gained traction, driven not by strong data but by a rush to safety following political tensions between Israel and Iran. In uncertain times, the Dollar usually attracts buyers, causing other currencies like Sterling to dip temporarily. However, despite the geopolitical concerns pushing the pair lower toward the weekend, the Pound began the week regaining lost ground at around 1.3570. From a technical perspective, traders should pay attention to chart patterns. GBP/USD is still trading above the nine-day EMA, a position that tends to favor upward movements. However, the upward momentum seems to be fading, indicating that buyers may be hesitant. This is evident in the RSI, which, while above 50 and maintaining a bullish signal, lacks aggression. Past price movements provide further context. The Pound previously rose past 1.3600, touching a peak it hadn’t seen since early 2021—specifically, February 2022. The increase to 1.3635 reflects a market eager to build on gains after breaking free from a prolonged holding pattern. This rebound followed a significant consolidation phase, where tighter trading bands were established before pushing higher. Given this backdrop, it’s crucial to monitor levels like 1.3550 and 1.3630 as near-term support and resistance. A close below the nine-day EMA, especially if accompanied by a weakening RSI, could lead to a drop toward the next support level around 1.3480. If resistance at 1.3635 is decisively broken, we could see the price move toward 1.3700. ### Risk Management and Geopolitical Impact For those managing derivative exposure, careful risk assessment at these inflection points is essential. The pound has strengthened partly due to more stable UK political conditions and milder inflation figures, but this stability may soon be tested depending on the Bank of England’s stance. Meanwhile, the Fed’s policy remains closely tied to inflation data and the resilient labor market. If the Fed expresses concern over persistent inflation, the Dollar may quickly recover lost ground. Volatility often spikes around interest rate decisions and forward guidance, so anticipating larger intraday fluctuations this week is sensible. Paying attention to implied volatility is wise, as it has been trending lower, suggesting that the market could be caught off-guard by any surprises from central banks. Options traders on GBP/USD might consider revisiting straddle or strangle strategies, especially given that prices are near multi-year highs. Geopolitical risks are again coming to the forefront of trading. Even short-lived flare-ups can lead to rapid gains in globally favored currencies and sudden downturns in high-yielding or politically sensitive currencies. Option premiums may be underestimating this geopolitical risk if markets are too focused on inflation alone. In summary, we stay patient but vigilant. Price levels are tight, the directional bias is softening, but the upcoming schedule of central bank meetings and geopolitical events offers numerous opportunities, as long as position sizing reflects the risks ahead. Create your live VT Markets account and start trading now.

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The US Dollar is falling, crude oil prices are decreasing, and the Israeli Shekel is gaining strength by about 2%. Overall, market sentiment towards risk is improving at the beginning of a busy week. The DXY Index is expected to stay between 90 and 95. While tensions in the Middle East persist, the situation is under control for now. President Trump’s remarks suggest that the US will not get involved immediately, leaving future developments uncertain.

Key Events This Week

This week, all eyes are on the Bank of Japan, the Federal Reserve, the Swiss National Bank, and the Bank of England as they make policy decisions. The G7 summit in Canada is also significant. The Swiss National Bank is likely to lower its policy rate by a quarter-point, and guidance on future policies will be crucial, particularly from the Federal Reserve. At the G7 summit, ongoing trade discussions could enhance positive risk sentiment if progress is made. The US Dollar had a brief uptick due to geopolitical risks, but overall downward pressure remains. The DXY continues its decline, and unless geopolitical tensions rise again, a further drop is likely. With the US dollar in a downward trend and oil prices declining, there is a shift in the global market towards less defensive strategies. Risk appetite is starting to grow again, aided by a relatively stable geopolitical situation. The Shekel’s gain of roughly 2% signals investors are returning to higher-yielding currencies. Looking at the larger picture, the DXY Index, which measures dollar strength, is still on a downward path, aiming for the 90-95 range. This projection could change only if external factors push traders back to the safety of the dollar. Recent Middle East tensions haven’t worsened, and Trump’s comments suggest no immediate military action, so we don’t anticipate any sudden shifts. This week is a crucial moment for the markets. Updates from the Federal Reserve, Bank of Japan, Bank of England, and Swiss National Bank will be important. The focus is especially on the Federal Reserve—how Chair Powell communicates plans for rates may matter more than any changes in the rates themselves. Although no major changes are expected from the Fed or the others besides Switzerland, forward guidance could lead to adjustments in positioning.

Implications For The Swiss National Bank And G7 Summit

The Swiss National Bank is set to cut rates by a modest quarter-point. Their hesitation to heavily intervene, combined with lower inflation, allows them to take action now. We should pay close attention to currency strength for both the SNB and the Bank of Japan, particularly if their currencies strengthen against the dollar. At the G7 summit, trade discussions will be back in focus. Any positive movement, especially involving the United States, could increase risk appetite in the markets. Such resolutions could weaken the dollar’s limited appeal as a safe haven and continue its downward trend. It’s important to note that the recent rise in the USD was more of an immediate reaction and less based on solid fundamentals. As this sentiment cools, we are likely returning to a phase where interest rate expectations and growth rates take precedence—both of which currently favor a weaker dollar. Volatility might increase leading up to the central bank announcements, but traders should watch for changes in yields, especially for long-term Treasuries. Any adjustment there could influence FX markets and determine if the USD finds temporary support. There’s also a growing likelihood that expectations for more Fed rate cuts this year could solidify, further pressuring the dollar. In summary, market participants should be cautious of unexpected news, whether geopolitical or from central bankers. However, if no new shocks emerge, the overall outlook suggests more weakness for the dollar, slight support for currencies that import energy, and a continued convergence of central bank policies, mainly affecting the dollar. Create your live VT Markets account and start trading now.

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