The AUDUSD rose by 0.84% today, breaking away from a technical convergence of moving averages. The current price has surpassed several important levels: the 100-hour moving average (MA) at 0.64403, the 200-day MA at 0.6445, and the 200-bar MA on the 4-hour chart at 0.6450. Previously, these moving averages served as points of consolidation and resistance. Now, with this upward movement, the AUDUSD may retest the swing area between 0.6493 and 0.6500, which acted as a resistance level in May. Since then, sellers have pushed the price back down from this high.

Potential Targets For Traders

Traders will keep an eye on recent highs and lows, especially around 0.6470. If the price dips below this, the moving average cluster between 0.6440 and 0.6450 could be a target. The Australian dollar has seen a notable rise against the US dollar. The exchange rate has moved past technical levels that had previously restrained its growth. The price had been closely trading around a compression zone formed by the 100-hour, 200-day, and 200-bar moving averages on different timeframes. By breaking through all three, the pair exited its recent sideways pattern, indicating a significant change in short-term sentiment. These moving averages, like the 0.6440 level on the hourly chart, help us assess if prices are accepted or rejected over a given swing. When resistance levels based on slower-moving data are convincingly broken, the market often aims to run with that momentum until it faces resistance from traders. This hesitation usually shows up as failed retests or quick selling wicks in the next range. After today’s movement, attention shifts to the area just below the 0.6500 mark. This isn’t just a psychological level; it represents a zone where there was strong selling last month. The previous selling suggests that if prices revisit this area, they may encounter those same sellers again. Traders previously defended this level, and many of those interests are likely still active.

Focus On Key Technical Levels

For now, we are closely monitoring the 0.6470 region, which is establishing itself as an intraday control point. If we see retracements building up, this area could be crucial in determining whether we face a deeper pullback or just a minor pause. If the price falls below this level, it would clear the way back to the 0.6440 to 0.6450 moving average zone, which hasn’t been fully invalidated. This is where traders might reassess their positions instead of chasing new highs. Traders might find it helpful to track activity over the next few sessions in hourly intervals. The upper band near 0.6500 and the 0.6450 cluster below are likely extremes. Any price action in between could be influenced by positioning changes ahead of significant data or shifts in USD sentiment. How the price reacts at these levels will indicate whether the move is continuing or slowing down. Momentum traders may tighten their trailing stops on new long positions unless there are quick advancements past resistance. If there is a steady move through the 0.6493-0.6500 area without any rejection, it may indicate that this region is no longer viewed as a ceiling. However, we must observe trading behavior at these levels—pay attention to volume and reversals—to assess the strength of this movement. As it stands, this recent rise gives buyers a short-term advantage, but only if intraday dips remain small and responsive. Stay focused on price movements against established technical markers, and let the market’s response—rather than assumptions—guide your next decisions. Create your live VT Markets account and start trading now.

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Chicago Federal Reserve President Goolsbee recently shared his views on inflation, calling the latest reports positive. He mentioned that tariffs have not significantly affected inflation so far. Goolsbee expressed doubt about whether this trend will continue over the next month or two. He hinted that, despite current issues, there might be a chance for interest rates to decrease in the next 12 to 18 months.

The Federal Reserve’s Dual Mandate

He is hopeful that, once the current challenges are managed, the Federal Reserve’s dual mandate—which aims for maximum employment and price stability—can succeed. Goolsbee’s remarks reflect a cautious optimism about inflation and interest rates. The recent inflation reports have been milder than expected, potentially allowing for lower interest rates. Many anticipated that tariffs would lead to higher prices, but their effect has been minimal so far. However, he warns that we are still facing uncertainty, especially in the upcoming months. His comments highlight a common approach in recent discussions: waiting to see how things develop, while considering rate cuts if conditions improve. Looking ahead to the next 12 to 18 months, there is a chance for lower rates if inflation is kept under control and job numbers remain solid. For traders who focus on derivatives tied to interest rates or inflation expectations, this is a busy time. Short-term options might experience higher implied volatility until clearer trends emerge in the next few months. In contrast, longer-term financial instruments may start to reflect expectations of lower rates. If future inflation reports support Goolsbee’s views, more traders might position themselves for rate decreases starting next year.

Interest Rate Futures and Market Strategy

We believe that interest-rate futures could start responding more to economic indicators, including monthly consumer price index (CPI) figures, producer price index (PPI) data, and changes in consumer sentiment about prices. Attention will likely shift to how the market perceives the Federal Reserve’s potential changes and the strength of the job market. It is wise to observe both short-term fluctuations and medium-term policy expectations. Market reactions may focus more on detailed changes in inflation—not just overall figures. This change in focus may require adjustments in trading strategies. Spreads might provide better risk-adjusted returns than straightforward bets during this transitional phase. Optimism is growing as we see a series of manageable inflation reports. If this continues, the likelihood of a rate cut could slowly increase. From an options perspective, there could be chances to benefit from volatility before key data is released. Meanwhile, we are closely monitoring labor data—not just job numbers, but also wage trends and participation rates. These factors will likely influence how confident the central bank feels in making decisions without jeopardizing job stability. No immediate changes are expected, but we see a shift in tone. Now is the time to build data-driven scenarios rather than guesses. The markets may stay within a certain range until clearer signals appear, but being prepared in terms of position size and time frame could be crucial. Create your live VT Markets account and start trading now.

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The Bank of England is looking closely at how quantitative tightening (QT) works with interest rate decisions. QT by itself can’t fully offset the effects of lowering interest rates. This review focuses on the relationship between QT and interest rates. The finding is that QT and interest rate cuts don’t completely cancel each other out.

The Need To Balance Monetary Tools

They affect the economy in different ways, so they should be considered together. The Bank of England is working to understand these interactions for better policy-making. To get the best economic results, it’s crucial to balance these two tools. The continuous review seeks to clarify how QT and interest rates are related. Simply put, the Bank of England is trying to grasp how selling assets, known as quantitative tightening, fits with setting interest rates. Both tools impact the economy, but they do so differently. Lowering interest rates generally reduces borrowing costs and boosts economic activity. In contrast, QT pulls liquidity out of the financial system over time, affecting long-term yields. Neither tool negates the other; instead, they operate in separate ways—sometimes they align, other times they don’t. For us as traders and observers, it’s important to recognize that QT and interest rates are not interchangeable. Bailey and his team are currently evaluating how much QT can influence financial conditions without relying on high-interest rates. This isn’t just a theoretical exercise. Currently, QT is focused on gradually reducing the Bank’s balance sheet while market participants are eager for clues on when the next rate cut might happen.

Assessing The Impact Of Balance Sheet Reduction

Next, we need to accurately assess how balance sheet reduction affects market yields. Gilts have begun reacting—albeit subtly—to any changes in the Bank’s stance. As QT removes reserves, we must reevaluate interest rate paths. The challenge lies in realizing that while QT is happening, even a slight change in rates could lead to larger-than-expected market shifts due to lower liquidity and increased responsiveness during this dual-policy phase. Haskel’s recent comments on needing more evidence before making rate cuts add complexity to the situation. His cautious approach implies that transitioning to easier policy is unlikely to happen quickly, even with ongoing QT. If policymakers believe that balance sheet reductions are tightening financial conditions enough, they might choose to wait longer before changing rates. We should prepare for a careful, phased approach, targeting not just the interest rate level but also the cumulative tightening from both QT and interest rates. Market expectations for interest rate cuts have changed multiple times since January. However, rate futures haven’t fully captured the impact of ongoing QT. In the coming weeks, we need to consider the slower pace of reinvestments and the overall decrease in reserve balances. These factors influence future cash flows, flatten yield curves, and pricing of longer-term options. It’s important to avoid a reactive approach. Instead, we should adjust options strategies, particularly regarding duration risk and implied volatility across various maturities. The yield curve is less predictable than before, and QT may unexpectedly compress or steepen spreads. We should be cautious about assuming that policy normalization will proceed steadily. Close attention is needed on Bank of England communications, especially during upcoming MPC meetings. Pure economics won’t address the nuances in how the Bank evaluates liquidity drainage against macroeconomic indicators. If there’s a change in tone or order of policies, we should adjust our positions accordingly. Positioning must reflect not just the bank rate trajectory, but also the reduced liquidity in the system. An action that previously would have sparked a mild reaction might now result in a more significant repricing across swaps and futures, especially in the two-to-five year range. The coming weeks will test how adaptable portfolios are to simultaneous changes in these monetary tools. Stay alert to mentions of the balance sheet in speeches and meeting minutes. These comments are significant and often reveal how much tightening the Bank believes is already in progress. Many continue to focus solely on rate decisions, but this is no longer the complete picture. Ultimately, grasping the unique influence of QT will help us understand why soft rate expectations can coexist with tightening financial conditions. This insight will be crucial as market participants recalibrate their pricing for both the Bank’s next move and the combined impact of both tools on sterling rates. Create your live VT Markets account and start trading now.

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Oil prices have dropped, which could lead to less production and investment from energy companies. Experts suggest that all banks should be ready to use the discount window, and it’s advisable for financially sound banks to take this step. The Trump administration supported increased drilling to lower oil and gas prices. This push may have affected OPEC’s plans to ramp up production to help reduce fuel costs, but the average gas price is still between $3.10 and $3.20, according to AAA.

Baker Hughes Rig Count

The Baker Hughes rig count, an important measure of oil industry activity, has been decreasing and hit multi-year lows. This drop in rig numbers shows there is less oil and gas drilling happening. Current data shows a clear link between falling oil prices and slower production planning and investment by upstream companies. Simply put, when prices drop sharply or stay low for a long time, producers with narrower profit margins or higher extraction costs cut back on spending. They reduce the number of rigs, delay new projects, and often decrease maintenance—all to save cash. This is exactly what the latest Baker Hughes figures highlight. The active rig count, a reliable measure of drilling activity, is approaching levels seen during earlier downturns. When rig activity declines like this, it often leads to tighter supply in the following quarters, usually bringing prices back in line over time. We’ve seen this cycle repeat itself multiple times.

Banking and Energy Markets

Separately, Powell and his colleagues have made an unusual suggestion: healthy banks should feel comfortable using the discount window. There seems to be a change in attitude, aiming to remove the stigma often associated with the Federal Reserve’s facility. This push indicates more of a precautionary approach than an urgent worry—helping banks strengthen their liquidity without delay. For traders involved in energy derivatives, especially those linked to West Texas Intermediate or Brent futures and options, these developments call for a close look at forward curves. As producers limit supply, backwardation might steepen again if inventory levels continue to drop. It’s important to watch not only the headline contract prices but also the differences between near and deferred months, as these provide clearer insights into supply expectations. Additionally, the average retail gasoline price, around $3.15 per gallon, is above levels that may suggest a production surplus. This could indicate either some consumer demand or underlying supply issues—potentially from transportation bottlenecks or refining challenges rather than from extraction alone. Mnuchin’s earlier focus on increasing domestic production sought to ensure energy independence and protect consumers from price volatility. However, it’s clear that global pricing, particularly established by Gulf producers, remains resistant to individual national strategies. Consequently, the difference between expected and actual supply represents the biggest directional risk in the coming weeks. From a trading perspective, the data softens the case for holding long energy positions unless there are hedges in place. Adjustments for volatility and declining open interest in certain contracts suggest a quieter market, but shallow liquidity could disrupt that calm without warning. We’re monitoring option skews for subtle signs—a widening of put-call premiums might signal hedging pressure from commercial players. All of this points to one conclusion: the market is responding more to fundamentals and less to speculative trends. Short-term traders should pay close attention to storage reports, refinery utilization rates, and any unexpected news regarding midstream infrastructure issues or geopolitical events that could affect flows. In the end, it’s essential to stay focused on the real-time supply dynamics and avoid overreacting to temporary price drops. Create your live VT Markets account and start trading now.

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The stock market is currently volatile. Technology stocks are falling, while healthcare stocks are showing strength. For example, Nvidia (NVDA) rose by 1.06%, but Oracle (ORCL) and Palantir (PLTR) each dropped over 1%. In semiconductors, AVGO saw a gain of 2.79%. Healthcare stocks are performing well, with UnitedHealth Group (UNH) up by 1.27% and Eli Lilly (LLY) stable. The financial sector is mixed, with Visa (V) down by 1.02% and JPMorgan Chase (JPM) slightly down by 0.33%. Consumer discretionary stocks are struggling. Tesla (TSLA) fell by 2.41%. Overall, there is caution in the market due to economic uncertainties. Technology’s downturn signals possible market changes, while healthcare stocks seem more reliable. To navigate this, consider diversifying your portfolio. Balance riskier sectors like technology with steadier ones like healthcare. Keep an eye on semiconductor stocks, especially solid performers like NVDA. With healthcare gaining momentum, there are opportunities for growth. Staying updated with real-time information and managing your portfolio well is crucial in today’s market. The current trading scenario shows a market dealing with conflicting trends. Technology is generally down, while healthcare remains stable. This shows that sectors react differently to market conditions. While one area struggles, another can thrive. For those involved in derivatives, it’s important to focus on specific factors. Nvidia’s small gain is promising but doesn’t offset the drops seen in some software and data analytics companies. Therefore, we should analyze momentum carefully. Short-term rallies can be misleading if broader market sentiment weakens. Broadcom’s near 3% increase highlights that semiconductors are not uniform; individual performances can vary greatly. Some chipmakers are thriving due to strong demand, while others face risks from reduced customer orders. Healthcare stocks, like UnitedHealth, are benefiting from risk rotation. In times of uncertainty—whether from interest rates, inflation, or global supply changes—investors often return to companies with solid earnings and stable demand. These stocks may not have the largest daily moves, but they tend to show strong support among institutional investors. This week, we noticed a significant rotation happening. Demand in consumer goods, especially electric vehicles, showed important trends. Tesla’s decline of over 2% was part of a larger trend of declining consumer demand and changing attitudes towards discretionary spending. When consumers cut back due to higher borrowing costs or uncertainty, these stocks often take the hardest hit. In the derivatives market, these trends are visible through shifts in implied volatility and open interest. We’re seeing a steady increase in 30-day implied volatility in some large tech stocks, even as their prices stabilize. This often signals that the market is preparing for movement, but doesn’t guarantee a specific direction. To manage the current situation, we recommend pairing trades. This reduces directional risk while allowing profit from sector differences. For instance, healthcare’s stable performance compared to tech’s volatility makes relative value spreads attractive. Additionally, the contrast between Broadcom’s gains and weaker performers in software suggests potential for pair trades with delta hedging. As implied volatilities rise in some stocks, we can consider selective backspreads, especially when near-term events are anticipated. However, where volatility is low, simply holding long positions might still yield good returns if done wisely. We’re also closely watching the financial sector. While JPMorgan slipped less than half a percent, the pressure on transaction-heavy stocks like Visa shows their sensitivity to consumer activity. This often translates quickly into options positioning, especially for weekly options. We are already seeing activity favoring downside options on stocks that are falling, indicating that dealers are adjusting their exposure. Overall, biases in direction are mixed. We recommend staying net long in healthcare through derivatives, especially using vertical call spreads or staggered calendars, as low volatility supports this approach. In technology, selling short-dated call options seems to be profitable while buying longer-dated protection can capitalize on continued fluctuations. In the coming weeks, we will receive key inflation data and central bank updates. Because of this, we plan to reduce outright bets and focus on more complex structures that can benefit from sideways movement and time decay. By understanding which sectors are stable and which are more volatile, we can position ourselves without relying on risky predictions.

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USDCAD has recently dropped to a new low for 2025 after breaking through important technical levels. It went below the previous low from October 2024 and reached a support level around 1.36443. This support point aligns with a rising trend line that has been in place since late 2023. On the hourly chart, last week, attempts to break past the 50% retracement of the May decline at 1.38505 were unsuccessful, leading to a downward trend. As sellers pushed the price below the 100-hour moving average, the market maintained a bearish outlook, causing further declines by the end of the week.

Key Turning Point

Early attempts to rise were stopped near a previously broken swing area, which brought back selling pressure. Consequently, USDCAD hit a fresh low for the year, briefly dipping below 1.3685. However, this drop was short-lived, suggesting that traders might be uncertain about their next moves. The 1.3685 level is now crucial. A significant move below it could strengthen the downward trend, while holding above could attract buyers and trigger a rebound. This situation highlights the delicate balance between ongoing bearish pressure and the chance for recovery. Recent trends show that momentum has shifted towards sellers. The break below last year’s October low marks a change from the rising patterns that supported the pair since late 2023. This drop to a support zone around 1.3644 has weakened what used to be a strong foundation. That said, the response around 1.3685 is noteworthy. After breaking this level—though only temporarily—the price struggled to stay below, which can often indicate uncertainty in the market. Such failures at new lows can serve as cautionary signals, especially when momentum fades. While sellers currently dominate, there may be hesitation to push further without clearer incentives. Wednesday and Thursday’s price movements highlighted this uncertainty. There were multiple attempts to regain ground above key short-term levels, particularly last week’s mid-level retracement at 1.3850. This level has consistently limited rebound attempts, indicating that buyers are hesitant to act without clearer signals. For market dynamics to shift, we need confirmations of both a high and a low, which are absent right now.

Current Market Dynamics

Currently, we are measuring any moves against the 1.3685 line. This level is acting like a magnet—when prices hover around it without committing to new moves, it shows grappling indecision. Traders should watch for strong closes above or below this number. If the market breaks down again into the 1.36s, we will focus on areas around 1.3595, possibly reaching into late 2023 pivot zones. Volume patterns are also crucial. There hasn’t been strong activity from either side, which affects the reliability of shallow breaks. It’s wise to be skeptical of any price increases that lack solid support, especially since the overall trend continues showing lower highs. One could argue that the longer the market remains stuck in this range, the stronger the reaction will be. Whether it leads to another downward move or the anticipated snapback rally, the energy around these levels is unlikely to fade quietly. The pair’s past behavior highlights its reluctance to respect retracement levels, adding conviction to this perspective. From a momentum viewpoint, we are observing the hourly moving averages. The 100-hour and 200-hour lines currently allow for downward movement, particularly as sellers have rejected several attempts to retest these levels. Until that situation changes, no strong pressure is pushing for a shift in trend. Volatility is relatively low, making future developments even more significant. An increase in price range, combined with a break in recent hourly structures, could lead to more substantial technical action. We note that such compression often foreshadows trend acceleration. In quieter periods like this, we remain cautious yet flexible. We assess opportunities not just based on recent trends but also by analyzing the strength displayed at every decision point on the chart. Create your live VT Markets account and start trading now.

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US construction spending fell by 0.4% in April, which is a surprise compared to the expected increase of 0.3%. This decline follows a revised drop of 0.8% in March, which was initially reported as a 0.5% decrease. The unexpected downturn in construction spending is linked to rising interest rates and uncertainty in the economy and job market. These numbers reflect a wider trend of weaker performance in the US construction sector.

Steady Slowdown In Construction Activity

Recent data indicates a consistent slowdown in construction activity in both private and public sectors. Spending has decreased for two consecutive months, showing a growing downward trend. March’s revised data, which previously indicated a smaller decline, now shows that demand in the construction sector is decreasing, especially with the weaker figures from April. In simple terms, there are fewer new projects starting, and ongoing developments are facing tougher financial conditions. These changes have broader implications. There is a clear link between tighter monetary policy and challenges in real estate development. The construction industry often feels the effects of economic pressure earlier than other sectors, serving as an early warning signal of stress in the economy. Higher borrowing costs raise project expenses and cut into profits, prompting many developers to delay or cancel plans. This restraint shows how sensitive capital-intensive sectors are to changes in yield. Such spending reductions suggest that overall GDP forecasts might be lowered if this trend continues through summer. The stability of private-sector investments in physical assets appears uncertain, particularly in non-residential areas. Public-sector spending, generally seen as more stable, is also showing slower growth, likely due to increased financing costs and delays caused by legislative uncertainty. We believe the downward adjustments in data signify an important shift in balance. It might seem easy to regard these changes as minor or temporary, but they align too closely with recent soft signals from other industry-specific indicators. Mortgage applications, commercial property development, and industrial supply orders are also experiencing slight decreases, suggesting a more lasting adjustment. This matters when projecting rates, especially given the rising volatility in interest rate-sensitive investments.

Impact On Interest Rate And Inflation Expectations

Traders, especially those involved with interest rate futures, construction materials, or Treasury inflation-protected securities, may need to rethink how quickly demand will rebound. While energy and technology sectors have dominated recent market attention, core sectors like construction still provide valuable insights into the economy’s direction. We must also consider the rate response being reflected in current pricing. Slowing construction spending is part of the larger picture that the Federal Reserve monitors when making policy decisions. Fewer cranes, site openings, and lower capital deployments can help lower inflation expectations. This might cap the ceiling for future rate hikes or delay them. However, as pricing pressures continue across services and consumer markets, expectations regarding the timing of any rate changes should be approached with caution. The trend revealed in Henderson’s analysis last quarter is now more aligned with consensus. Although the decline in physical investment isn’t drastic, it is ongoing. Coupled with slowing job creation in construction-related fields, this adds weight to the easing bias in the data. Whether this trend levels off or continues to decline may depend on credit access this quarter—an area we are tracking through bank lending surveys and corporate bond spreads. We’ll adjust our exposure as new data comes in to inform our risk models. For now, we are closely monitoring shifts in cost index inputs and forward order volumes in the industrial and infrastructure sectors. The data may be new, but the overall theme is becoming familiar. Create your live VT Markets account and start trading now.

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The ISM manufacturing index for May 2025 stood at 48.5, which is lower than the expected 49.5. The Prices Paid index edged down to 69.4 from 69.8 last month. Employment saw a slight improvement, rising to 46.8 from 46.5. New Orders also ticked up, increasing to 47.6 from 47.2. Production improved as well, climbing to 45.4 from 44.0. However, Inventories dropped sharply to 46.7, down from 50.8 the previous month.

Supplier Deliveries Show Changing Trends

Supplier Deliveries increased to 56.1, indicating slower delivery times as the economy grows. Customer Inventories decreased to 44.5 from 46.2, while the Backlog of Orders rose to 47.1 from 43.7. New Export Orders fell to 40.1 from 43.1, and Imports dropped significantly to 39.9 from 47.1. The overall Manufacturing PMI® slightly declined to 48.5 from 48.7 in April. Despite these changes, the economy has been expanding for 61 months after a brief contraction in April 2020. The different index performances indicate varying levels of decline within the manufacturing sector. The recent ISM manufacturing index reading below the neutral 50 mark shows that factory activity continued to shrink in May, counter to expectations for a mild recovery. Although this result was unexpected, it wasn’t alarming. Its closeness to April’s number suggests a lack of upward movement rather than a sudden dip. The small drop in the Prices Paid index indicates a slight easing of input inflation after a recent surge, although the level remains high. Ongoing supply chain costs may lead to cautious pricing approaches in various sectors, especially where profit margins are under pressure.

Employment and Demand Trends

Employment made a small gain, hinting that job cuts in manufacturing may be slowing down. The current level is still low and indicates contraction, but firms seem to be reducing workforce losses instead of laying off workers outright. This shift could help stabilize jobs in sensitive labor contracts. The increased numbers for New Orders and Production suggest that demand, although still weak, may be stabilizing. This may be an early sign. Increases in Production when inventories are low usually mean companies are trying to meet sales with existing stock rather than increasing production, which aligns with lower imports and exports. The sharp decline in Inventories might suggest tighter management rather than concern, especially since backlogs are rising. If producers are experiencing delays in fulfilling orders while still drawing from stock, pent-up demand could be building. Rising Supplier Deliveries indicate slower delivery times, which can imply bottlenecks or improving demand. When looked at together with low inventories and growing backlogs, these longer lead times likely don’t stem from supplier hesitance but rather show that demand elasticity is returning in some areas, especially where domestic reordering is happening. Falling Customer Inventories signal that clients are cautious about overstocking. This caution, combined with increasing manufacturer backlogs, could lead to sudden bursts of orders soon. However, the drop in Exports and sharp decline in Imports present a negative outlook for global trade concerning domestic manufacturing. Weakness abroad and limited domestic consumption seem to reinforce each other. Manufacturing chains that rely heavily on imports, particularly from Asia, may be under additional pricing pressure. What stands out here isn’t collapse but constraint—most indicators have changed only slightly, but all remain below the 50 mark. There are no signs of strong growth. At the same time, some key metrics, such as Orders and Production, have shown small increases, often signaling the beginning of a recovery rather than a sharp upturn. Overall, while the main indicators show continued contraction, some sub-indexes suggest that the slowdown pace is easing. The trend in Forward Orders, along with supplier delays and backlog growth, raises the likelihood of changes in production plans soon. We expect uncertainty to persist, with higher-than-normal fluctuations in short-duration instruments. For pricing strategies, focus should shift to the sequence of small changes across related indicators—especially where they impact input costs and customer restocking efforts. While the import slump is unlikely to reverse soon, it may limit risks for regions dependent on domestic demand. Create your live VT Markets account and start trading now.

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Canada’s S&P Global May manufacturing PMI increased to 46.1 from April’s 45.3. However, this still indicates a contraction, as a score below 50 suggests a decline. This marks four consecutive months of contraction. Output and new orders have dropped significantly, with international demand—especially for exports—much weaker than domestic demand. Customers are hesitating to place new orders mainly due to tariff uncertainties. Businesses are cutting back on both input and finished goods inventories to save costs. Many companies are relying on existing stock because of delays from suppliers. Additionally, there are ongoing supply chain issues, with longer delivery times blamed on port congestion and customs delays. Inflation pressures are rising, nearing March levels, primarily due to tariffs impacting input costs. While businesses have increased output prices, the pace of this increase is at its lowest in three months. Employment has weakened, with job losses for the fourth month in a row, reaching the highest level since June 2020. Although order backlogs are decreasing, there remains high spare capacity. Purchasing activity has shrunk for the fifth month, indicating a drop in production needs. Business sentiment is low, as hopes for economic stability are hindered by trade policy uncertainties, especially affecting U.S. trade flows. The current landscape poses significant challenges for Canadian manufacturers due to rising costs and unpredictable trade conditions. Canada’s May manufacturing PMI score of 46.1, while slightly up from April, continues to raise concerns. A score below 50 indicates ongoing contraction, meaning factories are producing and receiving fewer orders. This trend isn’t just a temporary dip; export demand is struggling more than domestic demand, likely due to tensions in international trade policies. Businesses are preparing for uncertainty by streamlining operations, reducing their inventories to avoid overproduction. Some are cutting back on new purchases not because they are confident in supply but because of delivery delays associated with congested ports and customs holdups. These disruptions are complicating scheduling and financial planning. Inflation is also a concern. Input prices are rising again, nearing levels last seen in March, mainly due to tariffs. While manufacturers are passing some of these costs onto customers by raising output prices, their ability to do so is diminishing. The slowing rate of price increases indicates limited room to raise prices further without risking even lower demand. On the employment front, the situation is grim. The sector has experienced job losses for four straight months, with the pace of cuts increasing. This is the largest decline since mid-2020 when the pandemic had a major impact. This highlights that staffing needs are well below expectations, not due to improved efficiency, but simply because work demands have decreased. Spare capacity is high, and with fewer backlogged orders, factories are often running idle. The decline in purchasing activity for the fifth month confirms that production is not expected to increase anytime soon. This signals ongoing caution rather than signs of a rebound. The overall mood is subdued, with lackluster confidence. Businesses are balancing internal expectations against global uncertainties, particularly in the U.S. trade environment. Broader macroeconomic worries, especially regarding tariff decisions and supply chain stability, continue to dampen sentiment. In this environment, demand is decreasing, costs are rising, and policy changes complicate planning. For those managing futures and options in these sectors, the challenge lies not only in tracking output but also in responding to significant macro adjustments as they happen.

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High-impact economic data is on the horizon, including job reports from the US and Canada and key central bank decisions next week. The Bank of Canada and the European Central Bank are expected to lower interest rates. Uncertainty surrounds trade relations with China, raising concerns about the US supply chain. President Trump plans to discuss matters with China’s Xi.

Upcoming Economic Indicators And Events

On Monday, the ISM Manufacturing PMI report (forecasted at 49.3) will be released, followed by a speech from Fed Chair Powell. Tuesday will bring Switzerland’s CPI m/m and Australia’s GDP figure (expected at 0.4%). Wednesday will focus on the Bank of Canada’s decision on rates, expected to remain at 2.50%. Also, the US ISM Services PMI is forecasted at 52.0. On Thursday, the ECB is expected to cut rates to 2.15%, followed by a press conference. On Friday, Canada will report a 7.4K change in employment and a 6.9% unemployment rate. The US data will include average hourly earnings (predicted to increase by 0.3%), non-farm payrolls (expected at 130K), and an unemployment rate of 4.2%. This week centers on a packed economic calendar where rate decisions and job figures will test short-term views on monetary policy across various regions. Central banks are poised to adjust policies as inflation stabilizes. Consequently, rates, currencies, and equity-linked derivatives may experience increased risk around high-frequency releases.

Monetary Policy And Market Reactions

The anticipated cuts from the Canadian and European central banks stem from falling inflation towards target ranges. Prices are still lower than central bank officials would prefer, but the trend allows them to ease up on restrictive policies. This week should shed light on how quickly major policymakers are willing to act and how well their actions align with market expectations. Markets often position themselves before central bank events, so any hesitation or shift in tone during press briefings on Wednesday and Thursday could lead to rapid changes in market pricing. In addition to nominal rates, traders are also analyzing labor data in North America. The US employment report due on Friday should clarify the job market situation. Predictions show moderate job creation, while wage data may remain robust. If these numbers align, it makes timing for policy relaxation trickier, especially for those anticipating swift action from the Federal Reserve. A reading above the expected pay figure, paired with strong payroll numbers, could indicate resilience in services and lessen the urgency for early policy relief. Canada’s labor report will arrive just hours earlier. While markets expect rate cuts, positive surprises in jobs or wage growth could complicate the current narrative of easing pressure. Therefore, it’s crucial to consider more than just the headline data; detailed information like full-time versus part-time jobs or the participation rate can significantly influence market reactions. Earlier in the week, the initial reading from the US ISM gauge may show how the industrial sector is managing high real rates. A score below 50.0 suggests contraction, but fear of exiting positions may increase if that dip comes with discouraging comments from manufacturers or rising input costs. Overseas, Australia’s GDP report on Tuesday, expected to tick up, might indicate strength in Asia-Pacific production demand, especially for energy and materials. However, it’s essential to remember that the region’s reliance on external trade leaves it vulnerable to developments in US-China relations. Federal Reserve Chair Powell’s comments right after the manufacturing survey could provide further insights. The timing suggests that markets will pay close attention to his tone and any unscripted comments. His previous preference for data-driven variability rather than forward guidance may resurface, reinforcing a strategy of vigilance for those managing short-term risks. Trade tensions with China continue to influence supply chains. Upcoming talks between high-level officials will be watched closely for indications of cooling tensions, especially in areas like semiconductor policy. Any progress here could impact cost forecasts in sectors such as electronics, autos, and heavy industry. However, much of the week’s discussions may be too early for policy changes, so it’s the tone of commentary or leaks that may be more significant than actual policy outcomes. Markets seeking signals for risk profiles could overreact unless trade discussions become significantly clearer. In summary, approach this week with caution and readiness. Economic reports will set the pace, but unexpected comments during briefings or slight shifts in wording could push markets beyond previously stable ranges. Focus on flexibility rather than strict directional bias, practicing patience over passivity. Create your live VT Markets account and start trading now.

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