The US dollar is expected to drop due to trade tensions, uncertain policies, and slowing GDP growth, all of which affect confidence and the demand for US assets. Forecasts suggest that by 2025, the dollar could decline by 10% against the euro and 9% against both the yen and the pound. Tariffs could squeeze profit margins for US companies and lower consumer incomes, putting further pressure on the dollar’s value. Consumer boycotts and reduced tourism also hurt GDP. With strong spending from abroad and weaker performance in the US, investors are moving away from US assets. Foreign central banks are reducing their dollar reserves, which could lead private investors to do the same. If supply chains and consumer behavior remain inflexible due to tariffs, the US could face economic challenges. A potential 10% universal tariff is still uncertain but could arise amidst ongoing trade issues. These factors create new scenarios that differ from those seen during the previous administration. Overall, it’s clear that the dollar is under pressure. This strain can no longer be seen as only temporary. Current policies suggest the dollar is weakening as confidence declines. Global investors are closely watching tariff announcements, macroeconomic shifts, and central bank actions, which are crucial for understanding future currency movements. The anticipated 10% drop against the euro, alongside similar declines against the yen and pound, reflects more than just perception—it indicates a shift in sentiment driven by decreasing growth potential and emerging imbalances. If trade barriers continue to disrupt supply chains and limit disposable incomes, the dollar’s weakness mirrors these economic inefficiencies. It makes sense to expect fluctuations in interest rates and differences in market spreads. Once large-scale capital withdrawal starts, it seldom stops halfway. Wang’s observations about fewer dollar reserves held by foreign central banks suggest that this could be a warning sign rather than a random occurrence. History shows that private investors typically follow these trends, albeit with a slight delay. There’s a strong psychological tendency to hold on until losses become too costly to ignore. Therefore, any temporary strength in the dollar should be viewed as a short-term correction unless there’s a substantial policy change or growth improvement, neither of which is currently expected. From a strategy standpoint, any investments heavily tied to the dollar should now be evaluated based on future predictions rather than past results. While a 10% universal tariff may not be implemented soon, it remains a viable option and could impact pricing strategies. The predictability seen in trade has been replaced by ongoing negotiations, increasing market volatility. Market assumptions have shifted since the previous administration, especially concerning deregulation and the return of capital. This change alters how risks are distributed among currency pairs. With lower real yields and slowing growth, asset flows are moving towards markets considered more stable or offering better returns relative to their volatility. Xu pointed out this trend, and recent portfolio changes support it. In the short term, price movements may appear clearer, but reduced liquidity in certain currency pairs, especially high-risk ones, could lead to unexpected slippage risks not reflected in overall trading volumes. Using tighter stop-loss orders and staggered entries could help manage potential risks. Gujar’s price targets might be adjusted sooner than expected, particularly if trade developments occur without new domestic stimulus. Recently, even major currencies have begun to show stress signals typically seen in emerging markets. This indicates a potential shift in how these currencies correlate. Kelly’s analysis highlights that volatility responds more to policy direction and investor sentiment than to direct economic data, which accounts for the recent disconnect between interest rates and currency movements. So far, narrowing profit margins in industries haven’t fully impacted stock valuations, but the pressure is rising beneath the surface. This signals the need for closer monitoring if you’re holding synthetic positions linked to currency hedges. The longer that sentiment remains aligned with protectionist talk, the greater the momentum against dollar-denominated investments.

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The Nasdaq-100 Futures have established a strong weekly base, with a key point of control (POC) at 21,315. This level is crucial for potential market movement. Currently, prices have paused, forming a slight consolidation between 21,434 and 21,947, below the rising regression channel. Key resistance levels are noted, with the first being at 21,434. Other resistances follow at 21,497, 21,575, and 21,631. Immediate support is found at 21,315, with additional supports at 21,169 and 21,077. Below these, the price could slip to the range of 21,331 to 20,502.

Bullish and Bearish Scenarios

In a bullish scenario, holding at the POC could lead to long positions aiming for higher levels, with stops placed just below 21,300. On the other hand, if the price breaks and reclaims at 21,434, aggressive long entries are possible, targeting higher resistances. In a bearish scenario, failing to hold at the 21,434–21,497 zone could encourage short positions aiming for lower levels. Additionally, dropping below the POC/VWAP would confirm a downward shift, indicating lower targets. The plan for Monday involves setting pre-market alerts at these key levels. It’s important to monitor volumes at these pivotal points and apply strict risk management for each setup, adjusting to trends respecting the channel. With the Nasdaq-100 Futures firming up at 21,315, this level acts as a launch point, where recent volume and price action converge, making it significant. The price behavior indicates that market participants currently accept this as fair value. While the market tried to push higher, it hesitated between 21,434 and 21,947, showing a reluctance to commit just beneath the upward slope.

Understanding Key Price Levels

In this context, the 21,434 level should be seen not merely as resistance, but as a decision-making zone. If the price moves decisively through it, volume accumulation becomes vital. A rise without strong volume backing tends to fail. However, if market participants continue to see this area as a buying opportunity, we might see targets at 21,497, 21,575, and possibly 21,631 tested one after another. On the downside, the support at 21,315 is crucial. If it fails, a direct drop to 21,169 could follow. Should that level break quickly, the market might swiftly revisit 21,077 and potentially deepen into a broader zone near 20,502. This would indicate a broader sentiment shift, not just a short-term pullback. As we prepare for upcoming sessions, it’s vital to be reactive rather than merely anticipatory. If the market remains above 21,315 and shows strength—evidenced by repeated defenses near prior resistance—long positions may be wise, assuming stops are set just below 21,300. However, strength without lower timeframe support often results in sharp reversals. If 21,434 breaks and reclaims, quicker decisions may be necessary. However, the path upward is not completely clear. Each subsequent level is more than a target; they reflect areas where volume has built in past transactions. Expect resistance at these points unless strong momentum emerges. Conversely, sharp rejection or lack of follow-through in the 21,434–21,497 range indicates buyer caution. Such rejections could trigger short scalps, with expectations to move through thinner volume areas below the POC. Prices below both the POC and the VWAP, especially with increasing volume, suggest that value is recognized lower, often foreshadowing quick downward expansions. Looking ahead to early-week execution, it’s essential to do more than mark levels—set alerts and triggers in advance during pre-market prep. Pay close attention to how futures behave as they approach or rebound from these levels, and align those behaviors with volume patterns to gain confidence in directional stances. Regardless of strategy, the focus should be on adaptability rather than sticking to a single directional bias. Observing how the regression channel is respected or broken will be significant. Continuously assess move velocities with volume and keep risk settings specific to each position. With a solid foundation, execution and consistency will distinguish performance from mere market noise in the week ahead. Create your live VT Markets account and start trading now.

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In May 2025, UK house prices rose by 0.6% from the previous month, down from a 1.4% increase. Year-over-year, prices grew by 1.2%, a slight drop from the 1.3% rise seen last year. The average house price hit a new record, but monthly growth for May was the slowest in nine years. The number of homes for sale reached its highest level in a decade.

Demand And Supply

In April, buyer demand fell by 4% compared to April 2024. This decline came after a tax break for buying affordable homes and for first-time buyers ended on April 1. Current data shows that the housing market is slowing down. While prices rose by 0.6% in May, this is much less compared to April’s jump of 1.4%. The annual increase decreased to 1.2%. While this number isn’t alarming, it suggests that the earlier momentum in the market is fading. Although average house prices are at a new high, this May marked the weakest monthly growth in nearly a decade. Buyers appear to be more cautious, while sellers are eager to list their properties. With the highest number of homes for sale in ten years, supply has surged, but demand hasn’t kept pace. The shift in supply and demand was noticeable in April when buyer activity dropped by 4% compared to April 2024. This wasn’t a random fluctuation; it followed the end of government incentives that supported first-time and low-cost home buyers, causing a quick drop in enthusiasm.

Market Stability And Future Expectations

Looking ahead, we expect more stability in the market, but less speculation. Slower price increases and lower demand suggest a solid foundation rather than a dip. High levels of available properties give market participants more options. Savills indicates that the effects of higher borrowing costs are now apparent, with hopes for rate cuts influencing people’s outlook on future transactions. The head of research noted that although the Bank of England hasn’t yet reduced rates, the anticipation has boosted confidence. Halifax’s chief analyst mentioned that rising wages might help households manage current mortgage costs better. However, any significant changes will depend on real improvements in affordability, not just speculation. Additionally, data from the Office for National Statistics earlier this spring indicated price decreases in rental markets, especially in London. This could impact the sales market as landlords adjust their portfolios. Given the current conditions, we expect calm near-term trends. Price spreads aren’t widening dramatically, and activity related to housing price indices seems more influenced by scheduled data than sudden market changes. In practical terms, this provides clear boundaries instead of unpredictable volatility. The path ahead looks stable, but adjustments may arise as new surveys come in. It’s important to keep an eye on affordability metrics, income data, and the direction of rate policies. Create your live VT Markets account and start trading now.

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The S&P 500 Futures have important levels to watch. Major resistance is at 6,000, and there’s secondary support at 5,917. The Volume Profile’s point of control (POC) is around 5,904, which is essential for keeping bullish momentum alive. Even with a recent pullback, the uptrend holds strong because the price stays above the VWAP mid-line. If it falls below 5,969, it may indicate profit-taking, leading to a test of the POC/VWAP on Monday.

Scenarios for Bullish and Bearish Trends

For a bullish scenario, if the price reclaims 5,960, it could target 6,000. A bounce from 5,904 might aim for 5,932. In bearish scenarios, a drop from the 5,969–5,977 zone could take it to 5,904. A break below 5,904 might test lower levels, like 5,870. Risk management recommends keeping trade risks below 1% and using volume as entry confirmation. It’s wise to consider geopolitical influences, as they affect market openings. Remember, prices can change, and trading in foreign exchange carries risks, including those from leverage. Caution is necessary, as total investment loss can happen. Recently, we’ve seen a steady climb, even with short-term corrections. The index is firmly above the VWAP mid-line, supporting a bullish outlook—at least for now. The key takeaway is that, while the price has cooled from recent highs, we haven’t seen a structural shift. Momentum may have flattened, but it hasn’t reversed. Shorter timeframes show some indecisiveness in the 5,960 to 5,977 area, which has become an active battleground. If we drop below 5,969, expect more traders to step back temporarily, leading to a possible move toward the POC around 5,904, where buyers and sellers find balance. Jackson’s advice on risk suggests keeping exposure under 1% per position, especially during times of overlapping data or low liquidity near the end of New York trading hours. Given the increased volatility from last week’s foreign policy news, this advice is not just cautious—it’s a smart strategy.

Approaching Potential Market Moves

Looking ahead to next week, if the price retests 5,904 and sees buying interest—ideally with a volume spike above a 15-minute VWAP—it could push up toward 5,932. If early Monday brings pressure below 5,960, what seemed like bullish consolidation might shift to short trades. This relies not on sentiment but on how the price interacts with volume-weighted levels. Patel’s note about the bounce near 5,917 forming structural support is valid, especially as it aligns with a lower volume node from last Thursday. We favor a watch-and-wait strategy—only taking positions when there’s clear rejection confirmed by order flow. It’s tempting to get ahead of moves, but thin volume can lead to slippage and weak breakouts. This environment requires decision-making based on real-time data, not static assumptions. We’re nearing areas where options positioning, especially around the critical 6,000 mark, might create pinning effects. It’s beneficial to monitor daily changes in open interest for weekly expirations, which can signal short gamma-driven moves, especially on Mondays and Thursdays. Considering how last week’s geopolitical events influenced the market, staying updated on international developments is crucial. Pay attention not only to headline risks but also to early signs from currency markets, which often detect shifts in risk sentiment ahead of index futures. If minor downturns in risk assets occur alongside widening spreads or a stronger yen, reconsider aggressive long positions near resistance. For any momentum-based trading, wait for volume confirmation—volume above the rolling session average is essential. Without this, valid signals can blend into noise. Let participant activity confirm the bias before taking action. All these triggers reflect probabilities rather than certainties. Moves toward 5,870 or beyond 6,000 need more than just direction—they require liquidity convergence and trader commitment. Let’s focus on being observers first, then participants. When liquidity tightens, reacting emotionally should be a last resort. Create your live VT Markets account and start trading now.

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In the first quarter, New Zealand’s Producer Price Index (PPI) Inputs rose by 2.9% from the previous quarter, which had seen a decline of 0.9%. Meanwhile, PPI Outputs increased by 2.1% after a small drop of 0.1% before. The biggest increase in outputs came from electricity, gas, water, and waste services, which shot up by 26.2%. Manufacturing outputs went up by 2.3%, and rental, hiring, and real estate services rose by 1.4%. For inputs, there was a significant jump of 49.4% in electricity, gas, water, and waste services. Manufacturing inputs increased by 1.7%, while construction inputs climbed by 0.6%. The PPI measures average prices that producers get for goods and services they sell to businesses or consumers. Rising PPI Outputs may indicate inflation since higher prices might not be passed on to consumers. The PPI Inputs measure what producers pay for raw materials, services, and capital goods. When PPI Inputs increase, it suggests rising production costs, which could lead to higher consumer prices if producers decide to pass those costs on. This data shows a significant shift in producer pricing, with previous declines now replaced by sharp price increases in several areas. The changes in both input and output metrics indicate growing pressures at different production stages, particularly concerning energy costs. The 49.4% jump in utility input costs is unusually high and likely impacts various product chains, not just direct providers. Such rising expenses signal a problem that could affect broader areas of the economy. Manufacturing costs are also rising but at a slower pace of 1.7%. Unlike the more volatile energy costs, manufacturing prices tend to increase steadily. That both input and output prices have risen indicates that producers have less flexibility to absorb these costs. This could mean tighter profit margins if prices don’t stabilize soon. Construction inputs showed only a slight increase of 0.6%. While this is much lower than in other sectors, it still indicates rising costs rather than relief. The gradual increase in framing materials, labor, and raw materials can lead to delayed pressure, especially in housing markets and related finance products. This sector tends to react slowly, so it’s important to monitor it closely. In terms of outputs, beyond the jump in utilities, the 2.3% increase in manufacturing output prices is notable. When output prices rise at the same rate or faster than input prices, it suggests that producers are passing costs further down the supply chain. They may be raising end prices not only due to costs but also in anticipation of further inflation. The supply chain may be adjusting prices for a less favorable cost environment in the future. Hodgson’s earlier remarks about rising output not always leading to higher retail inflation are worth noting. However, the rapid and significant increases this time suggest something more lasting is happening. Price changes are driven by clear input increases rather than vague demand factors, so actions must align with these shifts. We’re not just seeing price adjustments based on future expectations. The current output increases are closely tied to substantial upstream costs, especially from utilities. With this in mind, expect increased short-term price volatility. Instruments sensitive to producer margins may fluctuate more than usual due to uncertain cost pass-through levels. Yield spreads that depend on consistent manufacturing price relationships could also see changes. We should pay close attention to how commodity-linked contracts and energy-intensive derivatives respond in the coming months. From a structural pricing perspective, it’s clear that there’s a significant change. As upstream cost pressures rise, energy input hedging strategies may need to adapt, and break-even levels tied to the manufacturing and utility sectors may be reassessed. While these changes are sharp now, they could still be absorbed, but the focus is more on how quickly and deeply these adjustments occur. Given the current trend, combining shorter-term and longer-term conditional instruments might help balance exposures and avoid over-reliance on any single cost factor. The next few reports will clarify if this is a one-time spike or part of a longer-term trend. Until then, keep your strategy flexible and focus on underlying price mechanics, rather than just surface trends.

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Gold Prices and Geopolitical Tensions

The New Zealand Producer Price Index (PPI) for the first quarter rose by 2.1%, which was much higher than the expected 0.1% increase. The EUR/USD fell to around 1.1130, hitting a three-day low, as the US Dollar strengthened, despite weak data from the U-Mich index. Meanwhile, GBP/USD dropped to 1.3250, influenced by a rise in US consumer inflation expectations. Gold prices fell below the $3,200 level, reversing earlier gains and marking the largest weekly loss of the year. This drop was driven by a stronger US Dollar and a decrease in geopolitical tensions. Ethereum is recovering above $2,500, thanks to the positive reception of the Pectra upgrade. This led to more EIP-7702 authorizations, showing strong adoption by wallets and decentralized applications. Former President Trump’s Middle East visit in May 2025 resulted in trade agreements aimed at improving US trade relations. These agreements focused on correcting trade imbalances and enhancing US technology and defense exports. In forex trading, using leverage carries high risks because of the potential for significant losses. Traders should carefully evaluate their experience and risk tolerance before engaging in leveraged trades.

Knock-On Effects of Price Index Rise

The surprising 2.1% rise in New Zealand’s PPI for the first quarter has led to several immediate effects on macro trading strategies. Forecasts had expected no change at 0.1%, making the actual release a shock. Rising costs are pushing interest rate expectations higher, prompting traders to consider increasing local bond yields. This also affects interest rate differentials, which are important to watch when setting medium-term cross-rate exposures. In the currency markets, EUR/USD fell to about 1.1130 this week. This decline occurred even though US consumer sentiment data was weak. The dollar’s strength is driven more by rising inflation expectations in the US than by weak economic data. Euros and Sterling were both affected, with GBP/USD hitting around 1.3250. This decline reflects both repositioning and adjustments in implied rates due to the increased US inflation expectations. Inflation breakevens and short-end swap curves have steepened in the US, giving dollar bulls more room in the short term. Gold’s drop below the $3,200 mark brings attention back to metal investments. The earlier rise was mainly due to hedge demand during geopolitical tensions, which have now eased. The stronger dollar and lower demand for safe-haven assets created opportunities for profit-taking in gold. The potential for its largest weekly drop this year suggests that some trading strategies may be shifting back to net short or flat positions. When volatility and dollar strength occur together, metals become less attractive for both protection and speculative investing. On the other hand, Ethereum’s rise above $2,500 is supported by key network upgrades. The increasing EIP-7702 authorizations after the Pectra upgrade indicate growing adoption and interest from developers. This momentum appears stable, grounded in actual user engagement, as shown by the rise in integrated wallets and decentralized applications. Such developments can strengthen pricing models for smart contract platforms. We will continue to monitor gas fee structures and validator metrics for signs of overextension. Trump’s trade agreements from his May 2025 Middle East visit have prompted optimism about increased US technology exports and better bilateral trade relations. Defense exports were a significant part of these discussions. Geopolitically, these deals may change supply chains for defense-related manufacturers and certain tech companies. While these changes are challenging to price immediately, they may impact sector-specific equity derivatives before influencing broader market valuations. As always, trading foreign exchange with leverage is risky, especially during weeks marked by data surprises and sharp price adjustments. It is crucial to assess risk carefully during periods of dollar strength, especially when this is driven by changing inflation expectations. We recommend reevaluating exposure levels, particularly with currency pairs that may face significant shocks, and adjusting stop-loss positions as needed. Create your live VT Markets account and start trading now.

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The New Zealand services PMI, also known as the BusinessNZ Performance of Services Index, fell to 48.5 in April 2025. This is a drop from March’s 49.1 and is below the long-term average of 53.0. The services sector appears to be experiencing a mild decline, despite ongoing discussions about economic recovery. New Zealand’s PSI is lagging behind other major trading partners.

Manufacturing Performance

In contrast, the New Zealand Manufacturing PMI for April showed growth, rising to 53.9 from 53.2 in March. While the Manufacturing PMI’s increase to 53.9 is a positive sign, the services sector continues to struggle, dropping to 48.5. This places the index well below the key growth mark of 50. The decline from March’s 49.1 is slight but consistent, highlighting a trend that has been developing for several months. With the long-term average at 53.0, it’s clear this situation is not a temporary glitch. We are witnessing a split—manufacturing is slowly improving, while services are still facing challenges. What does this mean in a broader context? The gap between the two sectors suggests economic instability. While it’s good that manufacturing is doing better, most modern economies, including New Zealand’s, rely heavily on services. A decline in services that has lasted several months can have significant effects. For traders looking at short-term changes, this contrast is more than just theory. Markets tend to react sharply to surprising data amidst uncertainty. With services data continuing to show contraction, opinions on interest rate expectations, business confidence, and job prospects begin to change. This is where both opportunities and risks may emerge.

Sector Divergence

Keller, a BusinessNZ executive, suggested earlier that the recent optimism among businesses might be premature. These numbers seem to support that idea and highlight why recovery-based strategies might face challenges soon. Confidence surveys had showed some positivity earlier this quarter, but that has not yet resulted in PMI growth. On the other hand, economist Bagrie pointed out that services, especially tourism, hospitality, and retail, are struggling with changing demand and rising costs, which slows their recovery. Recent domestic surveys indicate that operating costs remain high, with real wage pressures still affecting the market. This slows recovery and creates a cautious atmosphere among service-related businesses and currencies linked to consumer spending. We are now considering whether to reduce our positions that rely on cyclical growth assumptions. Instead, it may be wise to focus on the differences between sectors and look for trades that benefit from this divergence. For example, being long on industrial companies while hedging against domestic retail stocks could manage risk more effectively. In currency trading, movements in the NZD could reflect these differences, especially against currencies where services are stabilizing or growing. It’s also important to consider the current monetary cycle. Central banks have recently adopted a more cautious tone, even as inflation numbers slowly decrease. This caution likely arises from the underperformance of services, directly linked to domestic demand—a key factor for central bankers when deciding on interest rates. This makes earlier rate cuts less likely. Expect this data to influence future bank commentary and market reactions, as traders prepare for upcoming guidance releases. Current short-term positions are delicately balanced between optimism from manufacturing data and worries about a sluggish consumer and service sector. For our trading desk, the focus is shifting from overall market trends to analyzing these mismatches, as this is where potential gains may be found. Create your live VT Markets account and start trading now.

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In the first quarter, New Zealand’s Producer Price Index (Input) increased by 2.9% compared to the previous quarter, far exceeding the expected rise of 0.2%. This information is meant to highlight market trends, but it should not be considered financial advice. It’s important for individuals to do their own research before making any investment decisions. We cannot guarantee that the information provided is free of errors or delivered on time. Investing in markets carries risks, including the potential for total capital loss. The investor is responsible for those risks.

Compensation And Liability Details

The author did not receive any compensation for this analysis, aside from standard payments. The information shared is general and not personalized advice or recommendations. The author stresses the importance of conducting thorough research and accepts no liability for any financial losses or damages. The author and the source are not licensed investment advisors and cannot provide investment guidance. The unexpected rise of 2.9% in New Zealand’s Producer Price Index (Input) for Q1, much higher than the expected 0.2%, gives us insight into the inflation pressures in the economy. This index measures the costs businesses incur when buying goods and services to produce their own products. Such a significant increase indicates that producers are feeling the squeeze from higher input costs. This change isn’t just a data anomaly; it could affect overall pricing. As producers face rising costs, these expenses may eventually be passed on to consumers, depending on competition and profit margins. The ability to pass costs on varies by sector and is influenced by overall demand, but the size of the increase suggests companies may find it hard to keep these extra costs off customer bills indefinitely.

Implications For Rate Expectations

We should closely monitor how this affects future interest rate expectations. When producer costs spike, it may influence central banks, especially if it raises concerns about persistent inflation. This ties into the Reserve Bank of New Zealand’s ongoing focus on price stability. While this doesn’t guarantee immediate policy changes, it suggests that tighter policies are more likely than easing in the near future. Market players are likely to rethink their positions on inflation-linked assets and short-term rate futures. If producer inflation remains high, hedging strategies may adjust, possibly increasing volatility in options tied to interest rates. We see this number as a sign that inflationary pressures are continuing at a crucial point: the cost base of the economy. For those tracking pricing and risk adjustments, it’s essential to revisit models and expectations that assumed lower inflation. Traders should avoid seeing this as an isolated data point. Instead, it should be considered within the wider context of rising costs and supply trends. Pay attention to the commodity input markets and supply chain indicators, as they will provide insights into whether this is a one-time spike or the beginning of a new trend. We will also be analyzing future expectations embedded in swap rates and terms as they adjust to these new producer input realities. Distinguishing between temporary price increases and long-lasting changes will complicate forecasting future moves. None of this diminishes the importance of preparation before making any trade decisions. Understanding risk boundaries and planning for different scenarios can help navigate market fluctuations effectively. With producer prices setting a new baseline for costs, it’s essential to reevaluate corporate margins and cost-of-capital assumptions. So, while news articles may focus on inflation broadly, it’s the upstream details that provide the first signals. We’ll be observing closely. Create your live VT Markets account and start trading now.

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US stock futures fell after Moody’s downgraded the US credit rating, leading to market anxiety. Equity index futures dropped, with the ES down 0.7% and the NQ down 0.9%. In the bond market, 30-year Treasury futures declined by 21 ticks, and 10-year futures fell by 7 ticks, indicating worries among investors. S&P 500 futures significantly declined over the weekend with no good news. UK Prime Minister Starmer plans to announce a new Brexit deal, while Australia’s Prime Minister Albanese is open to a trade deal with Europe. The European Central Bank explained that the rising EUR/USD rates are due to uncertainties in US policy. ECB board member Schnabel showed caution about a possible rate cut in June. In Romania, a centrist presidential candidate is leading with 54.3% of the votes counted, positively impacting the euro. There are also threats of tariffs returning to ‘reciprocal’ levels if no trade agreement is made. Additionally, former President Joe Biden was diagnosed with advanced prostate cancer, adding to the complexity of the weekend’s news. The recent decline in US stock futures, especially after Moody’s credit rating downgrade, sparked increased volatility in financial markets. The dip in equity futures—ES down 0.7% and NQ down 0.9%—is a direct response to rising fears about sovereign risk, affecting capital flows and overall sentiment. This concern is also seen in Treasuries, where both 10-year and 30-year futures have dropped—by 7 and 21 ticks, respectively. Although these changes aren’t dramatic, they reflect a growing expectation of rising rates amidst concerns about long-term debt sustainability. While the market isn’t panicking, it is taking measures to guard against increased uncertainty in fiscal policy. Long positions in indices were quickly reduced as the weekend didn’t provide any reassuring news. This reaction shows that risk-taking tends to freeze during uncertain times. Even minor factors, like weak flows or lower overnight liquidity, can have a significant impact. The next few sessions may be more about reacting to news than making predictions. For rate traders, Schnabel’s cautious remarks should not be ignored. While her comments about avoiding a June cut are not market-moving, they coincided with shifts in currency pricing and suggest caution against rushing into yield compression strategies for European bonds. EUR/USD gains appear more linked to policy uncertainties in Washington than to strong Eurozone data, indicating macro issues are overshadowing specific regional fundamentals. Policy changes regarding trade from Downing Street and interest from Sydney to renegotiate terms with Europe highlight two important points: first, the FX market is beginning to focus on trade news again; second, the interest from various countries in revisiting Brexit indicates that investments in sterling and the euro could rise, particularly from systematic strategies responding to new official statements. In terms of geopolitics, initial results from Romanian elections point to leadership stability, subtly supporting the euro. While this isn’t a major driver, in tight liquidity situations, small events can provide guidance. A more significant development over the weekend was news about Biden’s health, prompting some risk models reliant on political stability to adjust. While this theme may not affect short-term pricing drastically, it could influence option premiums and implied volatility, particularly regarding election-related assets. For markets exposed to derivatives, especially those tied to interest rate expectations and equity volatility, it’s wise to reassess positions. We’ve noticed gamma exposure turning negative during recent index declines, making markets more sensitive to further movements without new catalysts. This could intensify downward pressure if negative news continues. Concurrently, changes in forward curves suggest that funding costs are being re-evaluated, not simply adjusted. Remaining adaptable is crucial. We need to respond to actual market movements, as flows continue to be unsettled, particularly in high-yield credit and tech growth stocks. While none of these sectors are under severe stress, sentiment is a driving force, becoming increasingly sensitive to price changes. If prices break down below recent critical levels again, hedges might shift from being strategic to essential. Maintaining a light position on delta and being cautious with convexity could support flexibility during volatile times. Remember, in times of low data volume and heavy news, implied volatility often carries more weight than realized outcomes. This trend seems to be currently holding steady.

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New Zealand’s Business NZ Performance of Services Index (PSI) was reported at 48.5 for April, down slightly from 49.1 in March. This index gauges activity in the country’s service sector, with any number below 50 signaling a decline. Forward-looking statements come with risks and uncertainties. The markets discussed here are for informational purposes only, so it’s crucial to do thorough research before making financial decisions.

Accuracy And Responsibility

FXStreet and the authors are not responsible for any errors, omissions, or losses related to this information. They do not guarantee accuracy and do not provide personalized investment advice. This article is not intended to recommend buying or selling any assets. The PSI reading of 48.5 shows that service activity in New Zealand was under pressure in April. A score lower than 50 indicates a decrease in output for the month. This is the second month in a row below that level. While the drop from March’s 49.1 is small, it highlights a continuing decline in the service sector, suggesting that weaker domestic demand is impacting non-goods-producing industries.

Economic Indicators And Implications

To understand the implications for short-term interest rate derivatives or currency pairs linked to the New Zealand dollar, we need to consider the timing and extent of any potential changes in rates. The Reserve Bank is taking a cautious approach due to persistent inflation, particularly in non-tradable goods. However, a slowdown in the service sector could lead to expectations of an earlier change in policy. Wheeler and his team at the RBNZ have emphasized the need to keep medium-term inflation expectations stable while still encouraging growth. Although inflation is above the target, indicators from surveys are showing signs of easing in the job market. This creates a growing gap between the RBNZ’s preferred policies and what the market expects. The drop in service sector activity adds to the situation. Traders should pay close attention to upcoming domestic data—especially regarding business confidence, wage growth, and inflation—since surprises in the data are becoming more important. Confidence in the next rate move is waning. While it is unlikely the RBNZ will change its stance based on one data point, a third consecutive decline in the PSI next month could be significant, especially if accompanied by weakness in the PMI. If several indicators show a downturn, the short-term rates market may adjust. Currently, there’s a noticeable gap between market predictions and central bank forecasts for the cash rate. If expectations for future rates drop, particularly in relation to AUD or USD swaps, market spreads could realign. Derivatives traders should be vigilant for flattening in the kiwi curve if the trend of contraction continues through mid-year. This scenario may create opportunities, especially around important policy meetings. Increased volatility could arise in the two-to-five-year segments of the curve if data suggests that the highest policy rates have been reached. We need to stay flexible—macro data often leads to unexpected moves this year. Even minor shifts in the service sector can have greater impacts than during expansionary periods, especially as banks navigate between fostering growth and ensuring stability. The effects are more significant than the headline figures suggest. Create your live VT Markets account and start trading now.

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