The week began negatively amid fresh tariff threats from US President Trump and Israeli strikes in Yemen following a Houthi attack on a Red Sea ship. This helped the US Dollar rebound after a two-week slide. Last week’s strong US data and Fed Chair Powell’s comments also reduced dovish Fed bets. However, Trump’s push for lower rates and Powell’s replacement, alongside cautious optimism on US trade deals and easing geopolitical tensions in the Middle East and Ukraine, pressured the Dollar Index.
Trade tensions persist between the EU, China, and Japan, with Trump ready to issue formal tariff warnings and threaten a non-negotiable extra 10% duty on any retaliation. Israel’s attacks and OPEC+’s surprise August output hike dragged Crude Oil lower, especially amid a stronger Dollar. The same weighed on Gold, even as China signaled stimulus and trade support.
EURUSD declines on fears of an EU trade war with the US and China, weak EU data, and doubts over the Euro’s reserve currency status amid potential ECB rate cuts. GBPUSD extends losses over UK fiscal worries linked to Chancellor Reeves.
USDJPY edges up on weak Japanese wages and trade war fears. AUDUSD and NZDUSD drop on risk aversion, a stronger USD, and ahead of RBA and RBNZ meetings. USDCAD continues its recovery as oil weakens and the Dollar firms, shrugging off US-Canada trade hopes. Cryptos also lose steam ahead of the key “Crypto Week” from July 14 amid mixed sentiment.
Trade tensions between the EU, the US, and China appear to be escalating, adding to concerns over the EU’s economic transition following mixed data. Cautious European Central Bank (ECB) officials—who don’t rule out further rate cuts—add to the pressure on EURUSD. The recent rebound in the US Dollar also challenges the pair’s two-week uptrend.
In the UK, GBPUSD faces selling pressure as the government’s measured austerity stance and rising doubts over Chancellor Rachel Reeves weigh on sentiment. A cautious tone ahead of this week’s key UK data, along with slightly downbeat Bank of England (BoE) commentary, adds further drag on the Cable pair.
Meanwhile, Japan’s real wages posted their steepest drop in two years, weakening hawkish expectations for the Bank of Japan (BoJ) and supporting a USDJPY rebound after last week’s loss. Growing US-Japan tensions and inconsistent demand for Japanese Government Bonds (JGBs) add to Yen weakness, further lifting the pair.
The Australian Dollar (AUD) and New Zealand Dollar (NZD) are leading losses among G10 currencies, with AUDUSD and NZDUSD marking the biggest declines against the US Dollar (USD). This drop reflects the market’s risk-off sentiment and cautious positioning ahead of this week’s monetary policy meetings by the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ). While there is uncertainty over whether the RBA will cut interest rates, the RBNZ is widely expected to lower its benchmark rate, even though the RBNZ Shadow Board opposes the move.
Elsewhere, the USDCAD pair extends its recovery from the previous day as a stronger US Dollar combines with weaker crude oil prices—Canada’s key export—to weigh on the Canadian Dollar (CAD). This rebound comes despite rising optimism about US-Canada trade agreements and speculation that the Bank of Canada (BoC) may pause its rate cuts in 2025. Additionally, traders’ focus on this week’s Canadian employment data and the US Federal Open Market Committee (FOMC) meeting minutes may also be pressuring the CAD and supporting USDCAD gains.
Crude oil fell after OPEC+ announced a larger-than-expected output hike of 548,000 barrels for August, compared to the 411,000 barrels forecast. Additional pressure came from a stronger US Dollar and escalating US tariff concerns.
Despite rising geopolitical tensions—such as Israel’s strikes in Yemen following a Houthi attack in the Red Sea—and fading hopes for Ukraine-Russia peace, oil failed to find support. Global growth concerns driven by US trade and political uncertainty outweighed these bullish factors.
Gold dropped to a one-week low despite Chinese officials signaling more policy support for the service sector and domestic demand. Optimism over US-China trade talks and rising central bank demand should have supported Gold, but the metal weakened instead due to a firmer US Dollar and a broadly downbeat market mood.
Meanwhile, Bitcoin (BTCUSD) and Ethereum (ETHUSD) face pressure as traders turn cautious ahead of the upcoming “Crypto Week” and amid fresh trade and geopolitical tensions. Still, institutional demand and overall industry optimism continue to offer some support to crypto bulls.
Eurozone Retail Sales (May) and Sentix Investor Confidence (July), along with speeches from mid-tier Western central bankers, headline Monday’s economic calendar. However, the spotlight will likely stay on Middle East developments and renewed US tariff threats from Donald Trump as US traders return after Friday’s Independence Day holiday.
Risk appetite is expected to remain weak, potentially pressuring crude oil, gold, and limiting fresh gains in equities. That said, upcoming events—including the Federal Open Market Committee (FOMC) Minutes, China’s inflation data, Canada’s jobs report, and rate decisions from the Reserve Bank of Australia (RBA) and Reserve Bank of New Zealand (RBNZ)—could sway market sentiment.
The US Dollar (USD) is likely to rebound from multi-month lows, which may weigh on commodities, Antipodean currencies, and other majors. However, USDJPY could behave differently if the US and Japan surprise markets with a trade deal despite their differences. Meanwhile, cryptocurrencies may stay under pressure amid retail investor anxiety and ahead of the upcoming “Crypto Week.”
May the trading luck be with you!
