Markets started the week with some optimism, boosted by Canada’s decision to drop a planned digital tax on U.S. tech firms and the absence of tensions in the Middle East. US President Trump also criticized Fed Chair Powell and suggested appointing someone who would cut rates, which added some downward pressure on the U.S. dollar. Positive data from China and the UK also supported optimism. However, Trump's decision to remove sanctions relief for Iran and mixed economic data from Australia, New Zealand, and Japan kept the mood cautious.
Trump’s remarks about replacing Powell added pressure on the US Dollar, especially after the US Core PCE Price Index showed higher inflation but weaker spending. This increased expectations of a dovish Fed ahead of Powell’s upcoming speech at the ECB forum and the US employment report.
In Canada, the removal of the digital services tax on US tech companies and hopes for US trade deals boosted sentiment. Japan’s industrial production showed improvement but still missed expectations, increasing pressure on the Bank of Japan to raise rates, especially amid the alarming food inflation. China’s PMI data improved, but the manufacturing sector remained in contraction. Meanwhile, UK business confidence surged, and New Zealand’s business outlook improved.
The US Dollar Index (DXY) hit an eight-day losing streak, falling to its lowest level since February 2022. This helped the EURUSD and GBPUSD rise to multi-month highs, but the USDJPY saw limited losses. AUDUSD rebounded, NZDUSD hit a two-week high, and USDCAD dropped. Crude Oil posted small gains after its biggest weekly loss since April 2020, while Gold rebounded after a recent decline. Bitcoin (BTC) and Ethereum (ETH) saw modest losses after big gains last week. Meanwhile, equities rose and bond yields remained under pressure.
The EURUSD stayed strong, reaching its highest level since September 2021, thanks to a weaker US Dollar and optimism ahead of the ECB’s Sintra Forum. Despite cautious ECB comments, concerns about a US-EU trade war, and mixed EU data, the euro remained firm ahead of this week’s EU inflation report.
The GBPUSD ignored unimpressive final readings of the UK Q1 GDP data, supported by the strongest business confidence in the UK since November 2015, according to Lloyds Bank. The bank’s economic optimism gauge hit a 10-month high, and hiring intentions surged, contrasting with previous surveys from other sources showing challenges in growth and employment.
The USDJPY reversed earlier gains as Japan faced rising food inflation and disappointing industrial production data. There are also growing concerns that the Bank of Japan (BoJ) has limited room to defend its "Wait and See" stance on rate hikes. Additionally, Trump’s criticism of Japan’s auto tariff removal demand added trade-related pressure, challenging USDJPY bears.
China’s improved June PMIs, despite the Manufacturing PMI still in contraction, along with strong inflation signals from Australia and solid business confidence in New Zealand, helped AUDUSD and NZDUSD regain upward momentum after a quiet Friday. The AUDUSD stays firmer at its highest level since November 2024, flashed last week, while the NZDUSD posted a six-day winning streak, hitting a two-week high.
Meanwhile, USDCAD dropped due to fresh trade optimism between the US and Canada, following Ottawa's decision to back off from the planned digital tax on US tech firms. Canada’s crude oil recovery and a hawkish stance from the Bank of Canada (BoC) also weighed on the Loonie pair, especially after its weekly loss.
Despite the ongoing Iran-Israel ceasefire, Trump’s remarks about canceling sanctions relief for Iran, along with growing tension in the Middle East, helped WTI Crude Oil prices recover after their biggest weekly loss since April 2020. A weaker US Dollar and a steady decline in US crude oil inventories also supported the rebound. However, the OPEC+ supply increase, Trump’s push for higher domestic output, and rising economic concerns are creating challenges for oil buyers ahead of a busy week.
Gold bounced off a 5.5-month-old support at $3,251, after two weeks of declines. The recovery was driven by a weaker US Dollar and reduced trade/geopolitical concerns. The growing dovish stance of the Fed, hinting at two more rate cuts in 2025, also supported gold, especially ahead of this week’s US employment data and Fed Chair Powell’s speech at the ECB’s Sintra Forum.
Meanwhile, Bitcoin (BTCUSD) and Ethereum (ETHUSD) consolidated after their biggest weekly gain in seven weeks. Bulls are waiting for more signals to support their moves, as diverging trends from retail traders and whales, plus mixed US regulation news and technical barriers, keep traders cautious ahead of the big week.
German inflation data will come ahead of the US Dallas Fed Manufacturing index and ECB President Christine Lagarde’s speech at the Sintra Forum, keeping traders busy. Headlines on Middle East tensions, US trade deals, and central banks’ struggle to justify dovish policies amid inflation concerns will also be key. With data likely to be normal and the Fed’s dovish stance, the US Dollar may stay under pressure, supporting major currencies, Antipodeans, and commodities in their early-week rebound. However, cryptocurrencies and equities may need a fresh boost to regain upward momentum and may struggle to find it.
As for Crude Oil, it could recover from last week's losses if the Middle East ceasefire breaks down or Trump takes action, alongside a continued decline in US inventories. Still, rising supply from key producers and economic fears could challenge oil buyers.
May the trading luck be with you!
