USD unloved, stocks buoyant ahead of different drivers
Updated Updated Mon, 2025 June 30 09:12
* Dollar hits 4-year low versus the euro, trade deal and tax bill worries weigh
* Stocks post fresh record on trade optimism, S&P 500 rises 10.6% in Q2
* US to restart trade talks with Canada immediately after its drops digital tax
* Fed vacancy in early 2026 eyed to appoint Powell successor
FX: USD was down for an eight straight day as it hit levels last seen in 2021. It looks like we haven’t seen that many down days in a row since October 2004. The Dollar Index was on track for its biggest first half drop since the early 1970s. We are half way through the year and the weak dollar undertone persisted, with risks around trade and fiscal policy again under the microscope. Momentum is firmly bearish after the big outside week, ahead of Thursday’s NFP and looming tariff deadline next week. Continued attacks on the Fed’s leadership are also undermining the appeal of the dollar.
EUR broke to fresh highs again at 1.1786 with an eight-day win streak. Focus turns to the inflation data, though there wasn’t a major move on the cooler German figures earlier in the day. The Sintra ECB forum will offer headline risk with ECB President Lagarde scheduled to speak, as well as other central bankers. Trade news is also in the spotlight with hopes that an agreement can be reached this week, according to US Commerce Secretary Lutnick.
GBP was the major underperformer, as it consolidated near recent multi-year highs at 1.3770. Today may see some headline risk from the ECB’s Sintra forum as markets will look for possible insights into the BoE’s policy outlook. Money markets are currently pricing roughly 21bps of easing for the August meeting and over 50bps by year end. There is not a lot of resistance ahead of 1.40 in cable.
USD/JPY printed a doji for most of the day as it traded around the 50-day SMA at 144.37. The yen had been outperforming on the day but gave back gains. Japan’s tariff negotiator, Akazawa, said they will continue working with the US to reach a tariff agreement while defending national interests, and that a continuation of 25% auto tariffs would cause significant damage.
AUD broke to the upside and closed above long-held resistance at 0.6549, as it hit levels last seen in November. That resistance is a major Fib level (61.8%) of the September to April drop. The constructive risk tone also helped NZD as it made fresh multi-month highs. CAD strengthened as the major moved down towards recent lows. The major June bottom is at 1.3538. This comes after the Canadian government pulled its digital tax to resume trade talks with the US.
US stocks: The S&P 500 printed up 0.52% at 6,205. The Nasdaq closed up 0.64% at 679, both record closes. The Dow Jones finished higher at 44,095, adding 0.63%. All sectors were in the green except Consumer Discretionary and Energy. The S&P 500 is up nine of the past 11 quarters. Tech and financials led the gainers. Apple (+2%) provided tailwinds amid reports that the tech megacap reportedly weighs powering Siri with Anthropic or OpenAI tech. Focus was on Capitol Hill and the potential passing of Trump’s Big Beautiful Bill. Markets will also watch the ECB forum at Sintra where central bank heavyweights Powell, Lagarde, Ueda and Bailey participate. There are now around 68bps of Fed rate cuts priced in for this year – that means roughly above a 70% chance of a third 25bps move.
Asian stocks: Futures are positive. APAC equities began the week mostly in the green following last Friday’s record highs on Wall Street. Some gains were capped heading into month-end and due to mixed Chinese PMIs. The ASX 200 edged higher with strength in the defensive sectors but with upside limited by data. The Nikkei 225 outperformed to a one-year high despite disappointing Industrial Production data. The Hang Seng and Shanghai Comp were mixed following the latest PMI data which showed headline manufacturing PMI remained in contraction territory as expected, although non-manufacturing PMI accelerated at a faster pace than forecast.
Gold has tried to cling to support at a minor Fib level (23.6%) of this year’s move higher at $3,283. The 50-day SMA, which has acted as support previously, is now above at $3,321.
Day Ahead – Eurozone Inflation
Consensus sees headline unchanged at 1.9% and core one-tenth lower at 2.3%. The May headline inflation number dropped below the ECB’s 2% target for the first time since September 2024. Services inflation saw a notable fall to 3.7% from 4.0% previously. Higher energy and goods prices should be offset by easing services and food inflation. The stronger euro also typically has a disinflationary impact.
Country wise, German inflation was softer, French inflation rose one-tenth more than expected to 0.8% and Spanish HICP moved two-tenths higher than estimated to 2.2%. From a policy perspective, given the ongoing appreciation in the euro, a soft release could heighten calls for the ECB to cut interest rates further this year, with markets not fully pricing another 25bps reduction until early in 2026.
Chart of the Day EUR/USD marches higher
The world’s most traded currency pair is facing up to several risk events this week including the latest inflation data for the region, the ECB’s annual conference at Sintra, plus the monthly US employment report. Yield spreads continue to narrow in a EUR-supportive manner, as the outlook for relative central bank policy incorporates a more dovish outlook for the Fed.
The pair has broken to fresh multi-year highs, hitting levels last seen in September 2021. The medium-term trend remains bullish as prices continue to print a multi-month series of higher lows and higher highs and has enjoyed an 8-day win streak. Momentum is also bullish with the daily RSI above the overbought threshold of 70, but lower than the recent peaks above 75 in March and April. Upside targets are now the upper 1.18 zone and 1.2004, the 200-month SMA. Support sits at 1.1749 (78.6% Fib level of January 2021 to September 2022 decline), 1.1631 (prior June top) and 1.1572 (April swing high).
