The latest news shows that the appeal of traditional hedging tools continues to weaken against the backdrop of progress in US-China trade negotiations and cooling global risk aversion. The United States and China have reached specific agreements on core issues such as the supply of rare earth minerals, consolidating the tariff suspension framework reached in Geneva. China has also confirmed the details, which makes it possible to postpone the July 9 tariff "deadline", easing market concerns about a full escalation of the trade war.

At the same time, Trump suddenly announced that he would "immediately terminate all trade negotiations with Canada" on the grounds that Canada imposed a digital service tax on US technology companies and threatened to impose new tariffs on Canadian goods as early as next week. Although this statement once triggered market risk aversion, overall, the trade situation is still seen as a phased easing.

On the other hand, the conflict between Israel and Iran has eased and the ceasefire seems to be maintained. This calmed market concerns that Iran could disrupt global energy supplies by blocking traffic in the Strait of Hormuz, and oil prices fell by about 15% from last week's peak to a level similar to that before Israel's sudden air strike. Overall, financial markets have been relatively calm in their reaction to the escalation of the conflict, and therefore to the de-escalation of the conflict. Most notably, the dollar is under renewed pressure, also due to media reports that President Trump may consider replacing Jerome Powell as Fed Chairman before the end of his term next year. Trump has made his desire to lower interest rates very clear, and Powell this week reiterated his view that it is better to wait and see what impact tariffs will have on inflation.

Review of market performance last week:

The three major U.S. stock indexes opened higher last week, continuing the strong trend during the week. The S&P 500 and Nasdaq Composite Index closed at record highs again, and the Dow Jones Industrial Average also rose by more than 400 points. The market's interpretation of the progress of the U.S.-China trade negotiations and the changes in the Fed's policy expectations became the main line of the session. The Dow Jones closed at 43,819.27. The S&P 500 closed at 6,173.10. A new high for the year; the Nasdaq Composite Index closed at 20,273.46. Refreshing historical records, showing that the popularity of technology stocks and growth sectors remains high.

In the absence of geopolitical escalation and continued mild economic data, coupled with optimistic tariffs, easing geopolitical tensions, and the Fed remaining dovish and waiting for more data, gold bulls seem exhausted. Last week, gold prices fell nearly 3%, falling for the second consecutive week, decisively falling below $3,300/ounce, as low as $3,274.50/ounce.

Silver prices fell more than 1% on Friday, hitting a five-day high of $36.830 before the weekend, close to $37,000. Silver prices traded around $36,000 due to a slight recovery in the US dollar and rising US Treasury yields. Silver prices retreated, forming a "bearish engulfing" candlestick pattern, which opened the door to testing lower prices. It is worth mentioning that a weekly close around $36.00 will keep it at a strong support level, with bulls aiming for higher prices.

The dollar fell more than 1.70% last week, hitting a low of 97.00. With the last trading day left in the first half of the year, the dollar has fallen for five consecutive months and is set to hit its worst first-half performance since 1986; earlier, US President Trump said the United States would end trade negotiations with Canada and would consider bombing Iran again, which hit risk appetite and caused stocks to fall. The dollar fell more than 1.5% last week to around 97.30, close to its lowest level since February 2022, mainly driven by market expectations of a rate cut by the Federal Reserve.

The dollar fell to a three-and-a-half-year low against the euro at $1.1705 and hit a high of $1.1754. The euro achieved a weekly gain of 1.57%, the best since May 19. The reason is that traders are betting that the Federal Reserve will cut interest rates more times and the time of the cut may be earlier than previously expected, as some US data show that the economy is weakening. The dollar strengthened 0.19% against the yen to 144.65. USD/JPY fell 0.94% for the week, the most since May 19. The Bank of Japan is increasingly cautious about further rate hikes, and policy doves believe that the same-track data shows weak consumer demand.

The pound was at $1.3701, achieving a weekly gain of 1.85%, the best week since May 19. With UK inflation likely to fall further, the Bank of England may cut interest rates by 75 basis points by the end of 2025. The dollar fell 0.06% against the Swiss franc to 0.8 Swiss franc, with a weekly loss of 2.26%, the largest since April 7. The Swiss National Bank has limited room to cut interest rates, which could drive further strength in the Swiss franc. The Australian dollar rose above $0.6550 on Friday, extending a five-session rally and reaching its highest level since November 2024, supported by broad dollar weakness. The dollar index continued to fall to multi-year lows, and speculation of a possible leadership change at the Federal Reserve strengthened bets on an early rate cut.

WTI crude oil rebounded slightly on Friday as trade optimism boosted demand expectations, but oil prices turned lower at midday after reports that OPEC+ plans to increase production in August. Oil prices fell more than 12% last week, the biggest weekly drop since March 2023. The sharp drop in geopolitical risk premiums may reflect that traders have recently experienced major geopolitical shocks, but oil supply has not been seriously disrupted, Iran's restrained response, the United States and other countries have strong motivations to avoid large-scale supply disruptions, and a possible shift to large-scale inventory increases starting in the fall.

Bitcoin rose more than 1% to above $108,000 as the situation in the Middle East eased and risk appetite returned. New institutional momentum, upcoming US macro data and geopolitical tensions are key drivers of continued volatility. Bitcoin prices are currently above $107,000 at $108,048.12.
The yield on the 10-year U.S. Treasury bond rose to 4.26% on Friday after falling for five consecutive trading days, and traders are increasingly inclined to believe that the Federal Reserve will cut interest rates sooner rather than later. The Fed could have continued its rate-cutting cycle. Reports also suggest that President Trump may announce his choice for the next Fed chair in September or early October, potentially creating a "shadow" leadership structure that could steer monetary policy in a more dovish direction.

Market Outlook This Week:

This week, the market may focus again on tariffs, with U.S. Treasury Secretary Bensont saying last Friday that "reciprocal tariffs" could be re-imposed on 20 countries, or that tariffs on those countries could remain at 10% if investors believe the other party is negotiating in good faith.

It is worth noting that Trump terminated trade negotiations with Canada last Friday on the grounds of digital service tax. Trump said: "We have just learned that Canada, a country with extremely difficult trade relations, has imposed dairy tariffs of up to 400% on our farmers for many years. Now it has announced that it will impose digital service taxes on American technology companies. This is a direct and naked attack on our country. They are obviously following the example of the European Union, which has also taken the same measures and is currently negotiating with us. In view of this shocking tax policy, we hereby terminate all trade negotiations with Canada, effective immediately. We will inform Canada of the tariffs that will be paid for trade with the United States within the next seven days."

This week, the market will usher in a group meeting with the presidents of major central banks in the world (Fed Chairman Powell, European Central Bank President Lagarde, Bank of England Governor Bailey, Bank of Japan Governor Kazuo Ueda, and Bank of Korea Governor Lee Chang-yong). The market will also usher in non-agricultural data, and Powell's remarks on whether to resign may ignite the market this week. Financial markets may continue to fluctuate more this week.

The dollar's decline may continue; the dollar falls into a "bottomless pit"?

The US dollar index continued to fall, hitting a new low since March 2022. Global risk assets continued to be strong, with the MSCI global stock index rising nearly 8% this year, the euro rising to a three-year high of 1.173 against the US dollar, and the Swiss franc hitting a ten-year high. Market sentiment is driven by three factors: rumors of an early change of leadership at the Federal Reserve strengthen expectations of easing, the situation in Russia and Ukraine and the ceasefire in the Middle East ease the demand for safe-haven assets, and the trade game under the countdown of Trump's tariff remarks.

The US President has recently continued to pressure the Federal Reserve to accelerate interest rate cuts. The Wall Street Journal revealed that he is considering nominating a successor a few months before the end of Powell's term in May next year. This move has aroused market concerns about the politicization of monetary policy.

The ceasefire agreement between Israel and Iran remains stable, and the NATO summit reached an agreement on a 5% share of defense spending by member states (3.5% of which is used for direct military investment), which eased European security concerns. The safe-haven demand for the yen weakened to below the 144 mark.

As the deadline for tariff remarks on July 9 approaches, the EU is stepping up its negotiating position. Although the market's expectations for an escalation of a comprehensive trade conflict are limited, uncertainty still suppresses the bullish sentiment of the US dollar. Investors' net short positions on the US dollar have reached the peak since the outbreak in 2020, reflecting a structural bearish consensus.

Short-term (1-2 weeks) Outlook: The US dollar's decline may continue: The market focus turns to the June non-farm data and the statements of Fed officials. If the employment data is weak, the expectation of interest rate cuts will further suppress the US dollar; conversely, a technical rebound may test the 98 mark, but it will be difficult to reverse the trend. We need to be wary of safe-haven funds returning to the US dollar before the deadline for tariff remarks, but the impact is expected to be short-lived.

In the medium term (3-6 months), the US dollar faces triple pressure: Policy divergence: The ECB's rate hike cycle has not ended, and the Fed may be the first to turn to easing; Asset allocation: Global funds continue to shift from US dollar assets to non-US equity markets, and the MSCI Asia Pacific Index has performed strongly since the beginning of the year; Political risks: Policy uncertainty in the election year may continue to suppress the US dollar premium.

If the Fed unexpectedly maintains a hawkish stance or geopolitical conflicts re-emerge, the US dollar may receive temporary support. However, under the current resonance of technical and fundamental aspects, any rebound should be regarded as an adjustment rather than a reversal. Traders should pay attention to the battle for the psychological level of 97, as well as the guidance of eurozone inflation data on ECB policy.

Gold price volatility: geopolitical situation cools down VS Fed rate cut expectations heat up

The performance of the US dollar and US Treasury markets also has an impact on gold prices. The US dollar fell to its lowest level since 2021 against the euro and the pound, affected by expectations of rate cuts and rumors that Trump may nominate a new Fed chairman. The dollar sell-off reflects the market's expectations of faster Fed easing. Trump's early nomination of the Fed chairman may shake the dollar's status as a reserve currency, which in turn provides potential support for gold prices.

The steepening of the US Treasury yield curve reflects market concerns about long-term inflationary pressures, and is also related to the weak labor market and expectations of rate cuts. Labor market cracks may increase market confidence in a September rate cut. This low-yield environment is generally good for gold because the opportunity cost of holding gold is reduced.

The easing of geopolitical tensions in the Middle East has weakened gold's safe-haven demand, but the Trump administration's tariff policy has brought new uncertainty to the market. Tariffs may push up inflation and force the Fed to postpone rate cuts, thereby pressuring gold prices.

Overall, the current gold market is at the intersection of multiple factors. The Federal Reserve may continue to postpone interest rate cuts, and gold prices will face downward pressure. In the medium and long term, the low interest rate environment, geopolitical uncertainty and the potential for a weaker US dollar all provide structural support for gold. However, the speculative boom in platinum and palladium may have a diversion effect on the flow of funds in the gold market, and investors need to pay close attention to the flow of funds within the precious metals market.

The market reassesses geopolitical risks and focuses on the impact of the ceasefire agreement on oil prices

The crude oil market experienced sharp fluctuations last week. Against the backdrop of a ceasefire agreement between Iran and Israel, market concerns about supply disruptions in the Middle East have significantly cooled. Although oil prices rebounded slightly last Friday, the two major benchmark oil prices fell by about 12% this week, a rare sharp correction in recent times.

The crude oil market fell into consolidation as traders interpreted the signals of the Iran-Israel ceasefire agreement. Although US President Trump welcomed the ceasefire and hinted that sanctions on Iran might be eased, his remarks remained tough on Iranian crude oil exports. Any adjustments to US law enforcement policies could release more crude oil supply and suppress oil prices. At present, the geopolitical risk premium has weakened, but it is still a key observation point.

This round of oil price decline reflects the market's high sensitivity to geopolitical factors. Although the ceasefire agreement suppresses oil prices in the short term, the dual impact of tight domestic inventories in the United States and the peak of summer travel is gradually changing the supply and demand pattern. In the future, if inventories continue to decline or the US dollar remains weak, oil prices are expected to rebound from the current basis. However, investors still need to be vigilant about the potential risk of a further deterioration of the situation in the Middle East.

Overall, crude oil prices are still in a range of fluctuations, but pressure is accumulating. Strong demand in the United States provides support, but macroeconomic caution and uncertainty about OPEC+ intentions suppress market sentiment. If it decisively falls below $65.12, it will confirm the bearish trend, and the short target will be $61.90. On the contrary, if this level is maintained, the neutral to bullish logic still holds, but unless the supply and demand signals converge overall, the upside space is still limited.

Conclusion:

This week, the market paid attention to geopolitical and trade news while focusing on non-farm data. However, due to the US Independence Day holiday on Thursday and Friday, trading was light, and the impact of non-farm data on financial market may be delayed. In the short term, trade easing and uncertainty in the Fed's policy outlook remain the core variables affecting global financial markets. Although the US domestic macro data show signs of economic slowdown, there are no new sudden risks in the current geopolitical situation, and market volatility and upward momentum are temporarily limited.

The subsequent market needs to pay attention to whether the Fed will start to cut interest rates in July or September as expected, and the subsequent direction of the Trump administration's tariff policy, which will directly affect the direction of the US dollar. The US dollar is the key to whether the short market can continue. Secondly, the gold price fell below $3,300 last week. This week, $3,300 has become a key psychological level for long/short contention. Crude oil prices are still in a range, but pressure is accumulating. Long and short may seesaw again at the $65/barrel mark.

Overview of important overseas economic events and matters this week:

Monday (June 30): UK production-based GDP final value for the first quarter (%); Eurozone May seasonally adjusted money supply M3 annual rate (%); US Chicago PMI in June; US May existing home sales annualized total (10,000 households); ECB President Lagarde made an introductory speech at the hearing of the European Parliament's Economic and Monetary Affairs Committee

Tuesday (July 01): Australia's ANZ Consumer Confidence Index for the week ending June 29; Eurozone June SPGI Manufacturing PMI final value; US June SPGI Manufacturing PMI final value; US June ISM Manufacturing PMI; US May JOLTs job vacancies (10,000): ECB President Lagarde delivered a speech

Wednesday (July 02): Eurozone May unemployment rate (%); US June Challenger layoffs (10,000); US June ADP employment change (10,000); Change in U.S. EIA crude oil inventories for the week ending June 27 (10,000 barrels)

Thursday (July 03): Australia's May goods and services trade account (billion Australian dollars); Australia's May import/export monthly rate (%); U.S. June non-farm payrolls change after seasonal adjustment (10,000); U.S. June unemployment rate (%); U.S. May durable goods orders monthly rate revised value (%); U.S. May factory orders monthly rate (%); U.S. June ISM non-manufacturing PMI; U.S. Independence Day closed for one day; ECB releases June monetary policy meeting minutes

Friday (July 04): Switzerland June unadjusted unemployment rate (%); Switzerland June seasonally adjusted unemployment rate (%); Canada June leading indicator monthly rate (%)

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