Canada’s Consumer Price Index (CPI) Core recorded a monthly increase of 0.6% in May, slightly above the previous expectation of 0.5%. The data provides insight into the inflationary pressures within the Canadian economy during this period.

In the foreign exchange market, EUR/USD reached multi-year highs, trading near 1.1640, buoyed by optimistic remarks from the Federal Reserve Chairman and positive developments in the Middle East. Similarly, GBP/USD remained strong above 1.3600, supported by reduced recession concerns and reports of easing tensions in the Middle East.

Gold And Bitcoin Markets

The gold market saw its price nearing $3,300 as sentiment improved, with risk-on flows influenced by geopolitical developments in the Middle East. Meanwhile, Bitcoin’s price stabilised around $105,000 following a gain spurred by reduced geopolitical and regulatory uncertainties.

Despite the easing geopolitical tensions, concerns persist about the potential impact on oil markets, especially with threats surrounding the Strait of Hormuz. The prospect of increased risks in this critical sea passage continues to weigh on the market outlook.

With Canadian core CPI rising by 0.6% in May, slightly ahead of the expected 0.5%, inflationary momentum appears to be holding firm. This suggests price pressures are not abating as quickly as some might have hoped, and when viewing the monthly print in light of prior readings, the potential for continued monetary tightening—or at the very least, a sustained pause—becomes difficult to ignore. Given the Bank of Canada’s past sensitivity to persistent inflation, we may now find fewer signals pointing to rate cuts in the short term. Rate-sensitive assets will certainly price that in, possibly leading to shifts in interest rate derivatives across term structures. In practical terms, this means we might see heightened demand for short-end protection via interest rate swaps or options that hedge against any upside inflation surprise in subsequent prints.

Currency Markets

Turning to currency markets, recent strength in EUR/USD and GBP/USD has been powered by very particular drivers—in this case, buoyant sentiment following dovish tones from Powell and renewed calm in the Middle East. However, these kinds of sharp reactions, especially those that send EUR/USD to levels not seen in years, require an honest reassessment of whether the current rally is overextended. One might expect some profit-taking and possibly an increase in options volatility to hedge long dollar exposure, particularly with event risk back on the table through upcoming CPI prints or central bank commentary.

For sterling, the rally above 1.3600 was encouraged by receding economic slowdown fears. While that optimism is reflected in the currency, we must be conscious of residual macro headwinds which could reignite downside risks. With that in mind, sterling options skew may shift slightly in favour of puts, especially closer to the next UK inflation numbers or Bank of England communications.

The gold price, edging toward $3,300, continues to act as the preferred defensive hedge—even within a risk-on environment. Notably, the rally has been underpinned by geopolitics but also reflects a broader hunt for safe duration that isn’t necessarily dollar-denominated. From our seat, this duality in flows implies demand for gold derivatives may split across both outright direction and volatility strategies. We’d expect consistent premium bids in weekly calls while calendar spreads become more active around event risks.

Bitcoin stabilising above $100,000, specifically around $105,000, suggests speculative demand is once again leaning long. The earlier lift, driven by less ambiguity from regulators and cooling conflict risk, has cemented its hold above the round-number threshold. Implied volatility remains elevated, but realised has flattened considerably. That gap alone presents opportunities in gamma-selling for those meeting appropriate margin requirements. Still, positioning must be nimble, particularly around macro data or if regulatory commentary shifts tone.

Oil remains exposed, even with tensions in the Middle East seemingly on the downtrend. The Strait of Hormuz remains a key concern. A single disruption can change price dynamics faster than any model can process. While spot may appear subdued, we see considerable interest in upside optionality. OTM calls further out the curve might see inflows, especially as traders begin to account for seasonal demand and climate disruptions. Structurally, backwardation remains in place—but should flows reverse, reversion trades on the curve could become attractive.

In the weeks ahead, tracking cross-asset volatility will be key. With inflation readings and central bank communications on the horizon, we’re likely looking at a period where implied vols may underprice realised swings unless repriced quickly. Best to stay dynamic, remain protective of directional views, and apply carefully-sized exposure across asset pairs that exhibit predictable mean reversion or breakaway potential.

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