The US Dollar Index (DXY) stayed below 100.00 and drifted towards two-month lows after a run of softer US jobs, inflation and retail sales data reduced expectations of a Federal Reserve move next month. In commodities, crude rose by more than 2% after remarks from a senior Iranian official, while gold remained supported and extended gains back above $4,400. West Texas Intermediate (WTI) pushed towards $84.00 a barrel as the geopolitical risk premium firmed.<\/p>\n
In FX, EUR\/USD held around 1.1580 after easing from two-month highs near 1.1614, while GBP\/USD traded in the mid-1.3500s near three-month highs ahead of the UK jobs report. USD\/JPY hovered around 159.00 despite a soft Japan Q2 GDP print, and AUD\/USD stayed firm in the low-0.7100s even as Chinese industrial production and retail sales slowed. The calendar includes Australia\u2019s Westpac Consumer Confidence, then the UK labour market data watched by the Bank of England (BoE), followed by Germany and Eurozone ZEW surveys and a speech by the European Central Bank\u2019s (ECB) Philip Lane; later come US building permits, housing starts, industrial production and pending home sales, with New Zealand Q2 PPI due late.<\/p>\n
We should position ourselves for a weaker US dollar in the coming weeks as soft economic data drives expectations of a Federal Reserve rate cut. With the US Dollar Index slipping below the key 100.00 level, fed funds futures are now pricing in a higher probability of a policy pivot next month. We recommend buying call options on EUR\/USD targeting the 1.1700 level, especially as the pair holds strong above 1.1580.<\/p>\n
Geopolitical tensions in the Middle East mean we must also hedge against a sudden supply shock in the energy markets. Iran\u2019s threat to block the Strait of Hormuz, a vital transit point that handles roughly 20 million barrels of oil per day, could quickly push WTI crude past $90.00. We suggest using long call options on WTI crude to capture this rising geopolitical risk premium.<\/p>\n
Gold\u2019s climb above $4,400 shows that investors are rushing to safe havens as inflation fears subside and global risks rise. Historically, gold prices have gained an average of 15% during periods of prolonged Fed easing and heightened geopolitical conflict. To capitalize on this trend, we should implement bull call spreads on gold futures to maximize returns while limiting our downside.<\/p>\n
Finally, we need to watch the British Pound ahead of the upcoming UK labor market report. If average weekly earnings remain high\u2014above the 4% level seen in previous quarters\u2014the Bank of England will likely delay its rate cuts. This outcome would support the Pound, making long GBP\/USD derivative positions highly attractive as the pair targets 1.3700.<\/p>\n\n\n\n