Traders remain mostly inactive as Japan’s holidays and the pre-Federal Open Market Committee (FOMC) blackout period keep market moves subdued despite weekend news. Mixed U.S. economic data, fresh statements from the International Monetary Fund (IMF), and trade updates leave traders cautious ahead of this week’s preliminary July Purchasing Managers’ Index (PMI) readings.
In Japan, Prime Minister Shigeru Ishiba’s coalition lost its majority in the upper house, leaving his government in the minority in both houses of parliament. Ishiba insists on maintaining leadership during these turbulent times, with unclear direction amid strained U.S.-Japan trade talks and mixed inflation and growth prospects. This political setback might have boosted the USD/JPY currency pair, but the Japanese holidays and risk-off sentiment, combined with uncertainty over the Bank of Japan’s (BoJ) next steps, weighed on the pair, marking its first daily loss in three sessions.
Across the Atlantic, a U.S. trade negotiator caught European Union (EU) diplomats off guard by signaling that President Donald Trump may demand further trade concessions, including raising tariffs to 15% or more on most European goods, according to the Wall Street Journal (WSJ). This sharpens EU-U.S. trade tensions and pushes Germany and other EU members toward aligning with France’s tougher stance.
The IMF’s latest economic assessment warns of persistent global risks and high uncertainty driven by ongoing trade tensions, further pressuring risk assets.
Geopolitically, Iran, Britain, France, and Germany have agreed to hold talks on Tehran’s nuclear program on July 25 in Turkey. This raises concerns about the U.S. response and possible impacts on energy markets. Meanwhile, Russia has expressed discomfort with President Trump’s weapons support for Ukraine but is calling for cooperation to help achieve a ceasefire.
In trade news, China’s exports of rare earth magnets to the U.S. soared by over 660% in June to 353 metric tons, according to Chinese customs data. Nvidia also plans to resume sales of its H20 AI chips to China. The White House remains optimistic about securing multiple trade deals before the August 1 deadline to reduce risk aversion.
On the data front, U.S. consumer sentiment rose last Friday, while inflation expectations eased. The United Kingdom’s consumer confidence sharply dropped in Q2, and New Zealand’s inflation data showed mixed results. Meanwhile, Federal Reserve (Fed) officials enter their two-week silence ahead of the July 29-30 FOMC meeting, mostly resisting President Trump’s calls for quick rate cuts. Most Fed members emphasize inflation risks from tariffs and the need to watch incoming data carefully, especially after last week’s mixed U.S. inflation figures.
Against this backdrop, the U.S. Dollar Index (DXY) remains steady, holding Friday’s slight pullback but testing its two-week uptrend. Gold edges higher and USD/JPY posts its first daily loss in three days. Australian and New Zealand dollars trade mixed. Crude oil recovers some of last week’s losses, while Bitcoin (BTC/USD) and Ethereum (ETH/USD) register modest gains after a stellar “Crypto Week” performance. EUR/USD and GBP/USD show no clear direction after losing ground for two and three weeks respectively.
Japan’s political landscape shifted over the weekend as Prime Minister Shigeru Ishiba’s coalition lost its majority in the upper house, putting his government in the minority in both chambers. Despite the setback, Ishiba remains defiant, pledging to lead through growing economic and geopolitical uncertainty.
While such turmoil typically lifts USD/JPY, the pair instead posted its first daily loss in three sessions. A combination of Japanese market holidays, risk-off sentiment, and uncertainty over the Bank of Japan’s (BoJ) policy direction capped any upside.
Adding pressure, the U.S. continues to resist Japan’s tariff requests—especially on automobiles—fueling trade tensions. At the same time, a decline in 10-year Japanese Government Bond (JGB) yields from 2008 highs, the opposition’s push for lower interest rates, and disappointing domestic data on employment and growth further dragged on sentiment.
Together, these factors have clouded the yen’s near-term outlook and left traders cautious ahead of key global events and policy cues.
Even as the U.S. Dollar retreats, both EUR/USD and GBP/USD remain on the back foot, struggling to recover after two and three consecutive weeks of losses, respectively.
Trump’s renewed push for higher EU tariffs is weighing on the Euro, while the British Pound faces pressure from the sharpest drop in UK house prices in over 20 years and the biggest fall in Q2 consumer confidence since 2022.
Adding to the drag, EUR/USD traders are cautious ahead of this week’s European Central Bank (ECB) policy meeting, while GBP/USD holds steady in consolidation mode as markets brace for UK Retail Sales data and preliminary July PMIs from both the EU and UK.
The mood stays cautious, with technicals and fundamentals both putting pressure on Euro and Pound bulls.
AUD/USD defends Friday’s rebound, supported by signs of improving China-U.S. trade ties. However, NZD/USD lags, failing to benefit from the positive sentiment as the Reserve Bank of New Zealand’s (RBNZ) preferred inflation measure eased, despite an uptick in headline Consumer Price Index (CPI) data.
Meanwhile, USD/CAD extends Friday’s decline, pressured by a modest recovery in crude oil prices, Canada’s top export, after two weeks of losses. Trade tensions also weigh: last week, President Trump threatened steep tariffs if Canada doesn’t finalize a trade deal by August 1. In response, Canada vowed to retaliate if necessary, adding further stress to the pair.
With commodity currencies reacting to both trade headlines and inflation signals, traders remain alert to shifting sentiment.
Gold defends Friday’s rebound from a key support trendline dating back to December 2024. The move is backed by a weaker U.S. Dollar, rising global uncertainty, and safe-haven demand. Also boosting sentiment are improving U.S.-China relations, fresh International Monetary Fund (IMF) warnings, and a World Gold Council (WGC) report pointing to strong physical demand.
Meanwhile, WTI Crude Oil defends Friday’s gains after ending a four-day losing streak. Prices are supported by heightened Middle East tensions, a positive outlook for China’s energy demand, and ongoing disruptions to Russian oil exports amid its war with Ukraine.
With risk sentiment shaky and supply dynamics in play, commodities remain at the center of market focus.
Bitcoin (BTC/USD) and Ethereum (ETH/USD) post mild gains early Monday, lifted by a softer U.S. Dollar and renewed bullish sentiment after the U.S. government passed the GENIUS Bill—the world’s first official crypto legislation.
Bitcoin briefly hit a new record high last week but closed with slight losses, while Ethereum surged over 25%, driven by institutional inflows, a technical breakout, and strong on-chain metrics.
With last week dubbed the “Crypto Week,” the market now appears to be consolidating, possibly giving crypto bulls a chance to regroup after an intense rally.
Monday’s economic calendar is light, with only the Bank of Canada’s (BoC) Business Outlook Survey on tap. The pre-Federal Reserve blackout period, Japan’s market holiday, and a cautious tone ahead of the European Central Bank (ECB) meeting and July PMI previews add to the silence.
With little fresh data and event risk looming, risk sentiment is likely to stay fragile, which could limit gains in equities and cryptocurrencies. However, the U.S. Dollar looks unlikely to stage a strong rebound, potentially offering room for major currencies, Gold, USD/JPY, and Antipodeans to drift higher.
Markets are in wait-and-watch mode—but subtle moves could set the tone for a volatile week ahead.
May the trading luck be with you!
