Forex News
BNY’s Bob Savage argues that South African Reserve Bank (SARB) is likely to lead emerging market tightening as South Africa reverses its easing path and hikes the repo rate back to 7.0%. The report notes improving inflows and mining-related support for South African Rand (ZAR), but stresses that higher U.S. yields and Fed policy set the bar, requiring more forceful Emerging Markets (EM) moves to maintain credibility and stabilize South African government bonds (SAGBs).
SARB leads EM rate reversal
"A shift in the Fed’s policy stance has reset the benchmark for emerging market central banks. On the back of surprise hikes in Asia to defend currencies and avoid excessive outflows, there are many candidates in EM that can follow, especially if fiscal performance is also under pressure, or other idiosyncratic factors come into play. Turkey is seen as a candidate, especially with growing reserve stress, but South Africa is likely to take the lead this week as it reverses course and hikes the repo rate back to 7.0%."
"This marks a sharp reversal from the easing path the SARB had established before the conflict, which had been reinforced by a lower inflation target and an unexpected terms-of-trade boost from surging precious metals prices. There was even talk of new fiscal rules to strengthen credibility, but there will be little appetite for such steps at present. As core inflation rebounds above 3.5% y/y and headline inflation returns to the 4.0% handle, swift anchoring of inflation expectations is necessary."
"On the positive side, our data indicate that markets have not totally shifted their view on policy credibility, and inflows have generally been improving year to date. Mining/materials equity flows can still benefit the ZAR and local markets selectively, while swift consolidation of the real-rate buffer will contribute to stabilization in SAGBs. "
"The main challenge for EM countries’ financial accounts for the rest of the year is where U.S. yields and Fed rates stand. SARB and its peers will hope that no more than a handful of precautionary hikes are needed, but the bar is set by the Fed – any rate increases will require more forceful moves from EM peers."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- EUR/CAD rises as falling oil prices weaken the commodity-linked Canadian Dollar.
- WTI price decline as the US and Iran are nearing a 60-day ceasefire deal to demine and reopen the Strait of Hormuz.
- ECB rate hike odds rise as higher energy prices threaten to push inflation forecasts upward.
EUR/CAD extends its winning streak for the fourth consecutive day, trading around 1.6080 during the European hours on Monday. The currency cross is gaining ground as the commodity-linked Canadian Dollar (CAD) struggles due to lower oil prices, a direct result of Canada’s status as the largest crude exporter to the United States (US).
Crude oil prices have dropped as supply fears ease, driven by rising optimism over a potential US-Iran agreement. Reports indicate that the United States and Iran are close to signing a deal involving a 60-day ceasefire extension. Under this proposed agreement, the Strait of Hormuz would be reopened, and Iran would clear mines it deployed in the waterway to allow ships to pass freely. In exchange, the United States would lift its current blockade on Iranian ports.
Meanwhile, traders are awaiting speeches from European Central Bank (ECB) policymakers later this week, including President Christine Lagarde, for fresh market impetus. The ECB has hinted that rising energy prices might push this year's inflation forecasts upward, supporting the case for a potential interest rate hike this year. While the case for the ECB to raise interest rates in June is nearly sealed, the central bank is likely to remain noncommittal about further moves in an effort to temper market bets for a quick follow-up step in July.
European Central Bank policy governing council member and Governor of the Bank of Greece, Yannis Stournaras, noted during Monday's European trading session that the closure of the Strait of Hormuz, a critical passage for nearly 20% of the global energy supply, could have secondary effects on wages and the prices of goods and services. Stournaras emphasized the necessity of ensuring inflation returns to the medium-term target of 2%.
Additionally, ECB member and head of the Austrian central bank, Martin Kocher, stated at a meeting of European finance ministers in Cyprus that the central bank is heading for an interest-rate increase next month unless a sustainable peace deal between the United States and Iran can be reached.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
ING’s FX Strategist Francesco Pesole expects the Reserve Bank of New Zealand to deliver a hawkish hold at the 27 May meeting, while warning markets underprice the risk of a surprise hike. He sees new projections signalling tightening from 3Q and looks for two 25bp hikes starting in July. NZD performance is still seen as largely driven by global factors.
Kiwi outlook tied to RBNZ path
"In our view, there are enough arguments to hike at this 27 May meeting (an underpriced risk), but the Reserve Bank of New Zealand has erred on the dovish side and looks more likely to opt for a hawkish hold. New projections may show tightening already in 3Q, and we expect the first of two hikes in July. NZD moves should stay mostly externally driven though."
"In any case, a hike in July is looking increasingly likely in our view, and should not be a one-and-done. Our current forecast is for 50bp of tightening in 2026, though this is highly dependent on energy market dynamics. Swap market pricing is 21bp for July and 75bp by year-end, and we suspect RBNZ communication at this meeting will seek to preserve this hawkish pricing."
"If our expectations for revised rate projections are confirmed, markets would receive an implicit green light to keep pricing around three hikes by year-end. Even in a scenario of Middle East de-escalation, there would be limited incentive to push pricing much below two hikes."
"This backdrop is supportive for NZD, given the market's tendency to reward currencies backed by proactive tightening by central banks. However, the near-term outlook remains dominated by Middle East headlines, global risk sentiment and US rate expectations."
"Beyond the short term, our call for NZD/USD to return above 0.60 in 2H26 continues to rest on a relatively benign resolution in the Gulf, alongside our expectations for two RBNZ hikes and one Fed cut by year-end."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Japan Prime Minister (PM) Sanae Takaichi said during the European trading session on Monday that the potential new debt to compensate for higher household utility and gas bills won’t impact bond markets, as it will be offset higher tax and other revenue sources.
Remarks
To implement support to curb household utility and gas bills from July to September.
Will compile an extra budget of more than 3 trillion Yen.
Will approve electricity and gas subsidy on Tuesday.
Electricity and gas subsidy to cost about 500B yen.
Will issue new deficit financing bonds to finance extra budget. Won't increase bond issuance on a calendar basis.
But will have no impact on the bond market as new debt will be offset by higher tax revenue, others.
It's possible to secure oil supply until next spring.
Will make utmost efforts to avoid market disruptions that were seen in the oil shock era.
To raise the ratio of nuclear and renewable energies to up to 70% from the current 30%.
To call for energy saving that we have done during every summer and winter since the oil shock. Minister Akazawa to announce details of the energy saving measures tomorrow.
Will earn market trust by reducing debt-to-GDP ratio.
Market reaction
No immediate response by the Japanese Yen (JPY) after Japan PM Takaichi's comments. The reasoning behind the JPY remaining unchanged after Takaichi's comments appears to be that government's decision to raise new debt has already been announced last week. As of writing, USD/JPY trades 0.2% higher to near 159.00.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
- USD/CAD attracts some dip-buyers following a bearish gap opening to sub-1.3800 levels.
- Falling Oil prices undermine the Loonie, countering a weak USD and supporting the pair.
- The technical setup favors bulls and backs the case for further near-term appreciation.
The USD/CAD pair reverses an intraday dip to sub-1.3800 levels and fills a modest weekly bearish gap, hitting a fresh daily top during the first half of the European session on Monday. Spot prices currently trade around the 1.3815 region, close to the highest since April 13, touched on Friday, though bulls seem hesitant amid a combination of diverging forces.
Crude Oil prices plummet to over a two-week low amid renewed hopes for a US-Iran peace deal and reopening of the Strait of Hormuz, undermining the commodity-linked Loonie and supporting the USD/CAD pair. Meanwhile, the latest optimism exerts heavy downward pressure on the safe-haven US Dollar (USD) and might keep a lid on any meaningful upside, warranting some caution before positioning for an extension of a three-week-old uptrend.
From a technical perspective, the USD/CAD pair keeps a constructive bullish bias above the 200-day Exponential Moving Average (EMA) and the 61.8% Fibonacci retracement of the March-May decline. Adding to this, a positive, rising Moving Average Convergence Divergence (MACD) histogram hints that upside momentum is strengthening. However, the Relative Strength Index (RSI) is approaching mildly overbought territory, holding back bulls from placing aggressive bets.
Hence, any subsequent move up is likely to confront immediate resistance at the 78.6% Fibo. retracement at 1.3877, with the recent swing high near 1.3965 as a stronger cap if buyers extend the move. On the downside, initial support sits in the 1.3807-1.3784 area, where the 61.8% retracement and the 200-day EMA cluster, followed by the 50% retracement around 1.3758, while deeper pullbacks would expose the 38.2% level at 1.3709 and the 23.6% retracement at 1.3648.
(The technical analysis of this story was written with the help of an AI tool.)
USD/CAD daily chart
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
(This story was corrected on May 25 at 09:30 GMT to say, in the second paragraph, that Oil prices fell to a two-week low, not high.)
UOB’s Quek Ser Leang and Lee Sue Ann note a sharp opening rise in GBP/USD, with rapid upward momentum that could see the pair test 1.3505, while 1.3530 remains a key resistance. They highlight that recent downward pressure has eased and the Pound is likely to range between 1.3330 and 1.3530, with risks skewed toward a topside break if 1.3435/1.3415 holds.
Pound-Dollar eyes key resistance band
"24-HOUR VIEW: We expected GBP to “trade sideways between 1.3400 and 1.3460” last Friday. GBP then traded within a range of 1.3416/1.3461 and closed unchanged at 1.3430. Today, GBP rose sharply on the open. The rapid build-up in upward momentum could lead to GBP testing 1.3505. The major resistance at 1.3530 is likely out of reach. To sustain the build-up in momentum, GBP must hold above 1.3435, with minor support at 1.3455. "
"1-3 WEEKS VIEW: In our most recent narrative from last Tuesday (19 May, spot at 1.3435), we highlighted that the recent “downward pressure has eased,” and we held the view that GBP “is likely to range-trade between 1.3330 and 1.3530.” While GBP has been trading within the range, the build-up in short-term momentum has increased the risk of GBP breaking above 1.3530. On the downside, a break below 1.3415 (‘strong support’ level) would indicate that GBP is likely to continue to trade in a range."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- EUR/JPY rises to near 0.15% on increasing hopes of an ECB interest rate hike in June.
- Several ECB officials warn of rising Eurozone inflationary pressures amid Hormuz closure.
- Investors await BoJ Ueda’s speech and the Tokyo CPI data for May.
The Euro (EUR) trades 0.15% higher to near 185.00 against the Japanese Yen (JPY) during the European trading session on Monday. The EUR/JPY pair trades higher on expectations that the European Central Bank (ECB) could raise interest rates in the near term, in an attempt to ensure that Eurozone inflationary pressures remain close to the 2% target.
A majority of ECB officials have warned of rising inflationary pressures in their latest commentaries and have stated that central bank would need to act quickly to tame price rises.
On Monday's European trading session, ECB governing council member and Governor of the Bank of Greece Yannis Stournaras said that the closure of the Strait of Hormuz, a critical passage to almost 20% of global energy supply, may have a secondary effect on wages and prices of goods and services. Stournaras added, “It's necessary to ensure the return of inflation to the medium-term target of 2%.”
Over the weekend, ECB member and head of the Austrian central bank, Martin Kocher, said at the sidelines of a May 22-23 meeting of European finance ministers in Cyprus that the central bank is heading for an interest-rate increase next month unless a sustainable peace deal between the United States (US) and Iran can be found, Bloomberg reported.
Kocher added that policymakers are effectively weighing the options of keeping rates unchanged and raising them at the June policy meeting. “Everything points to us deciding between holding and raising rates,” Kocher said.
Meanwhile, the Japanese Yen (JPY) trades lower, except its North American peers, with investors awaiting the Bank of Japan’s (BoJ) Governor Kazuo Ueda’s speech on Wednesday and the Tokyo Consumer Price Index (CPI) data for May, which will be released on Friday. Investors will pay close attention to both events to get fresh cues regarding the monetary policy outlook.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
- USD/CHF depreciates for the fourth consecutive day and approaches 0.7800.
- Comments about progress in the US-Iran negotiations are boosting a moderate risk appetite.
- Rising hopes of Fed rate hikes are likely to limit the US Dollar's losses.
The Swiss Franc (CHF) accelerates its recovery against the US Dollar (USD) on Monday, with the USD/CHF pair reaching 11-day lows below 0.7820 at the moment of trading, down from highs past 0.7900 last week. Growing hopes of a peace deal between the US and Iran and the reopening of the Strait of Hormuz are fuelling a moderate risk appetite and hurting the safe-haven US Dollar, with most Western markets closed on bank holidays.
Comments by US President Donald Trump this weekend, suggesting that Washington and Tehran are drawing closer to a peace agreement, have brightened investors' mood. Trump, nevertheless, has conveyed mixed messages, warning that the US will maintain the blockade on the Strait of Hormuz, which is likely to hinder an agreement, and adding that he is not in a rush to get a deal.
Tehran is reluctant to reopen Hormuz
On Monday, a spokesperson from the Iranian Foreign Ministry confirmed that Tehran is negotiating the end of the war and that it “is not currently discussing” nuclear issues,” which is one of the main friction points in the process. The same source, however, also affirmed that “management of the strait (of Hormuz) belongs to the coastal countries.”
The calendar is thin on Monday with US markets closed for Memorial Day. The highlight of the week will be the preliminary US Personal Consumption Expenditures (PCE) Price Index data from April, the inflation gauge of choice for the Federal Reserve (Fed).
Rising inflationary pressures, coupled with fairly strong US macroeconomic figures seen recently, namely the stabilising labour market data, have prompted investors to ramp up bets that the Fed will be forced to hike interest rates later this year. Markets are now pricing a more than 50% chance of a rate hike in 2026, from the one or two further rate cuts expected before the US attack on Iran, on February 28. This is likely to act as a headwind for the US Dollar.
Swiss Franc FAQs
The Swiss Franc (CHF) is Switzerland’s official currency. It is among the top ten most traded currencies globally, reaching volumes that well exceed the size of the Swiss economy. Its value is determined by the broad market sentiment, the country’s economic health or action taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss Franc was pegged to the Euro (EUR). The peg was abruptly removed, resulting in a more than 20% increase in the Franc’s value, causing a turmoil in markets. Even though the peg isn’t in force anymore, CHF fortunes tend to be highly correlated with the Euro ones due to the high dependency of the Swiss economy on the neighboring Eurozone.
The Swiss Franc (CHF) is considered a safe-haven asset, or a currency that investors tend to buy in times of market stress. This is due to the perceived status of Switzerland in the world: a stable economy, a strong export sector, big central bank reserves or a longstanding political stance towards neutrality in global conflicts make the country’s currency a good choice for investors fleeing from risks. Turbulent times are likely to strengthen CHF value against other currencies that are seen as more risky to invest in.
The Swiss National Bank (SNB) meets four times a year – once every quarter, less than other major central banks – to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Macroeconomic data releases in Switzerland are key to assessing the state of the economy and can impact the Swiss Franc’s (CHF) valuation. The Swiss economy is broadly stable, but any sudden change in economic growth, inflation, current account or the central bank’s currency reserves have the potential to trigger moves in CHF. Generally, high economic growth, low unemployment and high confidence are good for CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
As a small and open economy, Switzerland is heavily dependent on the health of the neighboring Eurozone economies. The broader European Union is Switzerland’s main economic partner and a key political ally, so macroeconomic and monetary policy stability in the Eurozone is essential for Switzerland and, thus, for the Swiss Franc (CHF). With such dependency, some models suggest that the correlation between the fortunes of the Euro (EUR) and the CHF is more than 90%, or close to perfect.
the
Brown Brothers Harriman’s (BBH) Elias Haddad expects the European Central Bank's (ECB) April Account to underline a tightening bias, with markets already pricing high odds of a June rate hike to 2.25%. Haddad argues that rate hikes in a weak growth, high inflation backdrop are not bullish for the Euro (EUR) and sees EUR/USD drifting lower towards 1.1400 as US growth outperforms.
ECB tightening backdrop weighs on Euro
"The ECB’s Account of the April 30 rate decision (Thursday) will provide more insights into policymakers’ tightening bias."
"At that meeting, the ECB kept interest rates on hold at 2.00% for an 8th consecutive meeting."
"Markets continue to imply 86% odds of a 25bps ECB rate hike to 2.25% at the next June 11 meeting."
"Rate hikes in a low growth, high inflation environment, is not bullish for EUR but should help cushion the downside."
"We see room for EUR/USD to edge lower towards support at 1.1400, reflecting a stronger US growth outlook relative to the Eurozone."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- Dow Jones futures rose as optimism over a US-Iran deal eased market worries about inflation and impending Fed rate hikes.
- The US and Iran are nearing a 60-day ceasefire deal to demine and reopen the Strait of Hormuz.
- Higher energy prices could push the Fed toward interest rate hikes instead of expected rate cuts.
Dow Jones futures advance 0.82% to near 50,100 during European hours on Monday. Meanwhile, the S&P 500 rise 0.93% above 7,550, and the Nasdaq 100 futures gain 1.38% above 29,950. Trading activity is expected to stay subdued as US regular markets will be closed due to the Memorial Day bank holiday.
US stock futures rise amid increasing optimism over a potential US-Iran agreement, which has eased broader market concerns about inflation and impending Federal Reserve (Fed) interest rate hikes.
A report by Axios cited a US official stating that the United States and Iran are close to signing an agreement that involves a 60-day ceasefire extension. Under this proposed deal, the Strait of Hormuz would be reopened, and Iran would agree to clear mines it deployed in the waterway while allowing ships to pass freely. In exchange for these actions, the United States would lift its current blockade on Iranian ports.
However, Reuters cited Iran’s Tasnim news agency indicating that the US government is still obstructing certain clauses of the agreement to end the conflict, specifically regarding the release of blocked Iranian assets. Further tempering immediate expectations, US Secretary of State Marco Rubio informed the New York Times that while an agreement with Iran has garnered regional support, a comprehensive nuclear deal could not be achieved quickly or carelessly.
Traders remain cautious as the potential impact of elevated energy prices on inflationary pressures in the United States could recalibrate Federal Reserve expectations away from rate cuts and toward potential future rate hikes. According to the CME FedWatch tool, market participants are now pricing in a nearly 41.0% probability that the Fed will implement a 25-basis-point interest rate increase by the end of the year.
Market momentum was mixed but generally positive last week, with the Dow Jones leading the gains at 2.13%. The S&P 500 and Nasdaq 100 also climbed, posting modest increases of 0.88% and 0.45%, respectively. This upward movement was largely driven by a strong wave of corporate earnings and growing optimism surrounding peace negotiations in the Middle East.
Looking ahead, investor attention is shifting toward critical US economic indicators and upcoming corporate updates. Key data releases on the radar include PCE inflation, GDP growth, and personal income and spending metrics. Additionally, Wall Street will be closely watching corporate earnings reports from several major companies, including Zscaler, Salesforce, and Dell Technologies.
Dow Jones FAQs
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.
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