Markets showed surprising composure last week as equities climbed and Dollar dominate FX rankings. NASDAQ’s relentless ascent and a fresh record for the S&P 500 highlighted investor confidence despite growing political noise and tariff tensions.
Elsewhere in FX, Euro and Sterling held firm, along with Loonie but were largely lifted by relative outperformance. Meanwhile, Aussie found itself at the bottom of the currency board after a grim jobs report. Yen and Kiwi didn’t flare better, with the former suffering selloff ahead of this weekend’s elections. Swiss Franc ended in the middle.
Solid Data Anchor Risk Sentiment Despite Swirl of Uncertainty
US equities remained resilient last week, with NASDAQ extending its record-breaking run and S&P 500 also registering a fresh record high before ending Friday flat. While DOW showed signs of stalling, the broader tone in risk assets held up surprisingly well. This came despite a swirl of uncertainty—ranging from trade war to speculation that President Donald Trump was preparing to fire Fed Chair Jerome Powell. Additionally, a combination of solid data supported expectations that Fed won’t act rashly on rate cut. But investors were generally unfazed.
The bullish sentiment was partly supported by solid economic data out of the US. Retail sales surprised to the upside with a 0.6% month-over-month gain, with ex-auto sales up 0.5%—pointing to resilient consumer spending despite mounting price pressures. Initial jobless claims also improved, falling to 221k, the lowest level in three months. Together, these indicators painted a picture of a still-solid economy.
While Fed Governor Christopher Waller doubled-down on his push for a July rate cut, most policymakers emphasized risks from tariff-driven inflation. The majority’s cautious stance was supported by the late inflation data. Headline CPI accelerated to 2.7% in June, with core inflation rising to 2.9%. The data confirmed that the pass-through from tariff-related input costs is reaching the consumer level.
Indeed, Fed’s own Beige Book flagged increasing cost pressures from tariffs, with many firms planning to pass those through to consumers. The report warned that consumer prices could begin rising more quickly by late summer. That concern echoed through multiple Fed speeches, with Atlanta Fed’s Raphael Bostic warning June CPI could be an “inflection point.
All in all, the picture is that there is no imminent urgency for Fed to cut interest rates again. And the inflation risk ahead, due to tariffs to take effect after August 1, should keep Fed on guard again resurgence in inflation.
Pricing for a hold at this month’s meeting remains above 95%. Odds for a September cut have fallen to just over 50%, down from nearly 60% last week. For now the more dovish path for Fed this year would be just two rate cuts, one in September and one in December. The more hawkish path with be just one cut in December, or probably no cut at all.
Technically, NASDAQ (closed at 20895.65) is now closer to an important resistance zone, between 61.8% projection of 10088.82 to 20204.58 from 14784.03 at 21035.56, and long term channel top at around 21370. Rejection by this zone, followed by break of 20492.62 support, will bring near term correction first. However, sustained break of the resistance zone could prompt upside acceleration to 100% projection at 24899.78 within the second half of the year.
As for Dollar Index, rebound from 96.37 short term bottom continued last week. Immediate focus is on 55 D EMA (now at 98.91). Sustained break there will bring stronger rise back to 101.97 resistance, which is slightly above 38.2% retracement of 110.17 to 96.27 at 101.64, even still as a corrective move.
More importantly, while it’s still early, it should be pointed out again that Dollar Index is close to decade long channel support (now at around 96). Sustained trading above 55 W EMA (now at 101.29), will argue that whole down trend form 114.77 has completed as a three wave correction.
Euro, Sterling Hold Ground as Others Struggle
Euro and Sterling ended the week firmer, though still under the shadow of a dominant US Dollar. Support came partly from domestic data surprises, but more importantly, from relative weakness in other major currencies—particularly the Aussie which suffered on poor jobs data, and Yen due to pre-election selloff.
In the Eurozone, optimism returned as Germany’s ZEW Economic Sentiment index jumped to 52.7 in July, marking a third straight month of gains. ZEW cited hopes of a US-EU trade breakthrough, though such optimism may prove premature. However, reports indicate Trump is now pushing for a 15–20% minimum tariff in any deal, with the threat of a 30% blanket tariff still lingering. These signals suggest the EU is far from out of the woods.
Sterling, meanwhile, found modest support in hotter-than-expected UK inflation data. Headline CPI rose to 3.6% in June, while core CPI accelerated to 3.7%. Most notably, goods inflation ticked up to 2.4%, indicating that trade-linked price pressures are beginning to filter through. This gives the BoE’s hawkish members additional ground to resist deeper or faster rate cuts. With the BoE already on a quarterly cut path, the latest inflation data make it more difficult for doves to push for a more aggressive easing cycle.
Technically, EUR/GBP’s extended rally from 0.8534 is starting to lose steam, as seen in D MACD, ahead of 0.8737 resistance. Break of 0.8607 support should indicate short term topping in the cross. Further break of 55 D EMA (now at 0.8541) will suggest near term reversal, and the pattern from 0.8737 should have then started the third leg back towards 0.8354.
Aussie Sinks as RBA Cut Bets Surge After Jobs Shock
Aussie finished the week as the worst-performing major, defying the broader risk-on tone that saw global equities and commodities extend gains. Australia’s own ASX 200 index surged to record highs, highlighting the divergence between local asset strength and AUD’s poor performance.
The shift in sentiment was driven by the disappointing June employment report. Headline jobs growth came in at just 2k, with a sharp drop in full-time employment and a rise in the unemployment rate to 4.3%. The data shocked markets and led traders to fully price in an RBA rate cut for August. Some are now questioning whether the central bank erred in holding policy steady in July.
With inflation also under watch, the upcoming Q2 CPI report could be decisive. Should it reveal a clear loss of momentum in prices, the case for policy easing would strengthen further. A deteriorating labor market combined with soft inflation could set the stage for an accelerated rate-cut cycle—something the RBA has so far been hesitant to entertain.
AUD/USD was the top mover last week, losing -1.06%. While AUD/USD recovered after diving to 0.6453, thanks to extended risk rally, risk will stay on the downside as long as 0.6593 short term top holds. Fall from there is tentatively seen as a correction to rise from 0.5913. Deeper fall should be seen to 38.2% retracement of 0.5913 to 0.6594 at 0.6334 before completion.
USD/JPY Weekly Outlook
USD/JPY finally broke out of range last week to resume the rebound from 139.87. But as a temporary top was formed at 149.17, initial bias stays neutral this week first. On the upside, break of 149.17 will target 100% projection of 139.87 to 148.64 from 142.66 at 151.43. That is close to 61.8% retracement of 158.86 to 139.87 at 151.22.
In the bigger picture, price actions from 161.94 (2024 high) are seen as a corrective pattern to rise from 102.58 (2021 low). There is no clear sign that the pattern has completed yet. But still, strong support is expected from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound.
In the long term picture, there is no sign that up trend from 75.56 (2011 low) has completed. But then, firm break of 161.94 is needed to confirm resumption. Otherwise, more medium term range trading could still be seen.
