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<p>Going into the weekend, and at the open, the market was so well hedged against a major tail-risk event to play out…the actions and the dialogue we’ve seen highlight that the tail risks have not and will highly unlikely materialize. In fact, traders are now firmly of the belief that the risk of a supply shock is now firmly in the rear-view mirror. </p><h4>The crude options market tells the real story </h4><p>The crude options market is key to everything that has gone down today, as it’s here that we can truly see just how well-hedged participants were against the extreme tail risks. The catalyst in the news was Iran’s response and subsequently Trump’s follow-on announcements leading into headlines of an Iran-Israel ceasefire. Iran’s counter was defiant in tone, but lightweight in actual impact. US air bases in Qatar and Iraq sustained minimal damage, and no military personnel were lost. Iran’s own oil export facilities remained untouched, and the Strait of Hormuz still operates efficiently. </p><p>With Donald Trump having lent a hand in brokering a peaceful resolution, the prospect of a prolonged conflict with US involvement has been repriced, giving the green light to add risk and pare back well-owned tail-risk hedges.</p>

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<p>Going into the weekend’s news flow, Brent crude futures deep-out-of-money (5-delta) 1-month implied call volatility was set at an extreme 95 volatility premium to put volatility—for context, the 12-month average is -8.3 vols—this underscores the extreme skew traders had paid up for in the event of a loss of Iran’s 1.5Mbpd crude exports, and/or the closure of the Strait of Hormuz. </p><p>The oil VIX (OVX) spiked to 74% last week—the highest since 2022—but is now down to 53%. We can also see Brent at-the-money 1-month implied vol opening yesterday at an impressive 92% before the volatility sellers stepped in, driving implied vol back to 54%. Amid a backdrop of traders running long crude positions into the US attack on Iran’s three nuclear enrichment facilities, this easing of implied vol has significantly helped push the underlying crude price back to $70. </p><h4>Reviewing the chain of events on the day </h4><p>Brent futures initially rallied 6% to $81.40 on the Monday futures open, but that level was not sustained for long, and the market swiftly pushed it back below $80. That reversal breathed stability into Asian equities and triggered a selloff in gold—with the yellow metal trading from $3395 down to $3334.70—before the buyers stepped in with gold finding better form. This was a major red flag to me that the market was sensing the probabilities of the distribution changing. </p><p>Throughout the session, crude has been the dominant independent variable and has been so influential in driving such an empathic rejection of the lows in S&amp;P500 and NAS100 futures. Headlines of an Iranian response on US bases in Qatar and Iraq sent futures down to 5,993, but as the broad collective learned the measures lacked the impetus to further deteriorate the situation and with the response avoiding targeting its own infrastructure the market structure evolved. We can look back at the intraday tape of SPX500 futures and see the volume spike at 5993 representing a clear capitulation move, with the algo’s sensing that the street had put its foot down further selling crude vol, selling crude futures and buying equity and FX risk – and from there it became a one-way march into the close. </p><p>That reversal in risk appetite rippled across risk FX and crypto. The DXY rallied to its 50-day moving average before being sold off from that pivot, with EUR/USD enjoying a solid reversal off 1.1460 with the spot rate now looking set to extend gains beyond 1.1600.</p>

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<p>S&amp;P futures ultimately broke out of their consolidation zone to close above 6,050, naturally elevating the risk of an impending challenge of the all-time highs. Breadth was impressive—nearly 80% of S&amp;P-500 components finished higher, led by consumer discretionary, REITs, staples, industrials, financials, and tech. I’m particularly constructive on financials—JPMorgan and Citigroup stand out—and I see the recent regulatory developments and an uptick in deal-making activity as further tailwinds for further equity appreciation. Energy was the only sector in the red (–2.5%), which is no surprise given today’s crude reversal. </p><p>Looking ahead to Asia: we expect the ASX 200 and Nikkei to outperform, while moves in the Hang Seng and Chinese equity markets may be more muted. We’ll keep a close eye on Middle East developments, but sensitivity to geopolitical headlines has clearly diminished. As Trump himself has signalled, it’s time for markets to refocus on the key themes: economics, inflation, tariffs…and the passing of the “One Big, Beautiful Bill.” </p><p>Good luck to all.</p>

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Brent Crude Collapse, S&P500 Eyeing All-Time Highs

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<p>Aside from simply positioning outright long of crude or buying crude volatility as a hedge against the unforeseen consequences of the developing conflict – this period of high anticipation on Iran's next move makes the role of pricing risk incredibly challenging, and that will likely see gold finding form and testing $3400 on the reopen. Those positioned in gold longs will want to see a solid close above $3450, given the supply seen around this level over the past 3 months, to feel confident of a test and potential break of the all-time highs of $3500.</p>

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<h4>Iran don’t need to close the Strait of Hormuz to cause a significant impact on supply </h4><p>Many will see Iran now a step closer to disrupting logistics and the ease of passage for vessels passing through the Strait of Hormuz (SOH). The weight of money placed in the betting markets for a closure of the SOH to occur this year has risen to a 51% probability, and while this feels too high in my novice thinking, the market may recalibrate its sensitivities towards maritime insurance rates and freight costs – essentially, Iran doesn't need to formally go down this extreme route to inflict economic damage on the world (and its own economy), and while conflict risk premiums have been a factor for 18 months now, by planting enough belief that they could disrupt this key logistical channel, maritime costs could rise to the point that it would have a significant impact on the supply of crude and gas. </p><h4>The EUR has been the pillar of strength </h4><p>One would argue the unfolding geopolitical events could pose an upside risk to the USD on safe-haven flows, but after a short period, one could just as easily see Trump’s action accelerating the migration from the USD and into the EUR, where the recent broad strength in the EUR will be put on show this week. Europe does have a high energy import requirement, and the EUR may become increasingly sensitive to the rise in EU natural gas - but offsetting these energy inputs we see France pushing other EMU nations towards greater shared debts, while Germany’s draft 2026 fiscal budget (announced Wednesday) has been a tailwind behind the EUR finding such solid form – notably vs the JPY, NOK and SEK.</p>

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<p>US equity futures should open around 1% lower on the weekend news, although the buy-the-dip mantra is still well-engrained into the mindset of investors. Equity investors may look at portfolio hedges over more dramatic de-risking, comforted to an extent by the idea that OPEC does have spare capacity and at this stage, the dynamics do not suggest any real impact to earnings expectations. </p><h4>A bifurcated Fed </h4><p>We are not yet at the stage where higher oil prices will have any lasting impact on US inflation or growth – that would take crude at or above $100 a barrel and gasoline continuing to kick for a sustained period. However, it does through conjecture on the inflation argument that is starting to divide the Fed… the ultra doves within the Fed’s ranks – Christopher Waller and Mary Daly - are looking through the impact of tariffs and seeing reasons to cut rates sooner – but a possible energy-related lift to headline inflation is not yet being considered. This will be put on show this week with Fed chair Powell holding his semi-annual testimony to Congress and several of the more centrist Fed voters (such as John Williams, Susan Collins and Michael Barr) also due to speak. </p><p>One suspects any of the Fed members offering guidance on the economy will steer well clear of talking about the geopolitical developments, but with an increased discussion on whether the Fed should look through the potential inflationary impact of tariffs any of the centrists showing a renewed bias to cut rates sooner could move the implied US rate setting and by extension impact the USD. </p><h4>Tariff deadlines creeping up rapidly</h4><p>It is also worth considering that the deadline for Trump’s 10% reciprocal tariff rate (for most countries) and the proposed implementation date for 50% rates on EU imports are now only 18 days away. Subsequently, while Trump’s primary focus will be on the Middle East, headlines on trade negotiations could soon start to roll in and market anxieties could feasibly build. One suspects if Iran does attack US military bases and the price of crude pushes towards $100 a barrel the probability of an extension to the 9 July deadlines will presumably rise. </p><h4>US economic data to navigate </h4><p>There are a number of data points to consider in the US this week, with personal spending, weekly jobless claims and durable goods worth being on top of. US core PCE is perhaps the marquee release though, where the consensus view is for the Fed’s preferred inflation gauge to come in at 0.1% m/m / 2.6% y/y, putting the 3-month annualised rate at a low 1.6%. With the market's pricing of future inflation well anchored, early cracks emerging in the labour market and housing activity evidently weak, there are reasons for the Fed to consider adopting a dovish shift in the July FOMC meeting and guiding towards a cut in September - a path already priced into the US swaps market. </p><h4>EU &amp; UK PMIs and inflation in the mix </h4><p>Elsewhere, PMIs from Europe and the UK could move the dial and reinforce the long EUR trade which has recently gripped the FX markets. </p><p>We get inflation data in Australia, where the monthly CPI data is expected to ease a tick lower to 2.3% - an outcome which should only galvanise the implied pricing for a 25bp cut from the RBA at the July meeting. Inflation prints are also seen in Canada, with the swaps market implying a 34% chance of a cut at the July BoC meeting. </p><p>Good luck to all.</p>

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A Traders’ Week Ahead Playbook: Pricing risk through a period of high anticipation

<p>The Fed meeting pulled the attention temporarily away from Trump’s frequent defiant views on Iran, even if the sensitivity towards the geopolitical risk has largely been contained to the energy markets. The wash-up of the Fed meeting was that markets were treated to a modestly dovish refreshed set of economic projections and Dots, which were subsequently offset by a slightly more hawkish-than-expected presser from Chair Powell. </p><p>The Fed maintains a central projection for two rate cuts in 2025, although behind the surface seven officials now project no cuts in 2025 vs four in the March meeting. We see fewer cuts projected for 2026, although we put less weight on the 2026 'dot' as the Fed’s visibility to make assumptions this far out is tough, and that call is more about putting numbers out to the market so as to offer a loose guide around their thinking. We see a central view of slower growth for 2025, with higher inflation, although these new projections were well-telegraphed and very much in line with market expectations. </p><h2>The Fed's primary focus is on inflation </h2><p>What was interesting is that Chair Powell has swayed the balance of their focus towards the tariff impact on goods inflation that will partly contribute to driving core PCE toward 3.1% by Q425. Powell made it clear that while the mantra of wait and see if still very much unchanged, inflation is their dominant concern, and the labour market and growth come in closely behind. Of course, with Q2 GDP likely to be robust and the labour market still in a good place, one can understand the Fed’s thought process, but it does suggest that when tariff rates do settle and are ingrained into business plans the markets pricing of inflation expectations will matter a lot to equity risk and the USD. </p><p>It also suggests that if US weekly jobless claims were to rise to say 280k and should this be met with a weak nonfarm payrolls print, at or below 80k, then this weaker labour market dynamic, when the Fed are focused more intently on inflation, would likely send a wave of derisking through markets. It may not happen anytime soon, but in this scenario, the market would send a message to the Fed that its focus is misplaced. </p><p>We can see the reaction perhaps best portrayed through the US 5-year Treasury – given this is part of the Treasury curve fixed income investors seem to find most attractive right now. In reaction to the Fed statement (and SEPs) yields initially pulled -3bp to 3.92% before the sellers took over pushing the yield closer to 4%, before settling largely unchanged on the day. US Rates/swaps pricing remains in check, with 48bp of implied cuts from the Fed still the central case priced through to December. There has been little change to expectations for the Fed’s terminal rate, with market pricing implying that the Fed could take the Fed funds rate to 3.32% by late 2026. </p><h2>FX moves on the day </h2><p>The USD has seen mixed performance across the major currencies on the day – and while the FX channels have an eye out for any sharp moves coming in Brent crude, we see the AUD and NZD outperforming, with the SEK underpaying post the Riksbank meeting, while the Petro-currencies – the NOK and CAD - have lost ground and held back by a choppy crude price.</p>

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<p>The DXY is threatening a bullish break of short-term channel resistance but really needs to clear the 50-day MA (99.55) to compel a sizeable pool of short positioning – held notably by real money accounts – to cut back. This could take the DXY to 102, although that would need EURUSD to pull lower to 1.1200. For the USD bears, this could be a welcomed development, as a solid flush out of USD shorts would offer a cleaner entry point. </p><h2>Levels that define US equity risk </h2><p>S&amp;P500 futures have been choppy through trade, finding better sellers into 6020 but seemingly finding buyers supporting into 5980. US cash equity closed largely unchanged with tech keeping the index from falling into the red, with breadth well balanced. At an index level consolidation remains the play and it seems that the near-term ranges of 6070 to 5925 define the risk for now – a breakout of either level would be of interest. </p><p>Looking ahead, headlines on developments in the Middle East will be the central focus for many, with reports surfacing that Trump has approved attack plans for Iran but has held back to give Iran a final chance to cede its nuclear enrichment capabilities. Headline risk will therefore be a core factor for traders to navigate, with potential volatility seen within energy markets, a factor which could see gold and the USD (to a lesser extent) following the crude moves. </p><p>On the data side, we get Aussie jobs, and the BoE meeting will almost certainly leave rates on hold.</p>

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Energy Markets Take the Lead as Fed Signals Caution on Inflation and Growth

<h4>US inflation continues to normalize </h4><p>US core producer price inflation came in at 0.1% m/m, which accounting for the components from the CPI release, suggests US core PCE Inflation (released on 27 June) is likely to come in around 0.15% m/m, putting the annualised core PCE inflation rate at 2.6%. </p><p>Clearly, we’re not seeing any noticeable effects of tariff pass-through in the inflation data at this stage, and we can see that the tradeable inflation markets have taken notice. US 1-yr inflation swaps have pulled below 3%, falling a healthy 9bp on the day. </p><h4>Jobless claims and payrolls - the trigger for a higher volatility regime</h4><p>US weekly jobless claims also receive ever-increasing attention, with US jobless claims coming in unchanged at 248k, while continuing claims increased to 1.956m. These metrics do warrant close attention, as there is a growing view that should jobless claims push above 280k, and then backed by a below 100k read in the nonfarm payrolls report, this dynamic could prove to be the trigger for a repricing of Fed cut expectations - and it’s here that presumably we see Treasury curve steepeners added liberally, volatility pushed higher with the S&amp;P500 losing the ‘buy the dip’ mantra and the USD set to take a leg lower. </p><p>For now, the tariff news flow continues to be modestly supportive of risk and is a USD negative, even if there are still many questions from various market players on the calculations behind the tariff rates. </p><p>On the day, the buying in US Treasuries was at the heart of the cross-asset moves, with the UST 10-year finding a bid through early EU trade, with yields falling from 4.41% into the data deluge before troughing at 4.33% shortly after. The broad USD traded lower in response to the rally in USTs, with S&amp;P500 futures subsequently lifting from a low of 5990 to a session high of 6051, where we saw increased supply on the day kicking up above 6040. </p><p>A solid $22b US 30-year Treasury auction was also helpful in keeping long-end Treasury yields suppressed going into the close, and the USD bears will now want to see 10s pulled lower towards 4.20% to get further juice out of their short USD exposures. We’ll see how the news on tariffs plays out early next week, as we will around the debate in the Senate on the ‘One Big, Beautiful Bill”, while on the scheduled event risks, US retail sales, import prices, and the FOMC meeting will be risk events for traders to navigate. Client activity focused on the USD pairs and gold Our flows on the day have been skewed towards directional trades on the USD pairs and gold, with the yellow metal rallying just shy of $3400 and the recent range highs – China steps up and we look to see if Chinese buyers can push Shanghai gold futures higher, with Comex futures set to follow and needing a break of $3427 for a possible run at the former ATHs of $3539. </p><p>There has been some increased interest to trade platinum, which won’t surprise given its now 9-day explosive move higher.</p>

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<p>USDNOK and USDSEK shorts have been the play on the day, with USDSEK breaking through the 9.4649 floor and USDNOK smacked to new cycle lows and keeping the defined bear trend seen since 13 Jan firmly in place. Naturally, EURUSD gets the central focus from traders, with the spot rate closing at 1.1584 and above the former 21 April highs of 1.1573 - while some try to stand in the way of the USD flows, this is a blanket USD move, and these shifts can be powerful and lasting in duration. The hedge funds are typically first on the crime scene but when real money accounts start to shift portfolio holdings (in this case USD exposures) it can lead to incredible trends in price. </p><p>Many will point to the idea that the USD has already come off around 7% (on a real effective exchange rate basis) - but if we are really looking at a major portfolio shift and a reweighting of USD exposures, and if the USD is to fully revert to the long-term mean, then we’re looking at a potential further 10% over time.</p>

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<p>USDCHF has also seen good interest to add to shorts from momentum accounts, with some tactically look at longs feeling the move may have been overdone. The CHF does interest as both a momentum play, but also tactically with the Swiss National Bank meeting next week and CHF swaps implying a 31% chance of a 50bp cut – an action which would take the policy rate into negative territory. While traders navigate the Fed meeting, if the SNB decides to ease by ‘just’ 25bp and the Fed does indeed lean on the dovish side of the ledger then USDCHF could be at new cycle lows. </p><p>Good luck to all.</p>

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The USD Simply Refuses to Rally, the DXY Trades at 3-year Lows

<p>The reduction in the volatility (vol) space gets increasing focus, as volatility is a core input for investment managers capital allocation to equity and for traders it is a key input when considering position sizing. On a cross-asset basis, we observe the lower vol regime in US Treasuries, with the MOVE index at 92% and a discount to the 12-month average of 102%, or in US equity, with the VIX now set at 16.89% - the 11th percentile of its 12-month range and a solid discount to the 12-month average of 18.77%. </p><p>With SPX500 20-day vol realising at just 12%, implied levels of equity vol have limits even if we are set to navigate US inflation and the possibility that perhaps US-China talks won’t result in the positive outcome that markets seem to have discounted.</p>

Complacency Builds in Markets with Key Technical Levels in Sight