3rd July - A Changing Landscape
- Jul 3
- 5 min read
In terms of geopolitics, yesterday was a quiet day leading into the long weekend in the US. In Iran, they are holding the state funeral for Khamenei senior, who was killed at the start of the Iran conflict. The funeral has been delayed to coincide with the Independence Day celebrations in the US and is expected to be a 5-day spectacle. It is being framed in Iran as a victory parade, with Iran's leaders urging the public to attend the events.
Outside of potentially US leadership, the consequence of this is that there has not been much movement in negotiations between the two sides; we can expect to wait until next week for any further news.
This also left space for the NFP print to take center stage, and it did not disappoint with its impact. We saw a print of 57k jobs added in June, half of the expected 115k print. We also saw the two previous prints revised downwards from their previously reported figures to add to the impact. We did see a tick down in the unemployment rate from 4.2% (against an expected 4.3%), but this was due to a reduction in labor-force participation as opposed to an increase in employment. As a result, market sentiment swung away from the hawkish tone the FOMC had introduced in their most recent meeting; a September rate hike was no longer considered to be expected, with the earliest now considered to be October.
Forex
The USD was significantly hit by the soft NFP print, with the DXY falling 0.5% on the day overall. The changing expectations for rate hikes mean there is now less incentive to invest in the USD, so we seem to have lost the momentum the USD previously had after the FOMC meeting last month. However, it is worth noting that rates are still expected to be raised, and the US already has rates higher than a number of developed countries. There is a strong technical setup in the DXY that could lean towards future USD strength, especially if we see more hawkish-than-expected inflation figures over the next few weeks.
The DXY had recently broken out of a range it has been in since April 2025. It is now coming back to re-test the level that was previously support. If we see a hawkish catalyst over the coming days, there is a strong argument to be made that the USD could continue its move higher as we move closer to the expected rate hikes in October.
The other news story worth mentioning yesterday was another potential intervention from the BoJ, as we saw the USD/JPY pair fall a full 1% before 9 am UK time on the day, before falling again on the NFP print later in the day. The intervention was needed to defend the levels the BoJ has decided it does not want to see the pair move past. The question now, as has been the question after all other interventions, is what is to stop the pair from rising back up to those critical levels once again?
The difference could be the NFP print. If this is a catalyst to remove demand from the USD in the longer term, then the pair could continue to fall to levels more comfortable for the BoJ. However, the exchange rate differential between the two, as well as strong fundamentals outside of the NFP for the USD, makes a strong case for this same situation to be revisited once again in a few weeks.
EUR and GBP both firmed against the softer dollar. Sterling retains its relative edge on the smooth Burnham transition story and the BoE's rate advantage; the euro benefits from the weaker dollar despite its own soft fundamentals. The commodity currencies were mixed — the risk-on equity tone helped AUD and NZD, while CAD stayed capped by sub-$70 oil.
Indices
Yesterday was another fascinating day for indices. All of the 3 major US indices saw a boost from the soft NFP figures initially, as the prospect of a more dovish approach from the FOMC came into view. However, at around 3 pm UK time, we saw a significant divergence, with the Dow holding broadly steady but the S&P and Nasdaq falling sharply. This seems to have come from the news that OpenAI may sell a 5% stake to the US government and that Meta may offload some excess compute capacity. These were both seen as further evidence that the AI spending has been overdone and hit the AI/tech sector hard.
The Dow closed the day up 1%, but the S&P fell 1% from its post-NFP high to end the day down by 0.2%. The Nasdaq fell a full 2.5% from its intraday high and closed 1.8% down from its opening price. This is further evidence to add to the pile that we are seeing a rotation from growth to value and that the balloon is deflating slowly rather than getting ready to pop. This is very good news for those who do not want to see a crash, as the slow unwind of the overconfidence will lead to a healthy correction instead of a dangerous collapse.
Precious Metals
Gold and Silver received the catalyst they needed yesterday with the NFP release. Gold saw a rise of 2.1% on the day, and Silver saw a rise of 2.75% overall. Both metals benefited from the rate-hike concerns receding and looked the strongest they have been for weeks.
However, just one print will most likely not be enough to turn the tide permanently. We would need a more evidenced change in market sentiment before we can begin to be bullish on the metals. Gold, for example, is still trading under the 200-day EMA as seen below. We would need to see a longer-term move and a new high created before we can consider the downward trend broken.
There is always the potential that this is just a temporary bounce before metals continue to fall. As always with markets, it is better to jump on an established trend than to try to catch a falling knife. The next key release is the US CPI print on July 14th. Another dovish print there, and we could see a longer-term change in fortunes for precious metals.
Today's Market Drivers
As today is a bank holiday in the US, there are no significant events that could affect markets. Volume will be low, and we will not hear anything from the FOMC or from the US/Iran talks.
CAD Unemployment, 1:30 pm UK time - This is the only news event that could affect one of the major currencies, so it is one to look out for if you are trading CAD.
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