This outlook contains information correct as at 1430hr SGT on 01 Jul 2025
July may start on a subdued note, after recent geopolitical and economic events, with the US celebrating its 249th Year of Independence this Friday 4 July. Market attention is likely to be back on potential tariffs and US fiscal developments as the 90-day Liberation Day tariff pause approaches its expiry on 8–9 July.
Oil prices spiked with West Texas Intermediate (WTI) up by almost 23%, hitting a high above USD76.70 after US military strikes on Iran’s nuclear sites and worries about supply chain disruptions, should Iran retaliate by closing key Middle East sea lanes. Oil prices have since dropped back to near where they took off.
Investment Bank Schroders’ calculations suggest today’s oil price already includes a 20% “risk premium. “With no short-term supply disruption and as this additional risk is already priced in, the market remains relatively stable for now.” Taking into account possible general economic weakness, oil prices are likely to soften from current levels. WTI is trading around USD64.20.
On a more positive note, the US and China reached significant trade agreements aimed at de-escalating tensions. The key element of the agreement covers rare earth exports, tariff adjustments, export controls, student visas and tech access but no formal details have been provided.
Looking towards the Trump presidency, the US and the rest of the World will be held hostage to the US President’s whims and fancies with all else deemed secondary. The US is expected to make key decisions on trade tariffs and fiscal policy in July, based on President Trump’s “One Big Beautiful Bill Act.” This should cause some volatility, particularly in sectors sensitive to trade, stocks, bonds, interest rates and government spending.
Against this background, the S&P 500 Index rose by a strong 3.4% last week, reaching a historic high of 6,173.07 on Friday 27 Jun. Stocks are likely overbought but the VIX Index eased throughout the week, closing last Friday at 16.32 from a high of 60.13 on 7 Apr, a significant drop of the “fear gauge.”
The European Central Bank (ECB) will hold its ECB Forum on Central Banking 2025 in Sintra, Portugal, on 1 Jul. It will be attended by ECB President Lagarde, Federal Reserve Chair Powell, Bank of England Governor Bailey, Bank of Japan Governor Ueda and Bank of Korea Governor Rhee. Markets will be watching the key segment of the forum, a panel discussion on central bank policies which is likely to focus on interest rates.
At a recent Bloomberg Global Credit Forum in Los Angeles, DoubleLine Capital’s Jeffrey Gundlach, a veteran bond manager, said America’s debt burden and interest expense have become “untenable.” “There’s an awareness now that the long-term Treasury bond is not a legitimate flight to quality asset” and investors should be considering non-USD based holdings.
The trade weighted USD has depreciated by more than 10% year-to-date, even with its interest rate advantage. The weakening of the USD can be seen as a loss of confidence in the US and further weakening may be on the cards.
Major central banks in Europe and the UK are expected to cut interest rates and the Federal Reserve will likely follow in September. UBS analysts believe the medium to long term outlook remains positive. Defence-related stocks remain in focus, as NATO leaders agreed last week to raise defence spending to 5% of GDP. Other resilient stocks include energy, healthcare, consumer essentials (food and personal care) and perhaps tech, which will be more speculative. Stocks are exhibiting “strategic indifference,” something that investors should take note.
The important US figures that may shape the Fed’s September rate decision this week are:
Overnight US 10-Year Treasuries closed down 0.01% at 4.22% (3 Jun 4.44%), Australian 10-Year Govt Bonds closed down 0.04% at 4.12% (3 Jun 4.28%) and Euro 10-Year Bonds closed up 0.02% at 2.60% (3 Jun 2.52%).
USD Index (DXY)
In an update on 7 Jan, we indicated, “The technical picture for DXY is very strong…the next target will be 111.00.” DXY hit a high of 110.17 on 13 Jan before a series of fundamental events weakened the USD and DXY has now broken decisively below the Uptrend Channel support around 105.00.
DXY is now heading for the 76.4% Fibonacci Support at 95.243. We are therefore anticipating a weaker USD for the rest of 2025.
AUDUSD
Headline inflation has moderated with May CPI up 2.1% YoY, down from 2.4% YoY in April. A dovish RBA’s preferred measure of inflation the Trimmed Mean, has also softened to 2.4%, comfortably within its 2%–3% target range. AUDUSD’s current holding pattern strength is a reflection of USD weakness rather than AUD strength, any new negatives might see AUDUSD slide again.
AUDUSD has been unable to break above the 61.8% Fibonacci Resistance Zone at 0.6460–0.6600. The inability to break above this Zone over the last two months is negative and we maintain our bearish view for the next move to be down to the 0.6200–0.6300 Support Zone.
EURUSD
EURUSD has continued to strengthen on USD weakness hitting its highest since September 2021 at 1.1800; on hopes the EU and US can reach a trade agreement before the July 9 deadline, when the US is set to impose a 50% tariff on nearly all EU products. If there is no satisfactory agreement, President of the European Commission Ursula von der Leyen indicated "all options remain on the table.” Should that happen, we may see a sharp pullback of EURUSD, but the downside maybe limited as the ECB is positioning the EUR as the alternative Trade / Reserve currency to the USD.
EURUSD found strong support below 1.1100 and rallied strongly, breaking through Resistance at 1.1490 to 1.1800. Momentum is strong and EURUSD is likely to move further up to challenge the 61.8% Fibonacci Resistance at 1.1975 before a correction.
GBPUSD
Against a backdrop of mounting geopolitical tensions, UK’s softening jobs market and weak growth, the BoE held interest rates steady at 4.25% at its June meeting. But it left rates on course for a potential 0.25% cut in August. GBP has exhibited measured strength against the USD with GBPUSD advancing steadily.
After consolidating and a limited pullback to the 1.3400 area, GBPUSD has broken above Resistance at 1.3650 to above 1.3770, a three and a half-year high. GBPUSD appears to be running out of momentum and should see consolidation around 1.3650 before another push up to test the 50% Fibonacci Resistance Zone at 1.3920–1.4120.
USDJPY
At its June meeting, the Bank of Japan (BoJ) sounded dovish and kept the overnight call rate at 0.50% by a unanimous vote. It will halve the pace of quarterly quantitative tightening for fiscal 2026, from JPY 400 bn per quarter currently to JPY 200 bn per quarter from Apr 2026. The BoJ is expected to maintain its cautious stance and delay further rate hikes due to a weak economy and uncertainty over US tariffs. This should moderate JPY strength against the USD.
USDJPY is likely to trade around the 145.00 midpoint within the wider 140.00–150.00 range for the next few weeks.
USDSGD
The trade weight S$NEER (SGD Nominal Effective Exchange Rate) is trading near the top of its policy band. In its upcoming Jul 2025 monetary policy meeting the Monetary Authority of Singapore (MAS) is expected to flatten the slope of the band to limit the SGD’s appreciation. We can expect USDSGD’s drop to moderate and find support in the coming weeks.
In line with our bearish view USDSGD’s topside was limited and it has broken below Support at 1.2800. In the next few weeks USDSGD is targeting the next Support at 1.2600 which is likely to hold and stop the decline for some consolidation.
AUDSGD
Our expected AUDSGD fall back towards the 0.8100–0.8200 level did not happen, but it is struggling below the Resistance Zone at 0.8400–0.8500. We maintain a bearish view for an eventual drop down to 0.8100 support area.
XAUUSD
Gold remains a favoured hedge against geopolitical risk but its risk premium appears to have been played out at this point. Investors appear to consider it too expensive and is rotating into silver which is looking relatively cheap versus gold. Silver hit a 13 year high on 18 June at USD37.31 an ounce, while gold fell 2% on Friday 27 Jun, hitting a one month low.
According to Goldman Sachs, the rally in gold this year came about mostly due to secret buying by central banks led by China. CBs are acquiring about USD8.5 bn worth of gold each month to reduce their overexposure to the USD.
As expected, gold was unable to make further headway and is moving down to test the USD3,200 Support. XAUUSD has broken below the 50-Days Moving Average at USD3,320 which may be a strong Resistance.
Note: In Candlesticks Chart, Green bars mean the Close is higher than the Open price and Brown bars mean the Close is lower than the open price.
Sources: Bloomberg, MSNBC, Reuters, Morningstar, Business Times, 01 Jul 2025
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