Daily Market Outlook, July 17, 2025 

Patrick Munnelly, Partner: Market Strategy, Tickmill Group

Munnelly’s Macro Minute…

The US Dollar regained some ground following Wednesday's losses, as Treasury yields climbed after a volatile session driven by speculation surrounding Federal Reserve Chair Jerome Powell's tenure. The Japanese Yen weakened to 148.51 per Dollar, with analysts forecasting a potential dip beyond 150. Futures tied to the S&P 500 edged down 0.2%, after US stocks rallied on news that President Trump downplayed the likelihood of removing Powell. Treasury yields rose, with the 10-year rate increasing by two basis points to 4.47%. Meanwhile, Asian equities traded within a tight range. The Australian Dollar slid amid growing expectations of an interest rate cut by the central bank in August, which also led to a sharp decline in government bond prices. On trade developments, Trump softened his aggressive rhetoric toward China in a bid to facilitate a summit with President Xi Jinping and secure a trade deal. Furthermore, Trump revealed his intention to dispatch letters to more than 150 nations, detailing tariff rates anticipated to vary from 10% to 15%.

Trump may have somewhat tempered the dramatic narrative that shook markets late in yesterday’s London session by stating it was "highly unlikely" he would dismiss Powell as Fed Chair. However, this issue doesn’t appear to be fully resolved. The frequency of briefings and headlines on the matter has been escalating rather than subsiding. The President has a tangible incentive to push for lower interest rates, as the financing costs for the recently approved substantial fiscal package remain sensitive to prevailing market conditions. Even if Powell retains his position, his tenure as Chair only lasts until May next year. Forward-looking market participants are likely to continue factoring in the possibility that the next Fed Chair may not have the same level of political independence as Powell and his predecessors. This potential shift could lead to a weaker Dollar and a prioritisation of lower short-term policy rates at the expense of long-term price stability, which aligns with a steeper yield curve. The divergence between the policy-sensitive 2-year US Treasury yield and the 30-year yield is particularly noteworthy. Some of this steepening reflects the need for greater compensation on long bonds due to expected tariff-related inflation. However, the trend is not exclusive to the US; similar dynamics can be observed in the UK gilt market. In the US, rising longer-term bond yields this month have primarily been driven by increasing breakeven inflation expectations, whereas in the UK, higher real yields have played a larger role, reflecting stronger fiscal justification for an additional term premium. These recent market movements underscore that the shape of the US Treasury yield curve will likely remain highly responsive to developments in the ongoing Fed Chair saga.

Payroll employment dropped by 41k in June, aligning with expectations, while May's decline was revised from -109k to -25k, signalling a less pessimistic trend. Official data shows unemployment rose to 4.7%, but surveys reported a robust employment gain of 134k in the three months to May. Private sector regular pay grew 4.9% (3m/y) in May, slightly above consensus, but below the BoE's Q2 projection of 5.2%. June pay growth would need to hit 1.5% m/m, far above the 0.5% m/m average, suggesting risks of undershooting benchmarks. While pay growth remains high (~5% y/y), declining employment may support an MPC rate cut in August, though nuanced inflation data could lead to a split vote with cautious guidance.

Overnight Headlines

  • Sticky Inflation Clouds UK Rate Outlook Ahead of Key Wage Data

  • Trump Eyes Tariff Rate Of 10% Or 15% For More Than 150 Countries

  • Fed’s Williams: Rate Stance Remains ‘Entirely Appropriate’

  • Aussie Unemployment Hits 4-Year High, RBA Cut Odds Increase

  • Japan’s Exports Fall Again As US Tariffs Stoke Recession Risks

  • China Probes Banks As Xi’s Price War Cuts Fees Below $100

  • Trump Floats Firing Fed Chair, Then Backs Off

  • Trump Says Coca-Cola To Use Cane Sugar In US

  • Treasury Yields Fall Amid Mild Inflation, Powell Pressure

  • OpenAI Picks Google Cloud For ChatGPT Expansion

  • EU’s €2T Budget Proposal Rejected By Germany

  • United Airlines Lifts Outlook On Travel Demand Acceleration

  • Meta Privacy Trial Begins With Tech, Politics A-List

  • Anthropic Draws Interest At $100B+ Valuation

  • Kinder Morgan Reports Strong Q2 2025 Earnings Growth

  • 'Crypto Week' Back On Track After Lengthy House Do-Over Vote

FX Options Expiries For 10am New York Cut 

(1BLN+ represents larger expiries, more magnetic when trading within daily ATR)

  • EUR/USD: 1.1525-40 (1.9BLN), 1.1550-55 (625M), 1.1575-85 (864M)

  • 1.1600 (1.3BLN), 1.1650-55 (1.6BLN)

  • USD/CHF: 0.8050 (600M), 0.8130 (975M)

  • GBP/USD: 1.3370-75 (516M), 1.3400 (290M), 1.3425 (600M), 1.3445-50 (1.5BLN)

  • EUR/GBP: 0.8640 (400M)

  • AUD/USD: 0.6475-80 (360M), 0.6500 (528M), 0.6510-15 (532M)

  • USD/JPY: 148.00 (874M), 148.80 (350M), 148.95-149.00 (2.1BLN), 150.00 (508M)

  • EUR/JPY: 171.20 (705M)

CFTC Positions as of the Week Ending July 11th 

  • Speculators have raised their net short position in CBOT US 5-year Treasury futures by 39,785 contracts, bringing the total to 2,516,787. They have also increased the net short position in CBOT US 10-year Treasury futures by 56,917 contracts, now totaling 840,579. Conversely, speculators have reduced their net short position in CBOT US 2-year Treasury futures by 14,515 contracts, resulting in a total of 1,266,133. The net short position for CBOT US UltraBond Treasury futures has been trimmed by 4,138 contracts, now at 222,824. Additionally, there is an increase in the net short position for CBOT US Treasury bonds futures by 4,301 contracts, reaching 108,758. 

  • In the equity sector, fund speculators have raised their net short position in S&P 500 CME by 39,349 contracts to a total of 338,212, while equity fund managers have increased their net long position in the same index by 20,105 contracts, now totaling 864,681. 

  • The FX net long positions are as follows: Japanese yen at 116,155 contracts, Euro at 120,596 contracts, British pound at 33,194 contracts. On the other hand, the Swiss franc has a net short position of -22,196 contracts, and Bitcoin shows a net short position of -2,436 contracts.

Technical & Trade Views

SP500

  • Daily VWAP Bearish Above 6260 Target 6400

  • Weekly VWAP Bullish Above 6100 Target 6515

EURUSD 

  • Daily VWAP Bearish Below 1.1710 Target 1.16

  • Weekly VWAP Bullish Above 1.1640 Target 1.19

GBPUSD 

  • Daily VWAP Bearish Below 1.3580 Target 1.3450

  • Weekly VWAP Bearish Below 1.3580 Target 1.3450

USDJPY 

  • Daily VWAP Bullish Above 1.45 Target 1.48

  • Weekly VWAP Bullish Above 1.45 Target 1.51

XAUUSD

  • Daily VWAP Bullish Above 3320 Target 3420

  • Weekly VWAP Bearish Below 3350 Target 3290

BTCUSD 

  • Daily VWAP Bearish Above 113k Target 120k

  • Weekly VWAP Bullish Above 108k Target 130k