The pause in the Middle East conflict—at least for now, as Iran and Israel recover from the latest developments—is being viewed by market participants as a strong reason to buy risk assets. This has already led not only to a positive close for the month and quarter in stock markets, especially in the U.S. but also to new all-time highs being set.

What are the reasons behind such optimistic market sentiment?

First is the aforementioned Middle East conflict, which now appears to be entering a sluggish phase and is no longer exerting a broadly negative influence on markets or threatening to escalate into a full-scale global war. The second reason is the potential for China and the U.S. to find a compromise on trade. Against this backdrop, the 90-day customs truce previously announced may conclude with an agreement, which would further support positive investor sentiment.

Additionally, the apparent deterioration in the labor market—likely to be confirmed by ADP data and the U.S. Department of Labor report on Thursday—is fueling expectations that the Federal Reserve may lower interest rates later this year. If trade agreements are reached and normalization of relations between Washington and its main trading partners begins, this would enable the Fed to forecast the likely trajectory of the U.S. economy better and thus make more informed decisions regarding monetary policy.

These optimistic expectations for the future are contributing to a decline in Treasury yields and driving increased demand for equities. Another development that helped sustain the stock rally yesterday, on the last day of June, was Canada's decision to cancel its previously proposed digital services tax in an effort to ease trade tensions with its southern neighbor, the United States.

What's happening in the markets today?

A slight corrective pullback is being observed in U.S. stock index futures, but a significant decline is unlikely. Most likely, the upward trend will continue once the market consolidates and, following the anticipated weak labor market data, gains a new growth stimulus. Deteriorating labor conditions may compel the Fed to reconsider resuming a rate-cutting cycle.

What can we expect from the markets today?

I believe the rise in stock indices will continue and may even accelerate in response to weak labor data. The U.S. dollar may continue to decline gradually, as there is a possibility that the Fed will implement its first rate cut of the year in the fall—especially after a likely resolution to the trade conflict between Washington and Beijing.

The increase in gold prices may be limited, supported by two factors: heightened global tensions and the weakening U.S. dollar.

Daily Forecast

USD/JPY

The pair has fallen below the support level of 143.50, which strengthens its downward momentum and may lead to a further decline toward 142.50 amid dollar weakness. The 143.23 level could serve as an entry point for selling the pair.

Gold

Gold is rebounding from a local low of 3247.20 and may rise toward 3348.25 before reversing and resuming its decline amid prevailing market optimism, as outlined above. I believe gold should be sold on rallies, with a potential target near 3295.00. The 3343.96 level may serve as a selling point.