European FX Markets Hold Steady Before Key US CPI Data

European foreign exchange markets locked into a holding pattern Tuesday, with price action staying mostly rangebound as traders worldwide positioned ahead of the pivotal US consumer price index report. The session lacked decisive momentum, reflecting broad caution across asset classes before a data release that could reshape Federal Reserve rate expectations.

Oil was the standout mover, with WTI crude climbing above $80 per barrel as escalating tensions between the United States and Iran stoked fears of supply disruptions through the Strait of Hormuz. The geopolitical risk premium continued to build as markets weighed the potential for further instability in a critical global shipping lane.

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Bank of America's July Fund Manager Survey painted a striking — and potentially precarious — picture of investor sentiment. A record 54% of respondents expected a so-called "no landing" economic scenario, while just 2% foresaw a hard landing. Long global semiconductors registered as the most crowded trade on record, with BofA observing that virtually no one holds a short position. Meanwhile, 83% of surveyed investors were not pricing in a Fed rate hike before November. Analysts noted these consensus positions leave markets vulnerable to sharp reversals, with contrarian plays potentially including short Nasdaq, long 10-year Treasuries, long US dollar, and long oil heading into year-end.

On the data front, the US NFIB Small Business Optimism Index delivered a positive surprise, rising to 97.4 in June against consensus forecasts of 95.7. The beat signaled improving confidence among small business owners, adding a constructive data point ahead of the more consequential inflation figures. All eyes remained fixed on the CPI print as the day's defining catalyst.

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