US equity futures and foreign exchange markets are mostly stable, with a slight drop in the yen. Treasury yields have risen a bit after three days of decline. Federal Reserve Chair Powell will continue his testimony in the Senate at 10 am ET. His cautious approach has lowered expectations for any major market changes. This sentiment was also expressed by KC Fed President Schmidt in a recent speech.

Economic Calendar

Today’s economic calendar has limited data releases. New home sales numbers will be released at 10 am ET, followed by US weekly oil inventory data at 10:30 am ET. After three volatile trading sessions, financial markets appear calm on the surface, but underlying tensions still influence direction. With US equities hardly moving and foreign exchange exhibiting little change—except for a minor decline in the yen—markets seem to be taking a break. However, this pause is unlikely to last. Treasury yields have nudged up slightly, marking a shift from earlier declines this week. This doesn’t indicate a new risk appetite but rather a quiet retreat from safe-haven investments, likely driven by positioning rather than strong conviction. While this change doesn’t warrant a broad market response, it’s important to keep an eye on trends, especially as month-end rebalancing flows can distort market sentiment. Powell’s return for his second day of Congressional testimony today hasn’t unsettled traders. His recent message of patience regarding rate changes has been clear. This expectation was reinforced by Schmidt earlier this week, supporting a careful stance. We see this alignment as a signal for those focusing on the dot plot rather than headlines. The Fed currently shows no desire to preemptively change rates without more confirmation from inflation trends.

Trading Perspective

With limited new economic data today, especially during the morning session, attention naturally shifts to secondary indicators. New home sales may have some influence, but they are unlikely to significantly change core rate assumptions unless they are drastically different from expectations. Crude oil inventory data could cause some volatility in energy sector stocks, but significant market-wide impacts are unlikely unless there is a major surprise. From a trading standpoint, implied volatility remains low across most asset classes, especially for short-term metrics. This situation suggests that sellers of premium feel secure, although they may face risks if unexpected data or policy miscommunication arises. We are not broadly reallocating risk but are remaining flexible. Directional strategies may struggle in this slower environment, making short gamma positions more appealing in the near term, as long as headline risks are managed. With no strong directional catalysts on the horizon and Fed communication being steady, the outlook appears relatively limited. For those making positioning decisions, opportunities may be better found in short-duration spread trades or sector shifts, where we’ve noted mispricing following earnings reports. A careful approach is needed when the macro environment lacks clarity, especially as markets start to adjust to summer liquidity conditions. Create your live VT Markets account and start trading now.

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