In June, US Industrial Production rose by 0.3% from the previous month, beating expectations of a 0.1% increase. This rebound followed a 0.2% drop in May, according to the Federal Reserve. The report showed that manufacturing output grew slightly by 0.1%. Capacity Utilization also improved, climbing to 77.6% from May’s 77.4%.

US Dollar Index Performance

The US Dollar Index stayed strong, remaining above 98.50 after this news. Due to unexpected strength in industrial activity, the idea of an imminent economic slowdown may be less certain. This resilience suggests that the Federal Reserve might keep its current policy for longer than previously thought. Traders should adjust their views away from expecting major interest rate cuts anytime soon. The data reveals a mix of trends worth noting, as manufacturing remains sluggish. Recent statistics confirm this, with the ISM Manufacturing PMI for May 2024 at 48.7, indicating a contraction in this sector. This suggests economic strength isn’t evenly spread, pointing to opportunities in specific sectors rather than a general bullish market.

Strategy Recommendations

The steady US Dollar Index is a key signal for currency traders. With the index above 105, we see continued strength as the US economy outshines many other countries. We recommend positioning for a stronger dollar against currencies like the euro, especially since the European Central Bank has started cutting rates. For those trading interest rate derivatives, the market has already begun to pull back on expectations for multiple rate cuts this year. Data from the CME FedWatch Tool shows that the chance of a September rate cut is about 60%, a sharp decline from earlier forecasts. We believe this trend will continue, favoring strategies betting on consistently higher short-term rates. This situation makes equity options particularly appealing, as the market appears complacent. The CBOE Volatility Index (VIX) is currently around 13, well below its historical average of 20. We think this implied volatility is too low given the potential for policy-driven market changes in the coming months. Typically, strong industrial numbers would signal a good time to buy commodities like copper and oil. However, the strong dollar presents a challenge, as it makes these goods pricier for foreign buyers. Therefore, we advise caution and suggest waiting for signs of increased global demand before committing to significant long positions in industrial commodities. Create your live VT Markets account and start trading now.

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