The US Dollar Index has risen sharply, approaching the 99.00 level, thanks to strong US economic data. Key updates included the U-Mich Consumer Sentiment report, Building Permits, and Housing Starts, along with notable remarks from Fed official Waller. The EUR/USD pair faced downward pressure, dropping to the mid-1.1500s. We will keep an eye on Germany’s Producer Prices and broader reports from Europe regarding Current Account and Construction Output.

British Pound Settles

GBP/USD is currently stabilizing below 1.3400 as we await the UK’s public sector finance report. Meanwhile, USD/JPY is holding steady above 149.00, focusing on new data about Japan’s Inflation Rate. AUD/USD hit near three-week lows as the US dollar strengthened, with attention on the RBA Minutes. WTI crude oil is around $66.00 per barrel, influenced by the stronger dollar and geopolitical issues. Gold is staying above $3,300 per troy ounce but fluctuates due to the US Dollar’s strength. Silver prices are changing around $38.00 per ounce. Although geopolitical tensions have eased slightly, the general market mood remains sensitive to economic news and reports. We believe the dollar will continue to strengthen due to a robust US economy. Recent data showing annual wage growth at 4.1% supports the Federal Reserve’s cautious position on interest rate cuts, as mentioned by Mr. Waller. Therefore, we are looking at call options on dollar-tracking ETFs to take advantage of further dollar strength.

Effects of Policy Divergence

The clear difference in policy between the cautious Fed and the European Central Bank, which recently lowered its key interest rate to 3.75%, is likely to keep pressure on the euro. With Germany’s industrial sector facing challenges, as shown by recent weakness in factory orders, we expect further declines for the euro. We are considering buying put options on the EUR/USD pair, anticipating it will head towards the 1.1400s. For the British pound, the current phase of stabilization provides an opportunity for range-based strategies. While UK inflation fell to 2.0% in May, it remains a concern for the Bank of England, leading to uncertainty as the upcoming election approaches. This suggests we can employ strategies like iron condors on GBP/USD, expecting the pair to remain under 1.3400 until the next major trigger arises. The large interest rate gap between the United States and Japan will keep pressure on the yen. Japan’s core inflation has been above the central bank’s 2% target for over two years, yet the Bank of Japan has been slow to change its policy. Until we see a clear signal for more aggressive tightening, we prefer strategies that benefit from the pair staying high or increasing. The Australian dollar is particularly susceptible to a strong US dollar and mixed signals from China’s economy. Recent data shows a slowdown in Chinese retail sales, which directly affects outlook for the Aussie, a key indicator of Chinese growth. We will closely analyze the RBA’s meeting minutes for any dovish signals, which could lead us to add to our bearish positions. In the energy sector, the stronger dollar is limiting oil price gains despite ongoing geopolitical tensions. The latest report from the Energy Information Administration showed rising crude inventories, indicating ample supply for now. This strengthens our belief that American crude will struggle to significantly rise above current levels. Gold’s stability is being challenged, and we expect that the high cost of holding a non-yielding asset in a strong dollar environment will put downward pressure on its price. Historically, gold prices, currently around $2,320 per ounce, tend to drop when real interest rates are high. We remain cautious, viewing any price increases as chances to enter bearish positions. We see silver, currently hovering around $29 per ounce, as a more volatile option that responds to both industrial and monetary trends. Its prices tend to fluctuate more than gold’s, making it sensitive to changes in manufacturing data, like global PMI figures. Given the overall market sensitivity, using defined-risk options strategies on silver seems wise. Create your live VT Markets account and start trading now.

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