In May, Canada saw a 1.1% drop in retail sales compared to the previous month, which was in line with expectations. This decrease follows market trends. Meanwhile, the European Central Bank (ECB) decided to keep its Deposit Facility Rate at 2.00%. As a result, the euro remains weak against the US dollar. Gold prices are also down, nearing $3,360, due to a stronger dollar and rising US Treasury yields.

UK Currency Movements

In the UK, the GBP/USD exchange rate fell into the mid-1.3500s after climbing for three days. This change was influenced by a stronger dollar. At the same time, the S&P Global PMIs for July indicate that the US private sector is still strong, with expectations that the Federal Reserve will keep interest rates stable at the end of the month. President Trump’s second term has introduced dramatic policy changes focused on “America First.” Despite these changes, markets have remained resilient and responsive. Because of the strong US private sector, we believe traders should pursue strategies that capitalize on the US economy’s strength. The recent S&P Global Flash US Composite PMI, which reached a 25-month high of 54.4, supports this belief. Investing in call options on major US indices could be a good way to participate in this upward trend. The decline in Canadian retail sales, along with the recent news that Canada’s annual inflation has fallen to 2.7%, indicates a growing difference in policy between Canada and the US. This presents a strong case for using derivatives that favor the US dollar over the Canadian dollar. We are considering put options on the Canadian dollar or long positions in USD/CAD futures.

EU and UK Market Outlook

With the European Central Bank maintaining interest rates and markets anticipating a high chance of a rate cut later this year, the euro is likely to stay under pressure. The fall in the British pound further demonstrates a broad strength of the dollar. As a result, we believe that buying put options on the EUR/USD and GBP/USD pairs is a sensible strategy for the upcoming weeks. Gold prices are weak due to the strong dollar and rising bond yields, with the US 10-year Treasury yield holding above 4.3%. This trend is expected to keep prices of non-yielding assets down. We see this as a chance to buy put options on gold futures or related ETFs. In his previous term, Mr. Trump’s policy changes often led to sharp spikes in market volatility, as seen with the VIX index. Historical data shows these fluctuations created beneficial opportunities for those prepared. To protect against similar market unrest, we recommend placing a small portion of a portfolio in long volatility instruments. Create your live VT Markets account and start trading now.

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