Today, there isn’t much economic data coming out, with only the Dallas Fed Manufacturing index being released. This index is known to be unpredictable and usually doesn’t have a big impact. Focus remains on trade agreements as the August 1 deadline approaches. Over the weekend, a US-EU trade deal was reached, which includes a 15% tariff cap.

Trade Predictions and Outcomes

This outcome matches expectations that tariff rates will stabilize between 10% and 20%. Trade discussions have been active since April 9, reaching a pivotal moment. The trend for risk assets is expected to continue, unless a new event emerges that could increase momentum or cause a shift. With fewer economic reports expected, the market seems to be waiting. The CBOE Volatility Index (VIX) stands near 13, significantly lower than the historical average of 20. This indicates that investors are feeling quite relaxed. In this low-volatility environment, there is a chance to take advantage before the next significant event occurs. We now shift our focus from the settled US-EU trade situation to domestic inflation data. The upcoming Personal Consumption Expenditures (PCE) price index is crucial, particularly since a recent report indicated core PCE at 2.8%, above the Federal Reserve’s target. If the number deviates from expectations, it could easily disrupt the current market calm and lead to noticeable changes.

Investment Strategy Considerations

For those optimistic about the ongoing upward trend, buying call options on broad market indices like the S&P 500 could be beneficial. This approach allows for greater gains if positive economic news helps continue the rally. Given the current risk-on sentiment, this strategy seems promising. However, it’s wise to think about protecting against a downturn, especially since the article hints that the peak of this trend might be near. With volatility so low, purchasing put options on key indices or particular stocks is relatively affordable. This serves as a safety net against sudden market shifts caused by unexpected data. The main takeaway is that a substantial market move is more likely than a long period of stagnation. Therefore, we should explore strategies that profit from an increase in volatility, regardless of the market’s direction. This could involve investing in options that gain from a breakout out of the current narrow trading range. Create your live VT Markets account and start trading now.

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