The European FX session was quiet, with little news and only minor economic updates. The EU confirmed a 15% tariff on cars and parts, and the EU trade chief mentioned possible “turbulence” in future negotiations. Traders are now looking ahead to the US ISM Services PMI, which is due at 10 am ET. They are particularly focused on the prices component. Comments from Fed’s Daly previously boosted the stock market, as investors expect rate cuts unless there are significant changes in the economy.

Discussion On Tariffs And Trade

Coming up soon is an appearance by Trump on CNBC’s “Squawk Box,” where he will likely discuss tariff revenue and criticize Fed Chair Powell. The market has already absorbed the EU’s 15% tariff on cars, which developed during the spring months. For derivative traders, this suggests the major price swings linked to trade news are likely over. Going forward, the focus should be on economic data and central bank actions for the rest of 2025. All eyes are on the upcoming US ISM Services PMI, with expectations for a reading of 53.5. If there is a significant difference from this prediction, especially regarding the prices paid component, it could lead to increased market volatility. We can recall how the market reacted strongly to unexpected inflation data in the first quarter of 2025 as a reference for what might occur. Recent dovish signals from the Federal Reserve have boosted stock prices, with a 70% chance of a rate cut in September priced in, based on Fed funds futures. This provides a chance for options traders to prepare for potential swings around essential data releases that could affect these odds. For instance, buying straddles on major indices before the ISM report could be a strategy to take advantage of an unexpected outcome.

Market Volatility And Trading Strategies

The VIX is currently trading at a calm 14, suggesting some complacency ahead of the upcoming data. However, implied volatility for short-term options is increasing, indicating that traders expect a short burst of activity soon. This trend resembles what we saw leading up to major central bank meetings earlier this year. Create your live VT Markets account and start trading now.

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