European markets had a quiet session today. Stocks lost some early gains as investors reacted to US data and tariffs. The dollar dipped slightly, with EUR/USD nearing 1.1600, and GBP/USD edging up to 1.3313. The AUD and NZD were the strongest performers, each gaining 0.5% to reach 0.6500 and 0.5930 respectively. European indices began with slight increases but fell back, showing the DAX up by 0.1% and the CAC 40 up by 0.2%. S&P 500 futures also rose by 0.2%, although they had topped 0.5% earlier. In the bond market, US 10-year Treasury yields rose by 3.2 basis points to 4.227%.

Commodity Market Movements

Commodities saw gold drop by 0.5% to $3,365.13, wiping out earlier gains. WTI crude, however, increased by 1.5% to $66.13, bouncing back from its 100-day moving average of $64.97. With no major data expected in US trading, attention is turning to the upcoming US CPI report. Additionally, Eurozone retail sales grew by 0.3%, while Germany’s industrial orders fell by 1.0%. South Korea is currently discussing foreign exchange with US financial authorities. As markets remain steady today, this calm period offers a chance to prepare for what’s next. The spotlight is on next week’s US CPI report, as the market awaits this important inflation data to guide its next major move. This quiet period feels reminiscent of past instances in 2023, where the VIX index fell below 15 before major economic reports sparked volatility. Given the current calm, implied volatility is relatively low, making it a good time to purchase options. We suggest buying volatility through straddles or strangles on major indices before the CPI data is released, as this could be a smart move. Recent disappointing US data, like the weak ISM services PMI and poor labor report, indicates a clear risk to stocks. The latest non-farm payroll data showed a noticeable slowdown, which contrasts sharply with the stronger job growth observed for much of 2024. Thus, buying protective put options on the S&P 500, set to expire after the CPI release, could serve as a useful hedge against unexpected bad news.

Currency Market Positioning

In the currency market, the dollar’s current weakness could quickly change if inflation rises, prompting the Fed to act. A long strangle on EUR/USD—buying both an out-of-the-money call and put option—could yield profits if the pair moves significantly in either direction after the data is released. This strategy allows us to benefit from a breakout without needing to guess the direction. Commodities are also reacting to the inflation outlook. Gold has slightly retreated from its high price of $3,365. We see this as an opportunity to buy call options on gold, as a negative economic outlook from the CPI data may lead to a rush for safer investments. For oil, although it rebounded from a technical support level, its future direction will depend largely on the global growth sentiment shaped by next week’s US report. Today’s market movements seem like mere noise while traders wait. It’s essential to establish positions that will reap rewards based on the market’s reaction to the US inflation numbers. This single report is likely to guide market sentiment and direction for the remaining month. Create your live VT Markets account and start trading now.

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