The S&P 500 and Nasdaq 100 indices have reached all-time highs, boosted by strong hopes of a Federal Reserve interest rate cut. The likelihood of a rate cut in September has jumped to 96% from 38% after recent comments from officials. Analysts are now predicting a 53% chance of three cuts and a 93% chance of two cuts by the end of the year, supporting long-term stock growth. The Nasdaq 100 is nearing 24,000 after bouncing back from a dip in early August. A technical analysis using Fibonacci extension hints it could hit 30,000. The S&P 500 shows a similar trend, aiming for around 7,800 after correcting 50% from previous lows.

Surge In Japan’s Nikkei 225

In Japan, the Nikkei 225 has jumped more than 9.5% since last Monday. This rise is due to positive sentiment from the American markets and delayed interest rate hikes by the Bank of Japan. The index is now targeting 50,000, up from its current level of 43,300, backed by falling commodity and energy prices. In the currency markets, the EUR/USD has reached two-week highs above 1.1700, with expectations surrounding German inflation data. The GBP/USD has climbed above 1.3550, helped by a weaker US Dollar. Gold is having a tough time gaining traction despite anticipated Fed rate cuts, remaining around the $3,360 mark. With the market pricing in a Federal Reserve rate cut for September, traders should prepare for ongoing growth in stocks. The VIX (Volatility Index) recently dropped to a low of 13.5, making it appealing to buy call options on the S&P 500 and Nasdaq 100. This scenario suggests that option premiums are currently affordable for capturing potential gains. The optimistic technical outlook for US indices—aiming for 30,000 on the Nasdaq and 7,800 on the S&P 500—supports keeping long positions via derivatives. We recommend considering longer-term call options, like those that expire in December 2025, to ride the expected growth wave due to monetary easing. This perspective is reinforced by the July 2025 jobs report, which revealed solid payroll growth of 215,000 but softened wage increases, giving the Fed a clear path to cut rates.

Historical Market Reactions

A similar market reaction occurred in late 2023 and early 2024, when the anticipation of a Fed policy change sparked a big rally even before the first cut was announced. This historical trend shows that betting on the *expectation* of rate cuts can be very profitable. Therefore, waiting for an actual cut in September might mean missing out on significant gains. In Japan, the Nikkei 225 presents a strong opportunity with its momentum. We suggest buying Nikkei futures or call options to target the 50,000 level. This rally is supported by recent data showing Japan’s core inflation for July 2025 fell to 2.0%, relieving pressure on the Bank of Japan to raise rates too soon. The weakening US Dollar sends a clear message for currency traders. It’s time to buy call options on EUR/USD and GBP/USD or take long positions in currency futures. This strategy is backed by the European Central Bank, which has recently indicated a more cautious approach to rate cuts compared to the Fed. Despite the weaker dollar and expected rate cuts, gold’s struggles suggest that investors are focused on equities. This trend indicates more capital is moving away from safe havens, overshadowing the typical factors that should boost gold prices. For now, we recommend using options for a range-bound strategy like an iron condor, anticipating gold will stay around the $3,360 level in the coming weeks. Create your live VT Markets account and start trading now.

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