US stock indices are rising as investors await Fed Chair Powell’s speech at Jackson Hole. Although there are concerns about possible policy changes, many Federal Reserve members believe the risks are balanced, despite worries about employment data. The market gives a 70% chance of a rate cut in September. The S&P is attempting to end its longest losing streak since January. Currently, market data shows the Dow is up 348 points (0.77%) at 45,134.25, the S&P is up 36.67 points (0.58%) at 6,407.07, the NASDAQ is up 91 points (0.43%) at 21,192, and the Russell 2000 is up 16.73 points (0.74%) at 2,290.85. In the debt market, yields have fallen, resulting in a flatter yield curve. The 2-year yield is at 3.75%, the 10-year at 4.308%, and the 30-year at 4.897%. In the forex market, the US dollar is showing mixed results. The EUR is up 0.03% at 1.1600, the JPY is up 0.10% at 148.154, the GBP is down 0.12% at 134.27, and the CHF is steady at 0.8086. The AUD is down 0.12%, while the NZD is up 0.03%. A link will be provided to watch Powell’s live speech. With the market pricing in a 70% chance of a rate cut next month, we are seeing a classic “buy the rumor” rally ahead of the Jackson Hole speech. However, with a solid 2.1% GDP for Q2 2025 but recent job reports averaging a soft 150,000, the Fed’s direction remains unclear. This scenario suggests options premiums are high, reflecting the uncertainty of the upcoming speech. The main risk is that the market is too hopeful about a dovish shift from the Federal Reserve. We remember the sharp market drop after the unexpectedly hawkish Jackson Hole speech in August 2022, which shifted expectations for months. A similar surprise today could reverse this week’s gains, making it wise to consider protective puts on the S&P or call options on the VIX index. Given the high stakes, traders may want to use strategies that benefit from significant movement in either direction. A long straddle, which involves buying a call and a put option with the same strike price and expiration, could work well with broad market ETFs like SPY. This strategy profits from a big price swing, regardless of whether Powell confirms the rate cut or leans towards a more hawkish approach. The bond market signals expectations of rate cuts, with yields declining today. The 2-year yield at 3.75% is particularly responsive to Fed policy and will react first if Powell counters the market’s dovish outlook. If he underscores that July’s Core PCE inflation of 2.9% is still above target, we might see a sharp rise in short-term yields. In the currency market, the US dollar is showing some hesitation, which is common before major announcements. A dovish speech would likely weaken the dollar, benefiting positions in the Euro or the Japanese Yen. Conversely, any indication that the Fed will maintain its stance on inflation could lead to a sharp rise in the dollar, making short positions in currencies like the Australian dollar appealing.

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