The US dollar fell this week as people speculated about possible actions related to recent Epstein news. Despite this, the market stayed stable because Trump shifted focus with a tweet about football. European currencies like the EUR, GBP, and AUD gained strength against the USD. In the meantime, the Financial Times reported that Trump is advocating for a 15-20% minimum tariff on EU goods, which led to a drop in the EUR/USD exchange rate.

Impact on Japanese Stocks

Japanese stocks are doing well, with the Nikkei reaching new highs. Wheat futures have risen due to good harvest progress in Ukraine, while coffee prices have surged because of dry weather in Brazil. On the other hand, lumber prices have dropped by 10%, indicating a possible economic slowdown. Goldman Sachs is targeting alternative asset managers and firms with high floating-rate debt for year-end gains, as gold prices have risen 37% this year. Trump expressed his dissatisfaction over the situation between Russia and Ukraine, while EU leaders are planning visits to the US. The Swiss National Bank is keeping a high threshold for negative rates, and the Federal Reserve is expected to cut rates by 50 basis points in September. There are also alerts that the People’s Bank of China might not reduce interest rates, which could impact market expectations. Most experts predict aggressive rate cuts from the Fed, with some banks anticipating three cuts by the end of the year. The CME FedWatch Tool shows an 85% chance of a 50-basis-point cut this month, contributing to the dollar’s decline. We recommend considering options on the dollar index or shorting the USD against currencies from central banks with less dovish policies.

Opportunities in Currency Trade

Trading the Euro is tricky right now due to mixed signals from a weak dollar and potential new U.S. tariffs. This uncertainty led the CBOE EuroCurrency Volatility Index to rise by 15% in the last week. We see a chance to use straddles or strangles on EUR/USD to profit from significant moves in either direction, especially with EU leaders visiting the US next week. Gold’s 37% gain this year is supported by low real rates and geopolitical tensions. This trend is similar to the period from 2019 to 2020 when the Fed was also easing aggressively. We can continue to benefit from this momentum by buying gold futures or call options, as World Gold Council data shows inflows into gold investments are speeding up. In the stock market, AI-focused companies like Broadcom are gaining momentum, but we should be cautious about the overall market. The Nikkei’s new record high could be a sign to take profits or hedge our positions. We can purchase call spreads on tech ETFs to engage in the AI boom with limited risk, while also considering put options on the Nikkei to guard against a downturn. The recent 10% drop in lumber prices is a warning sign for the larger economy that we shouldn’t ignore. This warning is backed by new data from the U.S. Census Bureau showing a 5% decline in housing starts last month. We should consider buying put options on homebuilder ETFs to trade this potential slowdown. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now