The USD is slightly up, alongside rising US yields and stocks, as we await the US CPI data release. The monthly headline and core CPI are predicted to increase by 0.3%. Yearly figures are expected to reach 2.9%, up from 2.7%, while the core remains steady at 3.1%. The dollar’s rise is small against the euro at 0.09%, but more noticeable against the JPY at 0.34% and the GBP at 0.15%. The EURUSD is trading under its 200-hour moving average, suggesting a downward trend. The ECB will announce its rate decision at 8:15 AM, with many expecting no changes and differing views on future actions.

US Debt Market Yields

US debt market yields have increased by about 2 basis points. The 2-year yield is at 3.554%, the 5-year at 3.602%, the 10-year at 4.051%, and the 30-year at 4.698%. In premarket trading, the S&P and NASDAQ are up, hinting at possible record closings. In other markets, crude oil has dropped by $0.68 to $63, while gold has fallen by $21 to $3619.87. Silver is down $0.09, now at $41.02. Bitcoin increased by $290, trading at $114,277. Today’s US CPI data is crucial and will likely guide market movements. The expectation that core inflation will stay at 3.1% is a key concern, especially after the high inflation seen in 2023 and 2024. If the monthly figure exceeds the 0.3% estimate, it may indicate that the Federal Reserve’s efforts are not yet complete, which could push bond yields higher. For equity traders, with the S&P 500 and Nasdaq reaching record highs, volatility is likely low. The CBOE Volatility Index (VIX), which averaged around 17 during calmer periods in 2024, is probably trading below that now, making options more affordable. This could be a good time to consider buying protective put options on major indices in case unexpected inflation disrupts the rally.

Currency Markets Outlook

In the currency markets, the difference in policy between the US and Europe is clear. The European Central Bank has lowered its main rate to 2.15%, while the Fed maintains a higher rate, giving the dollar a notable yield advantage. With the EURUSD showing weakness below 1.1693, we might explore strategies like buying puts or selling call spreads to take advantage of potential declines. The US 10-year yield breaking above 4.05% is significant. In past years, this level served as a strong resistance point, and a high CPI reading could push it toward 4.25%. Traders are likely using interest rate futures and options to prepare for yields to rise or bet on a reversal if inflation data comes in lower than expected. Gold’s drop from its near-record high of $3,658 is a typical case of profit-taking before a major economic announcement. A stronger dollar and rising yields, which might follow a hot CPI number, usually have a negative impact on gold prices. This could be an opportunity to hedge long positions by selling call options or initiating short-term short positions through futures if critical support levels break. Create your live VT Markets account and start trading now.

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