Asian trading remained quiet as markets waited for the Federal Reserve’s FOMC decision and Chair Powell’s press conference. A 25 basis point rate cut is expected, but there’s concern that the Fed may not take as dovish a stance as many hope. The yen stayed steady, while USD/CNY fell to a 10-month low after a significant drop in the U.S. dollar. Japan’s exports declined again in August, marking four straight months of negative growth. However, shipments to Asia showed some recovery. The People’s Bank of China made minimal adjustments with its daily fix. In the stock markets, Japan’s Nikkei 225 rose by 0.2%, Hong Kong’s Hang Seng increased by 1.35%, and the Shanghai Composite was up by 0.38%. Meanwhile, Australia’s S&P/ASX 200 dropped by 0.75%.

High Risk of Forex Trading

Foreign exchange trading is highly risky and may not suit everyone. Leveraged trading can lead to significant financial losses. Individuals should carefully evaluate their investment goals and risk tolerance before trading and seek independent financial advice if necessary. InvestingLive is not responsible for any losses from reliance on its market commentary or financial information. The market has mostly factored in the Federal Reserve’s expected 25 basis point rate cut. The CME FedWatch Tool indicates over a 92% probability of this move. We believe the real focus should be on the messages about future policy, rather than the cut itself. Any sign that the Fed is pausing its easing could lead to a sharp rise in the dollar. Given this uncertainty, we’re exploring purchasing options straddles on major currency pairs like EUR/USD or indices like the S&P 500. This strategy profits from large price swings in either direction, taking advantage of the uncertainty surrounding the Fed’s tone. Be cautious of the post-announcement “volatility crush,” a trend seen in VIX futures during the rate hike cycles of 2022 and 2023 that necessitates a quick exit.

Potential EU Tariffs and Currency Impact

Reports of potential 15-20% tariffs on all EU goods pose a direct threat to the euro. During the trade disputes of 2018-2019, tariff discussions immediately weakened the targeted currency against the U.S. dollar. Therefore, buying out-of-the-money put options on EUR/USD offers a low-cost way to prepare for a possible sharp decline in the coming weeks. With the yuan dropping to a 10-month low, we see this trend possibly accelerating if the Fed sends a hawkish message. The People’s Bank of China appears to be allowing this weakness, which could push the USD/CNH pair toward the important 7.35 resistance level last tested in late 2023. We are considering call options on USD/CNH to take advantage of this potential breakout. Japan’s fourth consecutive month of falling exports—though less severe than expected—highlights its economic fragility and keeps the Bank of Japan steady. This policy divergence means the yen is very sensitive to changes in U.S. Treasury yields. A hawkish Fed that raises U.S. yields would likely push the USD/JPY pair significantly higher. Create your live VT Markets account and start trading now.

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