US futures are on the rise today, with S&P 500 futures up by 0.8%. Even though the Federal Reserve was not as dovish as expected, market predictions still indicate around 45 basis points of rate cuts by year-end. Initially, the dollar was strong but then fell back, causing the EUR/USD to rise from 1.1780 to 1.1825. Gold prices are steady at $3,660, recovering from an earlier dip to $3,634. Equity markets are rallying, improving since Asia’s trading opened.

Market Volatility After the Fed Decision

The market has been volatile since the Federal Reserve’s decision, yet stock prices have been steadily climbing. The current mood among investors seems to support buying now and dealing with risks later. Today’s economic reports, such as weekly jobless claims, will likely affect how the market feels. However, more detailed insights are expected with the non-farm payrolls report on October 3rd, which may shift market expectations about Federal Reserve actions. The Federal Reserve didn’t introduce any surprising hawkish tones, allowing equities to trend higher for now. The market continues to price in about 45 basis points of rate cuts by the end of the year. This “buy now, worry later” mentality is fueling the stock market futures. This rally now hinges on US economic data supporting the Fed’s potential move to cut rates. Today’s initial jobless claims data came in at 225,000 for the week ending September 13th, slightly above the expected 220,000, adding to market momentum. However, the true test will be the non-farm payrolls report set for October 3rd.

Trading Opportunities in Volatility

The CBOE Volatility Index (VIX) is currently low at 14, indicating a rising sense of complacency. This situation creates an opportunity for traders to consider purchasing volatility ahead of the important jobs report. Buying VIX calls or SPX straddles that expire after the report could be a smart move for those anticipating price swings. This scenario feels similar to the market conditions we experienced in late 2023, where weaker economic reports were seen as positive since they boosted the chances of policy easing. After the August jobs report showed only a gain of 150,000 jobs, we should anticipate a similar reaction. A weak October report could lead to a significant market rally, while a strong report might trigger a sharp downturn. The recent drop of the US dollar from its highs also suggests that traders are preparing for a more dovish stance from the Fed. We expect an uptick in activity with options on currency futures, especially for the Euro, as we approach the first week of October. A weak payrolls report would likely further weaken the dollar, pushing the EUR/USD pair closer to the 1.2000 level. Create your live VT Markets account and start trading now.

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