The US Dollar is facing pressure as markets prepare for a vote to fund the US government again. This could spark a higher risk appetite and possible interest rate cuts by the Federal Reserve. The upcoming short-term funding vote in the House of Representatives might create volatility, especially with delayed data on inflation and labor being released. The Euro has a slight upward momentum, with EUR/USD hovering near the 50-day Exponential Moving Average at 1.1625. Meanwhile, GBP/USD struggles below 1.3200 due to poor UK economic data. On the other hand, USD/JPY is approaching nine-month highs above 154.00, supported by a positive global sentiment that strengthens the US Dollar.

How Crude Oil Prices Affect Markets

West Texas Intermediate Crude Oil prices fell below $60 per barrel, hitting three-week lows around $58.40 due to expectations of rising US Crude Oil stocks. Gold remains strong, trading above $4,200 per ounce, driven by ongoing market concerns despite a generally positive outlook. With the US government likely to approve a short-term funding bill, we expect a surge of delayed economic data soon. The release of pending inflation and job reports may cause significant volatility, creating an opportunity for short-term options strategies. We’re looking to capitalize on price swings by considering straddles on major currency pairs. If the Federal Reserve hints at possible rate cuts, the US Dollar Index (DXY) could weaken further. Pre-shutdown data indicates annual inflation may drop to 2.5%, which contrasts with the slower pace of the European Central Bank. This makes the Euro seem relatively appealing. We’re considering bull call spreads on the EUR/USD to target gains above the 50-day EMA near 1.1625 with managed risk. The British Pound remains under pressure, struggling to maintain the 1.3100 level due to weak economic data, a trend we have observed since the technical recession in late 2023. Recent reports reveal a surprising drop in UK retail sales, suggesting continued underperformance. Hence, we prefer to avoid long GBP positions and find better opportunities by selling the Pound against the Euro.

Intervention Risks for the Japanese Yen

The USD/JPY rate reaching above 154.00 is noteworthy, putting it in a zone that previously prompted intervention from the Bank of Japan in 2022 and 2023. Although broad Yen weakness drives this trend, the chances of a sudden intervention from Japanese authorities are now very high. We recommend buying inexpensive, out-of-the-money put options on USD/JPY as a smart way to protect against or profit from a sudden intervention. Crude oil’s decline below $60 a barrel results from rising US inventories; last night’s API report showed a build of over 4 million barrels, more than expected. This downward trend may continue as production remains strong while global demand signals are mixed. For derivative traders, this suggests selling front-month call options to collect premiums or buying puts to target a further decline towards the $55 support level. Despite a risk-on sentiment, Gold’s steady price near $4,200 an ounce reflects substantial market anxiety. This price is over double what we saw two years ago, indicating ongoing demand for safe havens. We are using this steady situation to create collar strategies, protecting long positions by buying puts and selling out-of-the-money calls to finance them. Create your live VT Markets account and start trading now.

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