Wholesale inventories in the United States rose by 0.5% in September, which is higher than the expected 0.1% increase. This comes as the Dow Jones Industrial Average gained 650 points, driven by a rate cut that boosted growth stocks.

Currency Movements

Recent US economic data has impacted currency movements. The EUR/USD increased past 1.1730 after US job figures came in weaker than expected. The GBP/USD also moved up past 1.3400, as the US Dollar fell due to disappointing employment data. Gold prices have climbed as well, trading above $4,250 and approaching record highs, thanks to the weakness of the US Dollar. On the other hand, Solana’s price dropped and is now trading below $130, influenced by the Federal Reserve’s tight monetary policy. The Federal Reserve cut rates by 25 basis points, reducing the target range to 3.50-3.75%. This move shows a cautious change in their policy.

Trading Strategies in Response

The Federal Reserve’s decision to cut rates signals caution, creating uncertainty and likely increasing market volatility. Traders might consider buying call options on the CBOE Volatility Index (VIX) or using VIX futures to protect against sudden market shifts in the coming weeks. The US Dollar is expected to weaken, which suggests adopting strategies to capitalize on this trend. Given the poor US job data, buying put options on the US Dollar Index (DXY) could be advantageous. This marks a significant shift from the strong Dollar environment observed during much of 2022 and 2023 when the Fed was raising rates aggressively. Equity markets are celebrating the rate cut, evident in the Dow Jones’s rise, but caution is advised. Buying call spreads on the S&P 500 allows for participation in potential gains while limiting risk. The recent increase in wholesale inventories suggests slowing underlying economic demand, making an unhedged bullish position precarious. Gold is benefiting from a weaker dollar and lower rates, showing strong momentum. With prices soaring above $4,270 an ounce, it’s far exceeding previous records from early 2020s. We should consider buying call options on gold futures or gold-backed ETFs to take advantage of this trend. Although the rate cut has lifted Treasury futures, the Fed’s cautious approach indicates that a drop in yields won’t be straightforward. This caution likely arises from the memory of high inflation, which peaked at 9.1% in June 2022—an unwanted level they hope to avoid. Therefore, we should stay agile with interest rate derivatives, ready for the Fed to pause if inflation data rises. Create your live VT Markets account and start trading now.

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