Trading activity in financial markets slowed down on Tuesday as traders got ready for the New Year holiday. The US economic calendar included housing data and the release of the Federal Reserve’s December meeting minutes. The US Dollar stayed steady, with the Dollar Index around 98.00. The data showed that the US Dollar fell the most against the Australian Dollar, losing 2.44% this month.

US Housing Data and Precious Metals

Pending Home Sales in the US rose by 3.3% in November, while the Dallas Fed Manufacturing Index dropped to -10.9 in December. Gold and Silver saw corrections on Monday, with Gold falling over 4% and Silver about 9%. However, both metals began to recover on Tuesday. The EUR/USD and GBP/USD pairs held steady on Monday, with EUR/USD above 1.1750 and GBP/USD near 1.3500. The USD/JPY fell by over 0.3% on Monday and remained around 156.00 on Tuesday. Gold’s price is affected by several factors, such as geopolitical issues and interest rates. Central banks are major holders of Gold, with countries like China and India significantly increasing their reserves. Gold is viewed as a safe-haven asset and a hedge against inflation, often moving opposite to the US Dollar. Even with low trading volumes during the holidays, we shouldn’t let our guard down. The upcoming minutes from the Federal Reserve Open Market Committee (FOMC) will be crucial. These minutes will shed light on the Fed’s views regarding future rate cuts and could lead to significant market changes.

US Dollar Trend and Strategic Options

This month, the US Dollar’s weakness has been notable, dropping against all major currencies, especially the Australian Dollar. This follows a trend from 2025, as inflation has decreased significantly from previous highs. With the US Core PCE Price Index falling to 2.5% year-over-year in the third quarter of 2025, the market is anticipating a more cautious Federal Reserve in 2026. Given this environment, selling USD call options or buying put options against various currencies might be a smart strategy. The dollar index holding steady around 98.00 feels like a pause rather than a reversal. If the FOMC minutes indicate a dovish stance, it could push the dollar toward earlier lows. The sharp rise and correction in gold and silver indicate market nervousness. Gold’s difficulty in maintaining gains above $4,400 after a strong rally suggests some exhaustion, but ongoing support from central bank purchases remains firm. This accumulation trend has continued since central banks bought a record 1,136 tonnes back in 2022. Due to the high price fluctuations, making outright directional bets on precious metals can be risky. High implied volatility makes options strategies like straddles or strangles appealing for trading potential price movements, regardless of direction. Additionally, selling covered calls against long positions could generate income while waiting for clearer trends to develop. Keep an eye on the Japanese Yen, showing strength due to a more hawkish Bank of Japan. With Japan’s core inflation above 2% for over a year, its policy is diverging sharply from the US. This situation supports a stronger yen against the dollar. The stability of USD/JPY around 156.00 may provide a good opportunity for bearish trades. We could consider buying puts on USD/JPY, expecting a decline if the FOMC minutes suggest easier US monetary policy. This divergence in policy is a clear long-term theme as we move into the new year. Create your live VT Markets account and start trading now.

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