China’s Economic Growth

The People’s Bank of China has set the USD/CNY reference rate at 7.0051, just below the previous rate of 7.0078. The EUR/USD pair is trending toward 1.1650. Despite a rise in market anxiety, it has stabilized around 1.1630 during Asian hours. Similarly, the GBP/USD pair is climbing toward 1.3400, influenced by US tariff threats, as the US observes a holiday. Gold prices have skyrocketed to an all-time high of over $4,700 due to rising geopolitical tensions. The recent decline of the US Dollar may be helping these gains, though expectations about the Federal Reserve could limit further growth.

Geopolitical Risk Impact

In the future, the US PCE data and events at Davos are likely to affect market trends. The upcoming Bank of Japan meeting will also be closely watched for guidance. In the UK, inflation and retail sales data could influence decisions from the Bank of England. The ongoing tariff issues with Greenland are causing significant market unrest, increasing volatility. The VIX has surged over 40% in the past week, reaching levels not seen since tensions in the Taiwan Strait in early 2025. Traders may want to buy volatility through options, as sharp price moves are expected across different asset classes. Gold is a clear winner in this risk-averse environment, rising decisively above $4,650. This increase resembles the 2019 US-China trade war, with a surge in open interest for gold call options at a $5,000 strike price, tripling within days. Using call spreads to invest in gold could help capture more gains while managing high premium costs. The President’s tariff threats are putting pressure on the US Dollar, creating chances with currency pairs like EUR/USD and GBP/USD. With the pound nearing 1.3400, implied volatility on one-month GBP options has spiked to 12% due to possible Bank of England rate cuts. This suggests that the Euro may be a stronger long position against the dollar. Buying EUR/USD call options could be an easy way to play this trend. Geopolitical risks are a significant challenge for equities, as shown by $15 billion in outflows from S&P 500-tracking funds last week. We recommend setting up downside protection for stock portfolios. Buying put options on major indices or using put spread strategies provides a hedge against potential market corrections. The oil market is torn between fears of a slowdown caused by tariffs and possible supply disruptions, leaving WTI without a clear direction. This uncertainty increases the risk of directional bets but creates an ideal environment for volatility trades. Long straddles or strangles on WTI futures could yield profits from big price swings in either direction. Create your live VT Markets account and start trading now.

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