The week of August 25th to 29th is important because of key economic data from Australia, Japan, and the U.S. **Monday:** New home sales data will be released in the U.S. **Tuesday:** Australia will share the RBA monetary policy meeting minutes, and Japan will report its yearly core CPI. Meanwhile, the U.S. will focus on durable goods orders, consumer confidence, and the Richmond manufacturing index. **Wednesday:** Australia will release its inflation data. **Thursday:** The U.S. will report on preliminary GDP, unemployment claims, and pending home sales. **Friday:** Japan will publish its Tokyo core CPI, Canada will announce its monthly GDP, and the U.S. will share several important economic indicators. This includes the core PCE price index, personal income and spending, and the updated University of Michigan consumer sentiment and inflation expectations. Throughout the week, FOMC members’ comments about possible interest rate changes in September will draw attention.

Economic Indicators and Predictions

In the U.S., the forecast for new home sales is 635K, up from 627K the previous month. However, sales are still about 7% lower than last year due to high mortgage rates. Core durable goods orders are expected to rise by 0.3% month-over-month, while overall durable goods orders may drop by 3.8%. High borrowing costs and uncertain trade policies remain hurdles for large investments, causing further declines in business equipment spending. In Australia, July’s CPI is projected to rise to 2.3% year-over-year from June’s 1.9%. This increase reflects higher electricity prices expected after earlier discounts. Japan’s Tokyo core CPI is anticipated to decrease to 2.6% from 2.9%, mainly due to lower energy prices, although food prices remain high. In the U.S., the core PCE price index is expected to be 0.3% month-over-month, while personal income and spending are both predicted to rise by 0.4% and 0.5%, respectively. Signs of stability in U.S. consumer spending are evident, with retail consumption increasing by 0.5%. Personal income is also expected to rise by 0.5%, driven by wage growth and longer working hours. Nevertheless, inflation pressures are likely to increase, especially as core PCE rises, which will challenge the Fed as it navigates slow growth and ongoing inflation. This week, our main attention is on Friday’s U.S. Core PCE inflation report, which will significantly shape expectations for a Fed rate cut in September. Currently, markets estimate about a 60% chance of a 25-basis-point cut, a notable change from the more conservative outlook earlier in 2025. If inflation remains high, this could quickly shift market sentiment, leading to volatility.

Market Strategies and Considerations

Ahead of Friday, we will monitor preliminary data like durable goods orders and consumer confidence for clues about economic momentum. Ongoing weakness in business investment, a trend developing since late 2024, highlights the case for potential rate cuts. However, traders should remain cautious, as the Federal Reserve continues to focus on persistent inflation. This uncertainty before the PCE release makes options strategies appealing. The VIX has been steadily rising from the low teens seen earlier this summer to about 17, indicating that traders are seeking protection against sharp market movements. This environment favors long volatility positions, such as straddles on the S&P 500, to capitalize on significant market movements following Friday’s data. Outside the U.S., Australian inflation data on Wednesday provides a key chance in forex markets. After a surprisingly low reading in June, a rebound to 2.3% is expected, which would place inflation solidly within the RBA’s target range and could boost the Australian dollar. We are considering AUD/USD call options to benefit from a stronger-than-expected inflation result. In Japan, the inflation data is unlikely to trigger any policy changes from the Bank of Japan, which has kept its policy rate near zero during the global tightening phase of 2023 and 2024. The crucial “super-core” inflation is expected to stay steady but not high enough to compel a change from the BoJ this year. This policy divergence should keep supporting carry trades, like shorting the yen against the dollar. Ultimately, Friday’s U.S. PCE data will steer the market in the upcoming weeks. A core reading of 0.3% or above could challenge the rate cut narrative, likely strengthening the U.S. dollar and pressuring equities. On the other hand, a reading of 0.2% or lower would reinforce expectations for a rate cut in September, potentially stirring a rally in risk assets. Create your live VT Markets account and start trading now.

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