Today, the economic calendar is light, featuring minor reports like the Canadian Producer Price Index and the US Leading Economic Index. The Bank of Canada will also release its Business Outlook Survey, but this is unlikely to affect the central bank or the markets. Market movements may stay steady or continue based on last week’s reports. US inflation fell short of expectations, while activity data was stronger than anticipated. Predictions for Federal Reserve interest rates have shifted, now anticipating about 47 basis points of easing by the end of the year. A rate cut at the next Federal Reserve meeting is not expected.

Market Direction Uncertain

With fewer reports today, the market seems influenced by last week’s mixed data. The May Consumer Price Index showed a moderate increase of 3.3% year-over-year, but a strong labor market adds to the uncertainty. This situation indicates that traders should prepare for a significant movement once a clearer trend develops. As economic signals conflict, it makes sense to position for a breakout in either direction. The CBOE Volatility Index (VIX) is low at around 12, making options relatively cheap. Buying straddles or strangles on major indices like the S&P 500 could be a smart way to prepare for a future increase in volatility, no matter which way it goes. The market anticipates about two interest rate cuts by the end of the year, but this is not certain. Minneapolis Fed President Kashkari recently suggested that just one cut later in the year is more likely. This gap in expectations creates opportunities for trades that could profit if the market adjusts to a more hawkish Fed stance.

Strategic Investments

Historically, when the Federal Reserve keeps rates steady in the face of mixed data—like in 2019—trading tends to be choppy and range-bound before a major policy change. This suggests that making big directional bets now is risky. Instead, we should focus on strategies that benefit from either consistent ranges or a sharp breakout. The 10-year Treasury yield, around 4.25%, is a key indicator reflecting this economic uncertainty. We’re considering options on interest rate futures to hedge against or speculate on significant movements in yields. For instance, implementing iron condors on Treasury futures may yield profits if yields stay within a certain range in the coming weeks. At this moment, the path of least resistance seems to imply continued upward momentum, pushing the S&P 500 to new highs above 5,400. To take advantage of this trend while managing risk, we are looking into buying call spreads. This strategy allows us to join in on potential gains while limiting losses if the positive sentiment changes suddenly. Create your live VT Markets account and start trading now.

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