European markets started off cautiously, with Eurostoxx futures down by 0.1% in early trading. US futures showed little change, with S&P 500 futures up by only 0.1%. Today’s European Central Bank (ECB) policy decision is not expected to have a significant impact on the market.

US CPI Report

The focus today is on the US Consumer Price Index (CPI) report, which is a key driver for trading. Additionally, there’s a report suggesting that China may help local governments deal with their debts. Meanwhile, the USDJPY remains stable as traders await the US CPI data. A cautionary note is issued about the risks of foreign exchange trading, which may not be suitable for everyone. Since leverage increases the potential for loss, individuals should consider their financial goals, experience, and risk tolerance carefully. It’s advised to learn about the risks of forex trading and seek independent advice if necessary. As markets remain uncertain ahead of the US inflation report, we can expect increased volatility. US futures are flat, indicating a market ready for a significant move once the data is released at 8:30 AM ET. Looking back at the dramatic market fluctuations after CPI reports in 2023 and 2024, a similar reaction today is likely. The CBOE Volatility Index (VIX) is around 16, relatively low, making it a good time to buy options. This opens opportunities for strategies like straddles on the S&P 500 to profit from a big move, either up or down. A position taken before the report is likely to benefit from the almost guaranteed rise in implied volatility right after the numbers are announced.

Tariffs and European Concerns

The potential imposition of 15-20% tariffs on European goods poses a bearish risk for the Eurozone. It may be wise to consider buying put options on the Euro Stoxx 50 or taking short positions on the EUR/USD pair in the coming weeks. This geopolitical tension is likely to put pressure on European assets, regardless of today’s US data. The consensus for this morning’s August inflation data is that the annual rate will remain high at 3.4%, a level the Federal Reserve is not comfortable with. If the number comes in hotter than expected, we could see a sharp rise in Treasury yields and a sell-off in equities, especially in tech stocks that are sensitive to interest rates. In contrast, a figure below 3.2% could lead to a significant relief rally. While the ECB policy decision is also happening today, it is expected to be largely uneventful, with markets already assuming that rates will stay steady. This absence of policy change in Europe, along with data-driven uncertainty in the US, keeps the spotlight on the dollar. A strong CPI reading could finally push USD/JPY out of its long-standing range and towards new highs for the year. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now