European stocks are on the rise, following Wall Street’s strong performance. The Eurostoxx, Germany’s DAX, and Spain’s IBEX each increased by 0.4%. France’s CAC 40, the UK’s FTSE, and Italy’s FTSE MIB rose by 0.3%. Investor optimism is high at the start of the trading session due to Wall Street’s late gains. US futures are steady, with S&P 500 futures up by 0.08%. In foreign exchange, the dollar is weakening, causing the EUR/USD to rise by 0.3% to 1.1705, influenced by recent CPI data affecting European trading.

Optimism from Inflation Reports

The positive start in European markets is a direct response to yesterday’s lower-than-expected inflation reports from both Europe and the US. This suggests a good opportunity to buy near-term call options on major indices like the DAX or the Eurostoxx 50, allowing investors to take advantage of the current positive sentiment in the following weeks. Recent data showed Eurozone HICP inflation dropped to 1.9%, just below the 2.1% that analysts expected. This reduces pressure on the European Central Bank to adopt a hawkish stance this year, supporting the growing interest in risk-on assets this morning. In the currency market, the dollar’s decline is significant, pushing the EUR/USD above 1.1700. This shift stems from the belief that the Federal Reserve will maintain its policy pause. We see this as a chance to buy EUR call options, aiming for a potential increase to the 1.18 level.

Market Volatility Trends

With key inflation data now behind us, market volatility has noticeably decreased. The Euro Stoxx 50 Volatility Index (VSTOXX) has dropped to around 14, its lowest in over three months. This makes selling out-of-the-money puts an appealing strategy for collecting premiums as we bet on the market’s continued stability. Looking ahead to 2025, we see behaviors in the market similar to late 2023. At that time, initial signs of peaking inflation led to major stock rallies as traders anticipated a shift from central banks. The current atmosphere feels familiar, suggesting this positive momentum may continue. Create your live VT Markets account and start trading now.

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