During the European session, all eyes are on the Eurozone flash CPI report. The expected year-on-year CPI is 1.9%, which is down from the previous 2.0%. The Core CPI is projected to drop to 2.2% from 2.3%. Market sentiment shows a lower chance of a rate cut, now at about 38%. Better economic data and inflation risks suggest that policymakers will tread carefully. In the American session, the focus shifts to the US NFP report. Payroll figures are expected to be 110,000, a decrease from 147,000 previously. The unemployment rate is predicted to rise to 4.2% from 4.1%. Average hourly earnings may see a slight increase to 3.8% from 3.7%. Month-on-month growth is projected to be 0.3%, up from 0.2%.

Fed Chair Powell’s Focus

Federal Reserve Chair Powell emphasized the need to balance labor demand and supply, linking this to unemployment statistics. The unemployment rate remains a key focus. After the NFP release, the US ISM Manufacturing PMI report will follow, expected to be at 49.5, up from 49.0. However, the primary focus is on the NFP and CPI reports unless PMI data shows significant changes. Given the emphasis on today’s US NFP report, we should anticipate more market volatility. The expected slowdown in job growth to 110K, combined with rising annual wage growth of 3.8%, sends mixed signals to the Federal Reserve. This balancing act between a cooling labor market and ongoing inflation creates trading opportunities. We are closely monitoring the unemployment rate, as Powell has spotlighted it as a crucial measure of labor market balance. The latest US CPI data for June 2025 shows core inflation stubbornly at 3.5%, making today’s labor data even more vital for the Fed’s upcoming decisions. Remember the market fluctuations in late 2023 when similar mixed signals caused notable changes in Treasury yields. If the unemployment rate exceeds the 4.2% forecast, market expectations for a Fed rate cut later this year would likely increase. This could weaken the dollar and lift equities. On the other hand, a rate at or below 4.1% would bolster the “higher for longer” stance, particularly given wage growth concerns.

Options And Strategic Positioning

To prepare for this situation, we see value in options that can profit from significant price movements, regardless of their direction. The VIX index, which indicates market volatility, has risen, currently around 18, up from approximately 14 earlier this summer. Buying straddles or strangles on major indices before the report could be a smart move to capture the expected volatility. In the Eurozone, the CPI data will also impact currency markets. Recently, German industrial production showed an unexpected increase, so today’s slight cooling in CPI is unlikely to lead the ECB to cut rates. This could strengthen the Euro, especially if the US NFP data turns out weak. While the ISM Manufacturing PMI is a secondary concern, we won’t ignore it altogether. Job growth has been trending down, averaging around 150K in the second quarter of 2025 compared to over 200K in late 2024. A significant miss in the ISM figure, falling below the expected 49.5, could worsen any negative reaction from the jobs report. Create your live VT Markets account and start trading now.

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