In January, the Consumer Price Index in Hesse, Germany, dropped to 2.1% year-on-year from 2.2%. At the same time, the Canadian Dollar is growing steadily, with the US Dollar playing a significant role.

Currency Market Dynamics

Inflation rates for the Euro remain stable, while the GBP/USD pair weakened as the US Dollar strengthened due to developments like the Senate breakthrough and an upcoming Bank of England meeting. The EUR/USD pair is also under pressure, hovering around 1.1900 as the market waits for news about the next Federal Reserve Chair. Gold prices fell, aiming for $5,000, as the US Dollar gains strength and anticipation builds around the Federal Reserve Chair announcement. Stellar continues to decline, hitting a three-month low below $0.20 due to negative market sentiment. Microsoft faced a significant sell-off, losing $400 billion in market value, marking its second-largest drop on record. In the cryptocurrency market, Bitcoin, Ethereum, and Ripple are experiencing major downturns, with Bitcoin nearing its November low of $80,000 and Ethereum dropping below $2,800, indicating high market volatility. The US Dollar is strengthening, a trend likely to persist ahead of the President’s announcement regarding the Fed Chair. A recent deal to avoid a government shutdown has provided a stable foundation for this rally. Expect increased volatility, as reflected in the rising prices of short-dated options on major currency pairs like the EUR/USD.

European And US Policy Split

There is a clear split in policies between the US and Europe. With German inflation decreasing to 2.1% in Hesse, the European Central Bank sees no need to be aggressive. In contrast, core inflation in the US remains firmly above the Fed’s target, similar to the trends seen back in 2024. Microsoft’s $400 billion drop is a major warning sign for the tech sector. This trend is not isolated; it indicates broader profit-taking in large-cap stocks. We are preparing for potential further weakness by purchasing puts on the Nasdaq 100, as it seems vulnerable to a larger correction. Gold is struggling under the pressure of a stronger dollar and the possibility of a hawkish Fed. The metal’s attempt to reach the $5,000 level suggests that traders are moving away from safe havens in favor of the dollar. We see this as a chance to short gold futures or buy puts, betting on a continuation of this trend. The crypto market shows significant weakness, with Bitcoin nearing its November low close to $80,000. Decreasing open interest and negative funding rates in the perpetual swaps market reveal that bearish sentiment is dominant. This situation is perfect for shorting futures or setting up put spreads to profit from further declines. Create your live VT Markets account and start trading now.

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