The University of Michigan’s 1-Year Consumer Inflation Expectations dropped to 4.4% in July from 5%. This change in inflation expectations has affected market behavior, particularly with currency pairs like EUR/USD and GBP/USD. As a result, EUR/USD rose above 1.1650 due to the weaker US Dollar. Similarly, GBP/USD climbed over 1.3450, benefiting from the soft USD. In the commodities market, gold prices continued to rise, surpassing $3,350, thanks to the weaker USD and lower US Treasury bond yields.

Cryptocurrency Movements

Cryptocurrencies experienced significant changes, with Bitcoin trading above $120,000 and approaching its all-time high of $123,218. Ethereum jumped over 20% this week, aiming for the $4,000 level. Ripple reached a new high of $3.66, reflecting growing market optimism. China’s economic activity showed a 5.2% growth in the second quarter, driven by trade and industrial production. However, slower investment and retail sales, along with falling property prices, raised concerns. Trading foreign exchange on margin carries high risks; it may not be suitable for everyone due to the effects of leverage. We view the recent drop in one-year inflation expectations as an important signal for traders. This trend could ease pressure on the Federal Reserve for aggressive rate hikes, which usually weakens the US dollar. Traders should consider strategies that take advantage of the ongoing softness in the USD. We expect major currency pairs to continue rising against the dollar. Recent data from the Commodity Futures Trading Commission shows that speculative net-long positions in the Euro increased by nearly 10,000 contracts last week, indicating bullish sentiment. We suggest buying call options on both the EUR/USD and GBP/USD pairs to leverage this trend.

Gold And Commodities Outlook

The gold rally directly relates to the drop in US Treasury bond yields, which have fallen by 15 basis points recently. Historically, gold performs well when real yields decrease, reducing the opportunity cost of holding this non-yielding asset. Buying bull call spreads on gold futures can provide upside exposure with limited risk. The rise in cryptocurrencies suggests a favorable risk-on environment, driven by expectations of looser future monetary policy. With Bitcoin closing in on its all-time high, implied volatility has risen over 25% in the past month, indicating expected sharp movements. While long positions look appealing, we recommend using protective put options to guard against increased volatility and potential swift reversals. We are also paying close attention to mixed economic signals from abroad. The slowdown in China’s investment and retail sales may dampen global growth prospects and could trigger a shift to safer assets, reversing the current weak-dollar trend. Holding positions in broad market volatility instruments like VIX futures can be a wise hedge against this risk. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now