The US Dollar remained strong this week as traders awaited US CPI data and dealt with ongoing trade tensions between the US and China. The DXY index saw gains, while the EUR/USD briefly exceeded the 1.1600 mark, driven by upcoming European economic reports and messages from the ECB. The British Pound weakened, with GBP/USD dipping into the low-1.3300s. Key UK economic numbers are coming soon, which could affect market trends. Meanwhile, USD/JPY continued to rise, reaching about 152.80, with important Japanese economic data expected.

AUD Strengthens

AUD/USD bounced back after a two-day drop, crossing the 0.6500 level again, as Australian economic reports approach. Oil prices also rose to two-week highs due to new US sanctions on Russia, pushing WTI values above $62.00 per barrel. Gold prices saw a recovery, trading around $4,150 per ounce amid geopolitical tensions and ahead of the US CPI release. Silver also bounced back to $49.00 per ounce. The market awaits key economic indicators from various regions, likely to affect currency and commodity prices in the next few days. The US Dollar Index’s strength indicates cautious market sentiment ahead of the US inflation data. Core inflation has remained stubbornly high at around 3.1% over the last quarter, so any surprises could lead to significant market moves. This makes long-dollar call options a smart hedge against unexpectedly high inflation. The Euro’s rise above 1.1600 seems weak, especially with new PMI data for the Eurozone coming soon. German manufacturing PMIs have been declining for several quarters, starting mid-2023, which points to ongoing economic struggles. This widening gap with the US suggests that put options on the EUR/USD may be wise if European data disappoints.

British Pound Concerns

The British Pound’s decline to the low-1.3300s raises serious concerns about the UK economy. Recent retail sales reports showed a year-over-year drop of 1.2%, leading traders to brace for more negative news. We should watch for a potential fall below the 1.3300 mark, as another weak report could accelerate selling. As USD/JPY approaches 153.00, the risk of Bank of Japan intervention is very high. Past actions to defend the yen in late 2022 and 2024 indicate they won’t allow continuous weakening. This creates a significant risk of a sharp decline, so short-term put options on this pair may help guard against that possibility. The recent spike in WTI crude oil to over $62 a barrel, resulting from new sanctions, adds volatility to the energy market. While these prices are lower than past peaks, this geopolitical issue suggests more price fluctuations ahead. We should also keep an eye on the US government shutdown situation, as any resolution could affect economic forecasts and oil demand. Gold’s movement back towards $4,150 an ounce highlights its role as a safe investment during US-China trade tensions and pre-CPI anxiety. Historically, gold performs well during high inflation and uncertainty, similar to the inflationary period starting in 2021. Holding long positions through futures or options could provide a good buffer against market shocks in the weeks ahead. Create your live VT Markets account and start trading now.

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