The Michigan Consumer Sentiment Index in the United States exceeded expectations in October, scoring 55 compared to the predicted 54.2. Ongoing trade tensions between the US and China have impacted various markets. The Dow Jones Industrial Average and West Texas Intermediate (WTI) Crude Oil both saw declines. In contrast, gold prices have risen close to $4,000 due to these tensions.

Pound Sterling Gains Against US Dollar

The Pound Sterling has strengthened against the US Dollar, reaching a two-month low due to fiscal worries in the UK. Bitcoin is currently trading between $120,000 and $121,000, maintaining a short-term support level. However, altcoins like Ethereum and Ripple still face risks. Under the Trump administration, US tariffs remain a vital foreign policy tool, with ongoing support for their significance. Litecoin has gained, trading around $130, as retail interest increases. Market fear is rising due to the renewed US-China trade tensions. During the trade war from 2018 to 2019, the VIX spiked above 25, and we expect similar movements now. This indicates that buying options, such as straddles or strangles on major indices, is a smart strategy to take advantage of the anticipated volatility.

Gold as a Safe Haven

With the Dow Jones declining, the easiest path for stocks seems to be downward. We believe that buying put options on the SPX or QQQ is a direct way to profit from further drops. These options help manage risks while providing exposure to market declines. Gold is becoming the main safe haven, edging towards the $4,000 level. Central banks are actively buying, with reserves increasing by over 800 metric tons in 2024, which supports higher prices. Buying call options on gold futures or related ETFs is still the top strategy to benefit from potential price increases. WTI crude oil dropping below $60 indicates a serious global demand slowdown is expected. Since China represents about 15% of global oil demand, any economic disturbances there will significantly affect consumption. Thus, we see opportunities in selling crude oil futures or buying puts on energy sector ETFs. The Australian Dollar is a key indicator of China’s economic health, and its decline reflects these trade concerns. We expect the Reserve Bank of Australia to adopt a dovish approach, putting more pressure on the currency. Shorting the AUD/USD pair through futures or options clearly aligns with this outlook. Interestingly, the US Dollar is losing strength against the Euro and Pound Sterling, as current trade challenges appear to be a self-inflicted issue. This opens up attractive long positions in EUR/USD, possibly by buying call options to manage risk. However, traders should be cautious of the underlying fiscal issues in the UK, which may limit gains in the Pound. While the Michigan Consumer Sentiment score of 55 surpassed expectations, it’s essential to consider this figure in context. Historically, scores this low have been associated with recession periods, like those seen in 2008 and 2022. This suggests that any domestic strength is vulnerable and unlikely to prevent a broader market decline. Create your live VT Markets account and start trading now.

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