In October, new home sales in the United States reached 737,000, beating the expected 710,000. This shows a stronger market than anticipated for the month. Gold prices dropped below $4,600 due to a cooling US Consumer Price Index (CPI), which also limited gains for the US dollar. Other market changes included a weaker AUD/USD as analysts processed US inflation data, and fluctuations in WTI prices due to tensions in Iran and Venezuelan oil exports.

Forex Market Movements

In the forex market, the pound sterling remained steady around 1.3450, as softer US CPI data raised expectations for the Federal Reserve to cut rates. The USD/CAD stayed stable, with US disinflation balancing support from the oil-boosted Canadian dollar. Both the euro and pound faced challenges, with EUR/USD hovering near 1.1650 and GBP/USD trying to stabilize around 1.3430. Gold remained negative, falling below $4,600, while Ethereum gained momentum thanks to its steady network growth. Additionally, XRP held above $2.00 amid a drop in on-chain and derivatives activity. Reflecting on late 2025 data revealed signs of cooling inflation, leading many to bet on Federal Reserve rate cuts. The softer US CPI reports at that time boosted these expectations and limited the US dollar’s strength, which explains why pairs like GBP/USD strengthened to around 1.3450. However, recent data from December 2025 challenged this perspective, as the economy unexpectedly added 216,000 jobs. The latest CPI reading for December actually rose to 3.4%, interrupting the previous disinflation trend. This has led analysts to reconsider how soon the Fed might start cutting interest rates.

Opportunities in Derivatives Trading

This situation creates opportunities for derivative traders, as market expectations no longer align with the Fed’s potential actions. Probabilities for a rate cut in the first quarter, which were over 80% a month ago, have now dropped below 60%, according to the CME’s FedWatch Tool. Increased uncertainty suggests that volatility may rise, making options strategies on interest rate futures potentially profitable. In response to the strong data, the US dollar has bounced back from its late 2025 lows, with the DXY index climbing above 103. This renewed strength may continue in the coming weeks, prompting traders to consider bearish positions on pairs like AUD/USD. Options strategies, such as buying call options on the dollar or put options on other major currencies, could express this outlook. The surprising strength in new home sales from October 2025 now appears less like an anomaly and more like a sign of enduring economic resilience. This underlying strength, alongside ongoing geopolitical tensions impacting oil, complicates the straightforward “disinflation” narrative from the previous year. Therefore, we should remain cautious, as implied volatility in equity index options, indicated by the VIX, could start to rise from its current low levels around 13. Create your live VT Markets account and start trading now.

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