The US Dollar is gaining strength against several major currencies, thanks in part to a recent trade deal between the US and EU. Currencies like the NZD, EUR, and CHF are weakening, while the AUD and JPY are also seeing declines. The GBP, CAD, and CNH are experiencing slight drops. Equity futures are hitting record highs, and the US 10Y yield remains steady at about 4.40%. In the commodities market, oil is stabilizing above $65 per barrel, while copper and gold are struggling, facing the risk of further declines.

Upcoming Economic Events

This week, important economic events are expected, including the FOMC meeting, PCE inflation data, and the nonfarm payrolls report. The Federal Reserve is likely to keep interest rates steady, but there may be some dovish dissent from board members. In other developments, EUR/USD continues to drop towards 1.1650 after the trade deal, indicating the strength of the USD. GBP/USD is also declining towards 1.3400 due to changes in economic outlook. Gold is trading below $3,350 as investor sentiment improves following the trade deal between the EU and US. Given the US dollar’s strength, traders might want to position for potential gains in the derivative markets. One option is to buy call options on the U.S. Dollar Index (DXY), which has remained above the 105 level recently. This strategy lets traders profit if G10 currencies keep underperforming against the dollar while managing risk. With equity indexes climbing, such as the S&P 500 recently exceeding 5,300, taking long positions carries risks. We recommend using bull call spreads on major index futures to seize gains while limiting losses. The CBOE Volatility Index (VIX) is currently near a low of 12, making options cheaper for these strategies.

Central Bank Meeting and Inflation Data

The upcoming central bank meeting and inflation data are key events that will affect interest rate expectations. According to the CME FedWatch Tool, markets are predicting less than a 50% chance of a rate cut by September, a significant shift from earlier projections this year. We believe any unexpected hawkish comments from Powell could lead to option positioning on 10-year Treasury note futures. The cautious trading in precious metals provides a chance for bearish strategies. With gold pulling back from recent highs above $2,400 per ounce, buying put options on gold futures or related ETFs could be a smart hedge against ongoing risk-on market conditions. In the energy sector, as crude oil hovers around $80 per barrel, traders might think about selling covered calls to generate income while waiting for a clearer trend. As we anticipate potential market movements around the jobs report, strategies that benefit from increased volatility may be valuable. Historically, a significant deviation in the nonfarm payroll numbers can lead to sharp market shifts. A long straddle using options on a currency pair like EUR/USD could be a sensible way to prepare for a big price move, no matter the direction. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now