Today’s news is expected to be calm, with no big events likely to move the markets. The final CPI reading for Spain and US MBA Mortgage Applications data are not thought to affect expectations.

Federal Reserve Communications

The spotlight is on the Federal Reserve’s communications. Fed member Goolsbee will speak at 17:00 GMT. He tends to have a neutral to slightly dovish view. Fed members Barkin and Bostic will also be speaking, but their comments are unlikely to have an impact because they are not current voters and have spoken recently. Looking ahead, all eyes are on Fed Chair Powell’s speech at the Jackson Hole Symposium. A key event in September will be the NFP report, where a rate cut seems likely. Only an unexpectedly strong NFP report could lower the current 98% chance of a cut down to 50%. This situation could influence future policy decisions, but for now, the focus is on what the Federal Reserve will communicate next. With the market pricing in a 98% chance of a rate cut in September, the trend is clear. The weak July NFP report, which showed only 95,000 jobs added and an unemployment rate increasing to 4.2%, reinforces this dovish view. For now, this suggests keeping positions that benefit from lower interest rates and a potentially weaker dollar. Due to this high certainty, implied volatility on many assets has decreased, especially for short-term options. This creates a chance to sell weekly options that will expire before the next major market event, allowing you to collect premium while waiting. However, any surprising hawkish comments from Fed’s Goolsbee today could cause a temporary spike, making this a tactical, rather than a strategic, trade.

Jackson Hole Symposium

In the coming weeks, the main focus will be Fed Chair Powell’s speech at the Jackson Hole Symposium. We’ll be on the lookout for hints that might challenge the general consensus, which could give us a chance to adjust our positions. Until then, the market is likely to drift, mainly reacting to intraday comments from Fed officials without forming a new trend. The biggest risk to the current situation is an unexpectedly strong NFP report in early September. We recall late 2023 when the market aggressively anticipated rate cuts for 2024, only for strong data to necessitate a major reevaluation. To prepare for a similar situation, buying inexpensive, out-of-the-money call options on the dollar or put options on equity indices expiring after the NFP data could be a smart hedge. Thus, the strategy is to maintain a core dovish position while using low volatility to either sell short-term options or buy longer-term protection against risks. Volatility is almost guaranteed to rise as we approach the September data releases and the Fed meeting. These quiet days are the perfect time to set up for what’s ahead. Create your live VT Markets account and start trading now.

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