The S&P 500 saw a bounce back last Friday, opening strong as expected. The energy, technology, and some real estate sectors improved, but the overall market weakened by the end of the day. The VIX dropped, and riskier bonds did not rise, while the dollar remained stable. Chances of a rate cut in December are now lower than before. Even though there is interest in lowering rates in July, the Federal Reserve is being careful about making cuts. Inflation isn’t a big issue because of tariffs, and the economic situation, including jobs and consumer health, suggests the Fed should help the economy and real estate.

Upcoming Economic Events

Next up, we expect U.S. Fed minutes, CPI, and flash PMI reports. Canada, Japan, and the UK will also release their CPI data. VeChain is changing its voting method from Proof of Authority to Delegated Proof of Stake. Despite staying above $0.0150, the network is under pressure, suggesting a possible 15% drop. FXStreet shares its editorial guidelines and ethical code, warning that the information contains forward-looking statements with risks and uncertainties. Readers should do their own research before investing, understanding the risks involved. The S&P 500’s recovery seems shaky, especially with its decline towards the closing bell. The VIX has dropped below 18, but mixed signals from bonds and the dollar suggest now might be the time to consider long volatility strategies. Options like straddles or strangles could be useful for sharp moves either way. All eyes are on the Fed. The market now believes there’s less than a 50% chance of a rate cut in December. The CME FedWatch probabilities for a cut have fallen from over 75% in October to about 42% now, showing a big change in attitude. Key inflation and jobs reports are delayed due to the shutdown, leaving the upcoming FOMC minutes as our main guide.

Market Strategies

With uncertainty in the air, it’s wise to buy downside protection on broad indexes like the SPX. The CBOE Skew Index is rising, indicating that other traders are paying more for out-of-the-money puts. This situation feels similar to the unpredictable markets of late 2023, where the Fed’s next move was uncertain. We should also keep an eye on currency markets, as the USD/JPY pair is approaching highs not seen in almost a year. This strength in the dollar, influenced by shifting Fed expectations, caused gold to dip below $4,100. For traders, this might mean shorting gold futures or using options on currency ETFs like FXY to bet on the yen’s continued weakness. We’ve been in a data vacuum due to the recent government shutdown, which contributed to the fading risk appetite late last week. Therefore, the upcoming flash PMI figures are crucial for understanding the economy. A weak manufacturing or services number could prompt the Fed to act, leading to a significant market reaction. Create your live VT Markets account and start trading now.

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