The USD is stronger today ahead of the durable goods orders report. Expectations are set at -10.8% after last month’s significant jump of 16.4%. Non-Defense Capital Goods, excluding aircraft, is anticipated to rise by 0.2%, down from 1.7% last month. After the ECB decided to keep rates unchanged, ECB’s Villeroy pointed out that a stronger Euro has a disinflationary effect. Similarly, ECB’s Rehn emphasized taking a meeting-by-meeting approach to monetary policy due to concerns about economic growth. ECB’s Kazaks recommended maintaining current interest rates to let recent easing measures take effect.

Economic Projections

The ECB survey has lowered inflation forecasts for 2025 and 2026 to 2.0% and 1.8%, respectively. GDP growth expectations were slightly adjusted, with 2025 projected at 1.1% and 2026 also at 1.1%. In the UK, June retail sales increased by 0.9% month-over-month, though this is below the expected 1.2%. Year-over-year sales rose by 1.7%. Japan’s BoJ may consider a rate hike before the year ends, as upcoming data will guide their decision. Germany’s July Ifo business climate index improved to 88.6. In the US market, stock futures are steady, while bond yields are mostly unchanged or slightly higher. Oil prices are slightly up, gold prices have dropped, and Bitcoin has fluctuated, decreasing to $116,502. Recent comments from ECB officials suggest a cautious approach ahead. Both Villeroy and Rehn are warning about growth risks, showing they are not rushing to change policy. This dovish stance, along with lowered inflation expectations from the Survey of Professional Forecasters, indicates the Euro may weaken in the coming weeks.

Currency Strategies

This situation creates a clear policy divergence, especially after the US durable goods orders beat expectations, showing only a -1.1% drop instead of the anticipated -10.8%. Given this contrast, we plan to buy put options on the EUR/USD currency pair, allowing us to benefit from a potential decline while limiting our risk to the premium paid. In Japan, we are monitoring reports suggesting officials may raise rates by the end of the year. This change would mark a significant shift from years of very loose monetary policy and could lead to a stronger yen. As a result, shorting currency pairs like USD/JPY or EUR/JPY through futures contracts looks appealing. The below-expectations UK retail sales data, despite a rebound, supports our negative outlook on the British pound. As the economy shows weakness, the Bank of England might feel pressured to ease policy sooner. We will look for chances to position ourselves for further GBP/USD declines. The current calm in US stock indices, alongside mixed messages from central banks, creates some uncertainty. The CBOE Volatility Index (VIX) has been hovering near historical lows around the 12-13 level, indicating complacency and resulting in lower option premiums. We see this as an opportunity to buy protection or make directional bets with limited risk, such as purchasing puts on broad market indices. Gold’s quick drop of over $25 from its recent highs is a reaction to the stronger US dollar and stable yields. The loss of momentum suggests that selling call spreads above the market to collect premium could be profitable. Meanwhile, Bitcoin’s steep decline to a new weekly low below $115,000 before recovering shows that high volatility is still the norm, presenting opportunities for nimble traders using careful risk management. Create your live VT Markets account and start trading now.

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