It’s a quiet Sunday in the UK due to the bank holiday, with no major market news. The German IFO report is the highlight, but it is not expected to affect interest rates or the markets much.

Powell’s Ongoing Impact

Fed Chair Powell’s gentle approach is likely to keep influencing the markets this week, as effects from Friday carry on. There isn’t much significant economic data coming out this week, with only the US Jobless Claims on Thursday being noteworthy. Next week will be more eventful with the US Non-Farm Payroll (NFP) report scheduled for September 5th. The Federal Reserve is closely watching the labor market, as its strength or weakness can greatly impact interest rate expectations. Today’s market feels sluggish because of the UK holiday, and the German IFO is the only significant data point. This morning, the IFO Business Climate index came in at 87.5, slightly below expectations. This confirms the weak manufacturing PMI trend we observed last week. Overall, this doesn’t change the outlook for European interest rates, and the focus remains on the US. The dovish remarks from Fed Chair Powell at the Jackson Hole symposium last Friday continue to steer market sentiment. His comments about a cooling labor market have led to increased bets on a weaker dollar and stronger stock prices. With only the US Jobless Claims on Thursday as the major data for this week, this trend seems likely to continue.

Anticipating the US NFP Report

The upcoming US Non-Farm Payrolls report on September 5th is the key event to watch. July’s report showed job growth slowing to 185,000 with the unemployment rate steady at 4.0%. The Fed has emphasized that it’s focusing on the labor market. A weak NFP report could strengthen expectations for a rate cut, while a surprisingly strong report could cause significant market shifts. In the coming days, traders may lean towards short-dated call options on equity indices like the S&P 500 to capitalize on the current positive sentiment. As we approach the NFP report, we expect the implied volatility (VIX) to rise from its current low of around 14. This increase could make buying options after the NFP release, such as straddles on currency pairs like EUR/USD, an effective strategy for profiting from expected price fluctuations. Create your live VT Markets account and start trading now.

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