Japan’s Tokyo Consumer Price Index, excluding food and energy, dropped from 2.8% to 2.3% year-on-year in December. This decrease shows that inflation is easing in these areas. The USD/CAD reached five-month lows as the Bank of Canada and the Federal Reserve adopted different policies. Gold fell from its all-time high, going under $4,500, as traders took profits in a quieter market.

Trading Dynamics

The GBP/USD pair traded in a narrow range around 1.3500, affected by reduced activity during the holiday season. Silver gained for the fourth day in a row, driven by hopes of Federal Reserve easing and its status as a safe-haven asset. Bitcoin prices dropped below $87,000 due to increased ETF outflows and less participation from large traders. Meanwhile, Avalanche struggled around $12, declining nearly 2%, after Grayscale submitted an updated ETF form to the US Securities and Exchange Commission. A forecast for 2026-2027 expects strong economic resilience, bolstered by supportive factors. Discussions also focused on the best trading brokers for 2025, looking at spreads, leverage, and platforms. Japan’s core inflation decreased to 2.3% from 2.8%, easing pressure on the Bank of Japan to tighten its policy next year. This trend may lead to continued weakness in the Yen, making long positions in USD/JPY through futures or call options appealing as January approaches.

Federal Reserve Easing

Many believe the Federal Reserve will start to ease policy, which puts further pressure on the US dollar. Current CME Group data suggests over an 80% chance of a rate cut by the end of the first quarter in 2026. This situation favors strategies like buying put options on the dollar index or selling USD futures against currencies with tighter policies. Gold is stabilizing after hitting a record high above $4,520, which is typical during profit-taking in a slow holiday market. Historically, gold performs well when the Fed eases, similar to its rise in 2019-2020 when the Fed last pivoted. This pullback could offer a chance to enter bullish positions, possibly by selling put options at lower strike prices. Bitcoin’s price decline below $87,000 due to ETF outflows reminds us of the volatility that followed earlier ETF approvals in early 2024. Major outflows and price corrections occurred then before the market stabilized. This situation might indicate a similar consolidation phase, suggesting caution with short-term trades until institutional investment picks up in the new year. We are currently experiencing low trading volume, which often leads to reduced volatility, as shown by the VIX index near its yearly low of 11. While this scenario can create opportunities to sell premium in stable currency pairs like EUR/USD, be ready for a surge in activity when January starts. Buying longer-term options now, while implied volatility remains low, may be a wise strategy for 2026. Create your live VT Markets account and start trading now.

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