The EUR/USD is steady but not moving much, currently below 1.1750 as European trading starts. Traders are waiting for US economic data and decisions from the European Central Bank. The GBP/USD is still above 1.3350, but it faces challenges as traders prepare for important UK data and a rate decision from the Bank of England. The US dollar is in a recovery phase, which is impacting its performance.

Gold Trading at a Seven-Week High

Gold has reached its highest level in seven weeks, trading around $4,350. This rise is due to potential interest rate cuts by the US Federal Reserve, making gold a more attractive investment since its opportunity cost decreases. Solana’s price is holding above $131, nearing a possible breakout. Interest from institutions remains strong, with spot Exchange-Traded Fund inflows nearing $1 billion since its recent launch. The S&P 500 has moved up, with the US 2-year yield at about 3.50%. This reflects the recent rate cut by the Federal Reserve, which is affecting more than just the tech sector. The Federal Reserve’s latest interest rate cut has changed the market, creating a trend of US Dollar weakness. With last week’s US inflation data at 2.8%, slightly below expectations, we anticipate this dollar decline will continue into the new year. This marks a significant shift from the aggressive rate hikes of 2023, suggesting that trades should now favor assets priced against the dollar.

Euro Likely to Benefit from Policy Differences

For the EUR/USD pair, currently testing the 1.1750 level, we see potential for a breakout. With Eurozone inflation steady at 3.1% last month, the European Central Bank is unlikely to follow the Fed’s approach. This creates a policy gap that could benefit the Euro. Traders might want to consider buying near-term call options to take advantage of a potential move towards 1.1800 or higher after the upcoming US jobs data. The situation with the Pound Sterling is more complicated, as the Bank of England is expected to cut rates this week. This puts pressure on the GBP/USD, which is currently above 1.3350. With a weak dollar and a potentially weaker pound, we expect increased volatility, making a long straddle option strategy a good way to profit from large price movements after the BoE announcement. Gold benefits from lower US interest rates, now trading near a seven-week high of $4,350. The US 2-year Treasury yield has dropped significantly from over 5% in late 2023 to around 3.5%, increasing the appeal of non-yielding gold. We recommend buying call options on gold futures or related ETFs to capitalize on the continued decline in real yields. In equity markets, the Fed’s softer stance is boosting the S&P 500, especially in non-tech sectors. The CBOE Volatility Index (VIX) has fallen to a yearly low of 11.5 this morning, reflecting positive market sentiment. We see opportunities in using call options on industrial or financial sector ETFs to benefit from this trend, as these sectors gain the most from lower interest rates. Create your live VT Markets account and start trading now.

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