The Baker Hughes US oil rig count has reached 420, which is higher than the forecast of 416. This shows what is happening in the US oil industry right now. The EUR/USD is trading around 1.1600. Recent CPI data hasn’t changed the Federal Reserve’s position. In the stock market, the Dow Jones Industrial Average hit a record high, thanks to softer inflation data.

British Pound Weakness

The British Pound has dropped below 1.3300, marking its sixth straight decline because of a strong US Dollar. Gold prices have bounced back above $4,100 per troy ounce as the market watches US-China trade talks and developments regarding the US government shutdown. Cryptocurrencies like Bitcoin, now trading over $111,000, and altcoins like Ethereum and Ripple are seeing increased demand. JPMorgan plans to offer Bitcoin and Ethereum-backed loans to institutional clients by the end of the year. FXStreet indicates that the information here carries risks and is meant only for informational purposes. Readers should do their own research before making financial decisions. FXStreet and its authors are not responsible for any errors or losses from using this information and do not provide personalized recommendations or investment advice. With many expecting the Federal Reserve to cut interest rates next week, we anticipate increased market volatility. The ongoing government shutdown means that the Fed will make its decision with incomplete economic data, adding uncertainty to the outcome and its guidance. This is reflected in options pricing, as implied volatility on S&P 500 options is more expensive for the short term compared to later dates.

Hedging Strategy

Since the Dow Jones is at a record high, it’s wise to hedge long equity portfolios. Buying protective puts on major indices can help against a “sell the news” reaction if the Fed’s guidance is less accommodating than the market hopes. We’ve seen similar pullbacks in the past, like during the 2019 rate-cutting cycle when initial excitement turned into profit-taking. Gold’s rise above $4,100 is linked to expectations of rate cuts, which lower the cost of holding non-yielding assets like gold. We expect this trend to continue, making long positions in gold futures or call options on gold ETFs a promising strategy. The weakness of the dollar should also support precious metals in the near future. In the energy markets, the slight increase in the oil rig count to 420 suggests that US production is responsive to prices. This may limit significant crude oil price hikes soon, as supply can quickly adjust. Historically, increasing rig counts, even small ones, often come before oil price consolidation. The US Dollar may stay under pressure leading into the Fed meeting, which can benefit currencies like the Euro. Meanwhile, the British Pound continues to weaken due to expectations that the Bank of England will also cut rates, creating opportunities for trades that are long EUR/GBP. We are closely monitoring these currency pairs for potential breakouts. Create your live VT Markets account and start trading now.

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