In July, the Producer Price Index (PPI) in the U.S. increased by 0.9% from the previous month, far surpassing the expected 0.2%. This index measures wholesale inflation and could influence future economic policies. The EUR/USD pair is facing downward pressure, dropping to around 1.1640 as the U.S. Dollar strengthens due to robust inflation and labor data. The GBP/USD rate also fell to about 1.3520, even with positive economic stats from the UK.

Gold and the Strength of the U.S. Dollar

Gold is weak near $3,330 per troy ounce, hit by ongoing selling pressures. Its decline aligns with the rise of the U.S. Dollar and increasing yields, impacting its status as a safe investment. Bitcoin corrected after reaching a record high of $124,474, now settling at $121,615. This has affected altcoins, with Ethereum approaching its previous peak above $4,800 from November 2021. Economic signals suggest worsening U.S. trade tensions, with a global output reduction forecasted at 0.7 percentage points in the medium term. Markets remain cautious amid changing trade dynamics and fiscal policy. The unexpected 0.9% rise in July’s core Producer Price Index is alarming. Similar pressures in late 2021 preceded significant Federal Reserve rate hikes in 2022 and 2023. This stronger inflation points to a more aggressive Fed approach soon.

Expectations for the U.S. Dollar and Precious Metals

Given this data, we anticipate continued strength in the U.S. Dollar. The latest CME FedWatch Tool now indicates a 65% chance of a 25-basis-point rate hike in September, up from 30% last week. It may be wise to buy put options on the EUR/USD, especially as it nears the low of 1.1640, a low not seen since last quarter. The U.S. dollar’s strength and rising bond yields pose challenges for precious metals. With the U.S. 10-year Treasury yield surpassing 4.75%, gold’s appeal as a non-yielding asset is waning. We should consider a bearish stance on gold, using put options or bear call spreads to target a drop below the $3,300 support level. Bitcoin’s retreat from its record high indicates short-term fatigue, likely leading to a period of consolidation. Derivative funding rates on major exchanges have also decreased, suggesting fewer leveraged long positions. In this environment, selling covered calls on existing Bitcoin holdings may be an effective strategy to earn income while anticipating the next price movement. Ethereum nearing its November 2021 high of about $4,800 is a crucial moment. This price could prompt significant profit-taking from long-term holders, creating major resistance. It’s wise to be cautious about new long positions here and consider protective puts as it approaches this key level. Finally, the potential for increased trade tensions adds uncertainty across markets. We’re monitoring the CBOE Volatility Index (VIX), which rose above 20 last week, signaling heightened investor concern. It may be prudent to hedge our equity exposure by purchasing put options on major indices like the S&P 500. Create your live VT Markets account and start trading now.

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