Market Overview

On August 25, 2025, the USD gained strength during the US trading session. Unfortunately, US stocks finished lower, with the S&P, Dow, and Nasdaq indices all declining. The USD reached new highs against leading currencies, while crude oil futures closed at $64.80. Notable events included Canada removing some tariffs and Trump’s remarks about trade with South Korea, along with tariffs on national security-related furniture. In July, new home sales in the US were at 0.652 million, beating the forecast of 0.630 million, though this was lower than the previous month. The EUR struggled, and the USD rose against other major currencies. The Dow dropped by -349.27 points, the S&P fell by -27.59 points, and the Nasdaq decreased by -47.24 points. In currency trading, the EURUSD fell below important averages, and the GBPUSD dropped below support levels, indicating a negative trend. The USDJPY showed strength, moving above critical levels, while the USDCAD bounced back from support and approached resistance targets. The USD’s strong performance came from economic reports, technical trading factors, and geopolitical issues, including Trump’s comments on foreign policy and the economy. A slight rise in US debt yields also impacted the financial dynamics of the day. Given the strength of the US dollar, we might consider buying call options on the U.S. Dollar Index (DXY) to capitalize on further gains. Since the EURUSD has fallen below key moving averages, buying put options on this pair could directly benefit from its weakness. Recent inflation data from July 2025 showed core CPI at 3.5%, which supports the expectation that the Federal Reserve will keep its firm policy approach.

Investment Strategies

With US stocks falling, buying put options on the SPDR S&P 500 ETF (SPY) can act as a hedge or bearish bet. The CBOE Volatility Index (VIX) has now risen above 20, a level we haven’t seen in months. This makes buying protection more expensive, but also more necessary. This risk-averse sentiment is backed by declining corporate profit margins reported in the second quarter of 2025. The decrease in new home sales, despite exceeding monthly estimates, marks the fourth month of year-over-year declines. This mirrors the slowdown in the housing market seen in late 2022. This weakness in a crucial economic sector supports our negative outlook on domestic stock indices, indicating that higher interest rates are still impacting the broader economy. For currencies related to commodities, the USDCAD pair looks promising for bullish positions. The crude oil price of $64.80 is a headwind for the Canadian dollar, suggesting we should consider buying USDCAD call options targeting higher resistance levels. Statistics Canada recently reported an unexpected drop in manufacturing shipments for June 2025, adding to the fundamental weakness of the Canadian economy. Ongoing trade discussions create uncertainty, which typically favors the US dollar as a safe haven. We should be cautious with currencies involved in these negotiations, like the South Korean won, until we gain more clarity. This geopolitical risk supports maintaining long dollar positions against a basket of other currencies in the coming weeks. Create your live VT Markets account and start trading now.

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