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Ursula von der Leyen supports the EU-US trade agreement, highlighting its benefits for European exporters.
European Commission President Ursula von der Leyen backed the recent EU trade deal with the United States. She said the deal offers stability and helps avoid a damaging trade war. Von der Leyen explained that a conflict with the U.S. could have benefitted Russia and China, while hurting European workers, consumers, and industries.
She acknowledged that the agreement has its flaws but highlighted its 15% “all-inclusive” tariff structure. This structure gives European companies better access to the U.S. market compared to other partners. The deal was made with President Trump last month in Scotland and has drawn criticism from lawmakers and industry groups in Europe, though both sides are working to finalize it.
Kazaks believes that current interest rates and inflation levels enable the ECB to monitor economic progress.
The European Central Bank (ECB) is keeping interest rates steady at 2% as inflation is on target, according to Martins Kazaks, a member of the Governing Council. He believes it is wise to watch the economy without making further changes to policy. The risks from tariffs and Chinese imports are balanced by improvements in manufacturing and slower wage growth.
After eight rate cuts, the ECB ended its easing cycle in July and held the deposit rate at 2%. Officials indicate that no changes will happen in the upcoming meeting in September. Although there are challenges like a 15% tariff on EU exports to the U.S. and issues with Chinese goods, business surveys are showing positive trends in manufacturing, which supports stable inflation expectations.
Inflation Projections
Projections suggest that inflation may drop below the target early next year but is expected to bounce back. Predictions indicate it will be 1.6% in 2026 and return to 2% by 2027. Current market views agree with keeping rates steady, seeing any possible 25 basis point cut as more symbolic than impactful. Some reports also hint that the ECB could lower rates again in 2025, with the next meeting scheduled for September 11. With the ECB clearly pausing its rate changes, we should focus less on bold directional bets. The deposit rate remains at 2% after the end of the easing cycle in July, indicating a period of observation. This scenario suggests that options strategies benefiting from low volatility, like selling straddles on Euribor futures, might be advantageous leading up to the September meeting. This cautious approach is supported by recent data. Eurostat’s preliminary estimate for August 2025 inflation was 1.9%, nearly at the ECB’s target. Additionally, the August HCOB Manufacturing PMI for the Eurozone rose to 48.5, marking the fourth consecutive monthly improvement from the lows recorded in late 2024. These positive indicators give the ECB little reason to act quickly at their next meeting on September 11.Monitoring Economic Risks
It’s important to keep an eye on potential risks such as U.S. tariffs and the downward pressure from inexpensive Chinese imports. However, these concerns are mitigated by easing wage pressures. Recent data shows that negotiated wage growth slowed to 3.8% in the second quarter of 2025, down from 4.7% in 2024. This trend supports the view that inflation can remain stable without further intervention. The market has already accounted for this stability, as futures contracts on the Euro Short-Term Rate (€STR) indicate less than a 15% chance of a rate cut in September. With expectations for inflation to drop to 1.6% in 2026, any notable policy changes are likely to be discussed later this year or early next. For now, preparing for a stable market in the coming weeks appears to be the best strategy. Create your live VT Markets account and start trading now.Bailey indicated that the UK’s growth potential is limited by low workforce participation and productivity challenges.
Growth Challenge in the UK
The UK faces a serious challenge in increasing its long-term growth, says Bank of England Governor Andrew Bailey. At the Jackson Hole symposium, Bailey pointed out that the main problem isn’t unemployment; it’s that fewer people are willing or able to work. He noted that low productivity and a drop in workforce participation after the pandemic are key factors. The Bank of England has adjusted the UK’s potential growth rate to just over 1%, making the economy more vulnerable to inflation. Recently, the Bank cut interest rates to 4%, while still recognizing inflation risks. Officials expected a rise in unemployment after Covid, but instead, the labor supply continued to decline. This drop in available workers has kept inflation high and led to ongoing strict policies. Bailey mentioned that while demand for workers is starting to fall, the growth outlook for the UK remains limited. The shrinking workforce is a major long-term challenge for the UK’s growth. With fewer people available for work, the economy is more prone to inflation shocks. As a result, we should expect increased volatility in UK assets in the coming weeks, especially around data releases.Outlook on UK Economy
Given this bleak growth outlook, the pound sterling looks weak. The recent cut in interest rates to 4% shows that the Bank of England is in a tough spot, unable to enforce tighter policies without damaging the fragile economy. With inflation at a stubborn 3.1% as of July 2025, GBP/USD could be at risk of falling to lows not seen since late 2024. This challenging economic climate poses a significant hurdle for UK corporate earnings. The latest data from the Office for National Statistics shows the labor participation rate has dropped to 62.8%, raising worries about future output. It might be wise to consider buying put options on the FTSE 250, which is more affected by the domestic economy than the globally focused FTSE 100. The UK government bond market, or gilts, faces conflicting pressures. Weak growth prospects typically lead to lower yields, but ongoing inflation risks push them higher. This makes it hard to predict outright direction in trading, so we should focus on the yield curve, which has been flattening as short-term inflation fears outweigh long-term growth concerns. The tight labor supply that drove inflation throughout 2023 and 2024 has not improved as expected, leaving the Bank of England with few good options. This situation differs greatly from the post-2008 crisis, when high unemployment was the main worry. We should favor strategies that benefit from uncertainty, like long volatility positions and currency shorts, rather than making big bets on growth. Create your live VT Markets account and start trading now.Sources indicate that the ECB might consider rate cuts in 2025 if economic conditions deteriorate.
The European Central Bank (ECB) is likely to keep interest rates steady in September, with a chance of cuts if the economy worsens. Christine Lagarde expressed confidence in maintaining the key rate at 2%, after a year of reductions. This decision comes as the eurozone economy shows strength and keeps inflation stable at 2%.
U.S. tariffs on EU imports, set at 15%, align with the ECB’s expectations, lowering the need for quick rate cuts. However, the ECB suggests that another cut might be necessary in the future, with talks planned for October and December, especially if U.S. tariffs affect exports or the Ukraine conflict continues.
Possible Rate Cuts by 2026
Rate cuts may be possible by spring 2026, even though summer business surveys have boosted confidence in the eurozone. Policymakers warn this optimism might be temporary, as U.S. buyers seem to be placing orders quickly to avoid tariffs. With the ECB expected to keep its key rate at 2% in September, we anticipate low short-term volatility. This is reflected in the VSTOXX index, which tracks Euro Stoxx 50 volatility, currently trading around a low of 14. This situation suggests that selling options with short expirations to earn premiums may be a smart strategy. This stability is backed by recent data. Eurostat’s flash estimate for August 2025 shows inflation holding at 2.1%, comfortably within the bank’s target. Additionally, the eurozone economy grew by a modest 0.4% in the second quarter, going against earlier predictions of a slowdown. Currently, these economic figures are not prompting the ECB to act. However, there is increasing caution shown in derivatives that expire after the ECB’s meetings in October and December. Options that protect against a drop in the euro have risen in cost for year-end contracts, indicating that traders are preparing for a potential dovish shift. A move below 1.05 for the EUR/USD pair could speed up if discussions about rate cuts gain traction.Legacy Tariffs and Economic Risks
The legacy tariffs from the Trump administration still pose a significant risk for export-heavy sectors. While overall EU-US trade volumes have increased by 3% year-on-year, renewed trade tensions could threaten the economy and push the ECB to reevaluate its position. This ongoing uncertainty, along with the war in Ukraine, justifies holding protective put options on major European indices. Create your live VT Markets account and start trading now.A lighter economic calendar shifts focus to Powell’s comments from Jackson Hole and their impact on Asian markets.
The economic calendar in Asia for Monday, August 25, 2025, has few data releases. New Zealand will share some information, but the main focus is on the impact of Powell’s comments from Jackson Hole last Friday.
Powell’s statements have sparked interest in riskier assets, drawing attention to the economic shifts in the region.
Trading on Risk Sentiment
With a light data calendar in Asia, we will trade based on the positive sentiment from the Jackson Hole speech. The market sees the Fed Chair’s remarks as indicating the end of the tightening cycle. This suggests that, in the coming weeks, stocks are likely to trend upward. The background for these comments has been building, giving them trustworthiness that has been missing for some time. July’s core CPI data, released in August, was at 2.5%, which is closer to the Fed’s goal. Additionally, a recent non-farm payrolls report showed job growth slowing to below 150,000, allowing the Fed to take a more balanced approach. In this context, selling volatility seems like a smart strategy. After Friday’s rise, the VIX likely dropped below 15, which means we can expect fewer price swings in the S&P 500. We might consider selling out-of-the-money puts or using put credit spreads on major indices to earn premium. The comments have also weakened the US dollar, with the DXY index falling below 100 on Friday. This opens up chances in the foreign exchange markets, especially for risk-sensitive currencies. We see value in buying call options on the Australian Dollar and the Euro against the dollar, preparing for further gains.Interest Rate Implications
This shift towards a softer stance has important effects on interest rate markets. We can expect government bond yields to keep declining as the market anticipates potential rate cuts in late 2025 or early 2026. Using options on Secured Overnight Financing Rate (SOFR) futures or purchasing calls on treasury bond ETFs can effectively position us for lower rates. However, we should be wary of the market’s previous excitement for rate cuts back in late 2023, which quickly changed due to stubborn inflation data in early 2024. While the current data is more positive, any unexpected strength in upcoming reports could quickly reverse this softer positioning. Therefore, we should remain cautious with our investments. Create your live VT Markets account and start trading now.Low market liquidity early on may lead to price fluctuations in various currency pairs.
ForexLive warns traders about the low market liquidity that often happens on Monday mornings. Caution is advised, as prices may change until more Asian markets are open.
Here are the current exchange rates as the trading week begins:
– EUR/USD: 1.1720
– USD/JPY: 146.85
– GBP/USD: 1.3518
– USD/CHF: 0.8015
– USD/CAD: 1.3825
– AUD/USD: 0.6488
– NZD/USD: 0.5858
Forex Market Updates
More updates and weekend news will be shared soon. Since liquidity is low, we must be careful with any early trades this week. The main trend shows US dollar weakness against European currencies, with EUR/USD going above 1.17 and GBP/USD exceeding 1.35. This comes after the Federal Reserve shifted to a rate-cutting stance earlier this year, responding to stabilized US inflation. The last core CPI report for July 2025 showed inflation at 2.5%. Even with the general softness of the dollar, the USD/JPY rate stays strong near 147. This recalls the trends from late 2023. The interest rate difference is key here, as the Bank of Japan has been slow to adjust its policy. This encourages many traders to focus on carry trades, which benefit from this ongoing rate gap. The Euro seems to be gaining strength due to a stronger continental economy than expected. Recent economic sentiment data from Germany shows improvement, and the European Central Bank has indicated it is not in a hurry to cut rates like the Fed. This difference suggests that buying dips in EUR/USD will likely remain a popular approach in the coming weeks.Commodity Currencies Outlook
In contrast, commodity currencies such as the Australian and New Zealand dollars are having a tough time. This is mainly due to ongoing signs of a slowdown in China, with last month’s disappointing Caixin Manufacturing PMI data. Until Chinese demand shows a significant rebound, call options on the AUD/USD are likely to struggle. With these mixed signals, we can expect increased volatility as central bank policies vary. Given the strong trends, derivative traders might consider strategies that limit risk, like bull call spreads on EUR/USD, to take advantage of Euro strength while minimizing potential losses. The key data to watch for will be the next set of inflation and employment figures from the US and Europe. Create your live VT Markets account and start trading now.Upcoming economic events: US PCE, Australian CPI, Canadian GDP, and Nvidia earnings
The coming week will showcase important economic updates, including data on the US PCE, Australian and Tokyo CPI, and minutes from the ECB and RBA meetings. Other key releases include Canada’s GDP and Japanese activity data.
On Monday, the PBoC will keep the Loan Prime Rates steady, with RBA and Riksbank minutes set for Tuesday. Reports suggest that the RBA may cut rates by 25 basis points, forecasting a moderation in inflation. Many will closely watch the Riksbank minutes for insights on inflation as well.
Wednesday Highlights
On Wednesday, Australian CPI data is anticipated to rise, which might influence RBA easing expectations. That same day, Nvidia will announce its quarterly earnings, although risks related to China could sway its guidance. Thursday will bring the ECB minutes, which are expected to reflect a data-driven approach while maintaining current rates. On Friday, Tokyo’s CPI may reveal a slowdown in inflation to 2.6%. The US PCE data coming out on Friday is crucial for evaluating inflation pressures, especially following recent CPI and PPI readings. Canada’s Q2 GDP is predicted to show slight growth, with the Bank of Canada considering future actions amid mixed signals from economic activity and inflation. The overall economic outlook remains cautious, with potential policy changes hinging on upcoming data. Looking ahead to August 24, 2025, the week ahead offers several opportunities based on central bank movements and key data releases. We anticipate the People’s Bank of China maintaining its cautious stance, with the market expecting no changes to the MLF rate. Given that China’s July manufacturing PMI was 49.8, indicating four months of contraction, the upside for China-exposed assets appears limited, making it a good time to think about selling call options on relevant equity ETFs. The Reserve Bank of Australia recently signaled a dovish outlook with its rate cut, putting pressure on the Australian dollar. Futures markets predict another 40 basis points of cuts from the RBA by late 2025. Wednesday’s CPI report is key; if inflation surprises to the upside, it could lead to a quick rally in the AUD as rate cut expectations adjust.Nvidia Earnings and Market Strategies
All attention will be on NVIDIA’s earnings this Wednesday, particularly the company’s guidance on China revenue. The stock has surged over 90% this year, so any cautious remarks from management could trigger a notable decline. With implied volatility for weekly options expiring after the report exceeding 120%, the market is preparing for significant price movement, making buying option straddles a viable strategy to profit from a big shift in either direction. We don’t expect any surprises in the European Central Bank’s minutes on Thursday, as the bank seems to be in a holding pattern. The latest Eurozone inflation data for July fell to 1.8%, providing policymakers little reason to change their data-driven approach. This stable outlook suggests that range-trading strategies on EUR/USD, such as selling out-of-the-money puts and calls for premium, will likely remain effective. The most crucial data this week will be the US PCE inflation report on Friday, which will play a key role in the Federal Reserve’s decision next month. We recall the late 2024 market volatility when high inflation reports caused the Fed to delay its easing cycle. Currently, fed funds futures show a 65% chance of a rate cut in September. If the core PCE figure exceeds the expected monthly increase of 0.26%, those odds could decrease, likely strengthening the US dollar and putting pressure on equity index futures. In Canada, Friday’s Q2 GDP data will be closely monitored after signs of an economic slowdown in spring. With Bank of Canada meeting minutes revealing debates on needing more support, a weak GDP reading would likely confirm expectations for a rate cut later this year. Traders should prepare for increased volatility in the Canadian dollar, as a contraction would probably weaken it against the US dollar. Create your live VT Markets account and start trading now.Itai Levitan recommends hedging Nvidia stock holdings before earnings to reduce risks during uncertainty.
**Nvidia’s Earnings Report Approaches**
As Nvidia’s earnings release on Wednesday, August 27th, approaches, it’s a critical time for investors. If you’re thinking about short overlays, they can help protect against possible drops caused by earnings reports. To manage risk, set stop-loss and target levels in advance. Beginners should steer clear of complicated strategies like premium selling, as they involve higher risks from potential price swings. It’s essential to plan your exit strategy before investing and ensure your hedging matches your risk tolerance. This way, your portfolio can handle the volatility that often comes with earnings announcements.
Nvidia’s stock is currently valued high due to sky-high expectations. Even an outstanding earnings report might not drive the stock higher. Therefore, focusing on risk management is key in the coming weeks, rather than trying to predict the earnings outcome.
We’ve seen similar situations before. For example, the stock’s rise leading to the 10-for-1 split last June showed us how volatile things can get. In May 2024, the options market anticipated an 8.5% move, but the stock surged over 9% the next day. This history highlights the importance of being ready for big price swings.
For those holding shares, the easiest option is to buy insurance for the week. A protective put limits losses if earnings disappoint, allowing you to maintain your long-term investment without stress. Although there’s a cost for this safety, it helps you avoid worrying about sudden drops in price.
**Strategic Approaches Post Earnings Announcement**
With options currently expensive due to high implied volatility, considering a collar strategy is wise. By selling an out-of-the-money call option, you can use the premium earned to cover most or all of the cost of the protective put. While this limits your potential gains for the week, it creates a defined price range for the stock during the event.
If you think the stock will either rise or remain stable, selling a covered call could be a good approach. This strategy provides immediate income from high option premiums, offering a buffer against a slight price dip. Just be prepared for the possibility that your shares may be sold if the stock rallies past your chosen strike price.
After the earnings announcement, the biggest opportunities for derivative traders will arise. Implied volatility often falls sharply—a situation known as “IV crush”—resulting in cheaper options. This is an excellent time to consider selling cash-secured puts or put spreads on any decline, allowing you to collect premiums or buy more shares at a favorable price while benefiting from the lower volatility.
Create your live VT Markets account and start trading now.
Jerome Powell’s speech boosts markets as expectations rise for possible interest rate cuts
US Federal Reserve Chair Jerome Powell spoke at the Jackson Hole symposium and hinted at a potential rate cut in September. He pointed out that labor demand and supply have both slowed, even though inflation from tariffs is causing temporary pressure. Powell also expressed concerns about the labor market, emphasizing that the Fed will rely on data to make decisions in response to outside pressures. Following his remarks, markets reacted strongly, pricing in a 90% chance of a rate cut in September.
Fed official Hammack expressed a different view, focusing on controlling inflation. She highlighted ongoing inflation issues and emphasized that policies should remain mostly restrictive. While she acknowledged the need to consider new data, she insisted that major weakness in unemployment is necessary before changing policy, due to worries about inflation continuing.
Market Performance
US stocks rallied, with the NASDAQ moving above important moving averages and closing higher, although weekly results were mixed. The NASDAQ dropped 0.58%, while the Dow gained 1.53% and the S&P rose by 0.27%. The small-cap Russell 2000 surged 3.86% today, finishing a week up 3.298%. European markets also closed higher, with all major indices making gains, and Southern Europe reaching new highs. US yields fell, particularly in the short term, as traders expected Fed cuts. This led to a significant drop in the US dollar against other major currencies. The Fed is signaling a potential rate cut in September, and markets are adjusting rapidly. We recommend positioning for further increases in stocks, especially in rate-sensitive areas like the NASDAQ and Russell 2000. Buying call options or setting up bullish spreads could take advantage of this strong momentum. This dovish shift follows recent economic reports, including early August 2025 jobs data, which showed a rise in unemployment to 3.9% despite solid overall numbers. This gives the Fed reason to focus more on employment. In the coming weeks, it seems likely that stock prices will rise while front-end bond yields will fall.Market Strategy
The bond market’s reaction, with a nearly 10 basis point drop in the 2-year yield, indicates that traders are betting on lower policy rates. We can take advantage of this by investing in short-term interest rate futures or options that will gain from falling yields ahead of the September meeting. We observed a similar trend in late 2023, when the markets anticipated the Fed’s eventual shift, resulting in a strong rally in fixed income. However, with a 90% chance of a cut already factored in, the market is susceptible to strong data that might challenge this expectation. The July 2025 CPI report showed core inflation at a stubborn 3.2%, which more hawkish members like Hammack will take seriously. To manage the risk of a hawkish surprise in the next inflation report, it’s wise to hedge long equity positions by purchasing inexpensive, out-of-the-money put options. The US dollar has sharply declined against all major currencies, and we expect this trend to continue as rate differences close. We should look to short the dollar against currencies from stronger economies, like the Euro, especially as European indices hit multi-year highs. The Australian dollar’s 1.07% rise also indicates strength in commodity-linked currencies as global growth fears diminish. The remarkable 3.86% rally in the Russell 2000 signals a significant return to risk assets. Small-cap companies are highly affected by interest rates, so we should explore trades that could benefit from their continued outperformance. Using options on the IWM ETF could give us leveraged exposure to this trend as the market anticipates a more favorable credit environment. Create your live VT Markets account and start trading now.US stock indices surged, with Russell 2000 leading the gains and Dow reaching a record close.
US stock indices saw significant gains recently. The Russell 2000 led the charge with a 3.86% rise, its largest jump since April 9. The Dow Jones Industrial Average increased by 846.24 points, or 1.89%, marking its highest close since May 12. The S&P 500 gained 96.74 points, or 1.52%, the biggest jump since May 27. The NASDAQ also saw a 1.88% increase, its largest one-day gain since August 4.
Sector performance within the S&P 500 varied. The Consumer Discretionary sector experienced the most significant gain at 3.19%, while Consumer Staples fell by 0.35%. Energy increased by 1.99%, Communication Services rose by 1.87%, and Materials improved by 1.70%. Financials, Industrials, and Real Estate each climbed over 1.60%, while Information Technology went up by 1.32%. Health Care rose 0.82%, and Utilities increased by 0.53%.
