Today is calm, with no events planned. The main event this week is the US Consumer Price Index (CPI) report coming out tomorrow. The markets may either stay steady before this report or continue the trend seen after the recent dovish comments from the Federal Reserve.

Fed Official Supports Rate Cuts

Over the weekend, a Fed official mentioned the possibility of three rate cuts by the end of the year. He indicated that if the labor market shows more weakness, larger cuts could happen. The recent comments suggest that a rate cut in September seems likely unless inflation data surprises with high numbers and a strong non-farm payroll (NFP) report changes the outlook. Currently, the Federal Reserve seems cautious about ignoring labor market weaknesses. The CPI report tomorrow needs to be better than expected to influence market pricing. Afterward, all eyes will be on further comments from the Federal Reserve and the Chairman’s upcoming speech at the Jackson Hole Symposium, which might indicate their position on a possible September rate cut. Since there’s nothing scheduled today, we are in a wait-and-see mode ahead of the US CPI report. The market may either stay on the same path or continue following the recent softer tones from the Federal Reserve. This quiet time gives an opportunity to prepare for the main event of the week. During the weekend, Fed Governor Bowman endorsed the idea of three rate cuts by the end of 2025, stating that more weakness in the labor market could lead to bigger cuts. This reflects what we saw in the July jobs report, where payrolls only grew by 150,000 and the unemployment rate rose to 4.1%. The Fed seems cautious about risking a more substantial drop in employment.

Market Expectations for September Rate Cut

This dovish sentiment is already reflected in the market, with Fed Funds futures indicating an 85% chance of a rate cut in September. Therefore, a significant shift would require surprising data. We have seen similar situations before, especially with the Fed’s pivot in late 2023 after extending their rate hikes. For tomorrow’s CPI, a year-over-year figure above the consensus forecast of 3.2% would be needed to challenge the narrative of a rate cut. Traders might think about buying short-term options on the VIX or Treasury note futures as a hedge against a spike in volatility if inflation exceeds expectations. A CPI reading at or below prognoses will likely strengthen the current expectation of a cut. Regardless of the inflation data, our attention will shift to comments from other Fed officials and Chair Powell’s speech at the Jackson Hole Symposium later this month. Any suggestion of hesitation to cut rates in September could lead to a sharp retracement in the bond market. We must pay close attention to any change in tone from what we have heard so far. Create your live VT Markets account and start trading now.

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A U.S. options strategist has raised concerns about possible declines in equity markets over the next three months. This warning stems from current trends in the credit market. Right now, credit spreads are very narrow, meaning that corporate bond investors are settling for smaller additional yields compared to government bonds. Narrow credit spreads can indicate optimism, but this may not align with the current economic situation. Asset managers are wary and are reducing their investments in high-yield credit because of fears of slower growth and higher default rates. Historically, shifts in credit indicators, like CDX and iTraxx, often precede stock market volatility.

Credit Market Benchmarks

The ICE BofA U.S. High Yield and Corporate Option-Adjusted Spreads, which can be viewed on the Federal Reserve Economic Data site, serve as useful benchmarks. An increase in spreads usually signals a decrease in risk appetite and potential market stress. Investors are also keeping an eye on inflation reports that affect interest rate expectations, which, in turn, influence bond yields and spreads. It’s important to track credit spreads and inflation figures because discrepancies between stock prices and credit spreads can highlight market weaknesses. By observing movements in credit spreads and understanding indices like CDX and iTraxx, investors can identify early warning signs in credit markets and better evaluate risks in their investment portfolios. Credit markets are hinting at possible challenges for stocks in the near future, so it’s wise to stay alert. Corporate bond investors are currently accepting very low extra yields, indicating optimism that may not be warranted. This narrowness in credit spreads could make the market vulnerable if economic growth slows. At present, the ICE BofA high-yield spread is just 305 basis points, reminiscent of the complacency seen in late 2021 before the rate hikes of 2022. Meanwhile, the CDX Investment Grade index sits close to 50 basis points, while the S&P 500 exceeds 6,200. This disconnect—where credit markets are stretched thin but stock prices are high—often leads to significant corrections.

Strategies for Navigating Volatility

This situation warns derivative traders about potential volatility, especially since the VIX index is around a low of 13. Equity options seem to be undervaluing the risks signaled by the credit market. A similar trend happened before the downturn in early 2022 when credit spreads started widening weeks before a major drop in the equity market. The U.S. inflation report due tomorrow, August 12th, will be crucial to watch. If the number exceeds the expected 2.8% year-over-year, it could quickly widen spreads and likely increase equity volatility. Given this risk, now could be a good time to buy downside protection. Purchasing out-of-the-money put options on the SPX or QQQ with September or October expirations can effectively hedge a long portfolio. The current low volatility makes these options relatively inexpensive. Another option is to directly consider volatility through VIX derivatives. With market anxiety so low, buying VIX call options for the coming weeks may provide a cost-effective strategy for a sudden market shock. If credit spreads start to widen, the VIX would likely be the first to react. It’s essential to monitor key credit benchmarks, like the high-yield option-adjusted spread on FRED, every day. If equities rise after the inflation report but credit spreads do not tighten to support this move, that rally may be unstable. This would suggest it’s time to consider bearish call spreads. Create your live VT Markets account and start trading now.

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Eurostoxx futures rose 0.1% during early European trading. German DAX futures went up by 0.2%, while UK FTSE futures stayed the same.

European Equities Consolidation

European stocks are stabilizing after a strong recovery last week, despite a rough start on August 1. In the US, S&P 500 futures also climbed 0.1% as the week kicks off. The upcoming US CPI report, set to be released tomorrow, is expected to affect market sentiment. This week has started quietly, with traders waiting for a key inflation report. The small increase in Eurostoxx 50 and S&P 500 futures signals that investors are consolidating after the upswing that followed the downturn on August 1. Right now, all eyes are on the US CPI data being released tomorrow.

Significant Catalyst Horizon

The upcoming CPI report is the most important factor to watch. Economists predict July’s headline inflation will be around 3.2%, a slight decrease from the higher numbers seen earlier this year. If the number is much higher, it could pressure stock prices, increasing the chances that the Federal Reserve will keep its hawkish approach. Due to this uncertainty, traders should keep an eye on implied volatility for major index options. Looking back at early 2025, we noticed that the VIX index, which gauges S&P 500 volatility, shot up over 10% just hours after the March CPI was released. We can expect similar volatility spikes tomorrow, creating opportunities for those who are prepared. One possible strategy is to use options to capitalize on the expected price changes without betting on a particular direction. For instance, a long straddle on the SPY ETF or Eurostoxx 50 index could profit from a significant move, whether up or down, after the data release. This is a straightforward volatility strategy for the next few days. The US data will also directly affect European markets like the DAX and FTSE. The European Central Bank has kept its key interest rate at 3.75% for the last two quarters, indicating a focus on data trends. A high US inflation number might negatively impact sentiment in Europe, as it points to ongoing global inflation challenges. As a result, traders might think about purchasing inexpensive, out-of-the-money puts on the Eurostoxx 50 to protect against negative surprises from the US. These contracts provide an affordable way to safeguard a portfolio or speculate on a downturn. On the other hand, call options could be appealing if one expects the inflation data to be cooler than anticipated, potentially causing a relief rally. Create your live VT Markets account and start trading now.

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The week starting August 11 will kick off quietly, with no major data impacting the FX market on Monday. However, important announcements are expected on Tuesday, including Australia’s RBA monetary policy, labor statistics from the U.K., and U.S. inflation data. On Wednesday, Australia will report its wage price index, and Canada will provide a summary from the Bank of Canada. Thursday will feature Australia’s employment data and the U.S. Producer Price Index. On Friday, the U.S. will share information on retail sales, consumer sentiment, and inflation expectations.

RBA Policy Expectations

The Reserve Bank of Australia (RBA) is likely to reduce its cash rate by 25 basis points to 3.60%. Recent data shows inflation decreasing to 2.1% and slower job growth, with unemployment rising slightly to 4.3%. These trends, along with wage growth, will likely shape future policies. In the U.K., the average earnings index is expected to be at 4.7%, with a claimant count change of 20.8K, and unemployment remaining stable at 4.7%. Despite a drop in payroll employment, the Bank of England reports a steady labor market outlook. The U.S. core CPI is projected to rise by 0.3%, with headline CPI at 0.2%. Year-over-year CPI expectations are slightly higher at 2.8%. This data is key for evaluating potential Fed rate cuts, especially considering ongoing tariff effects on inflation. Previously, U.S. core CPI increased by 0.3%, bringing the yearly rate to 3.0%. Concerns about tariffs persist, leading to predictions of a possible 25 basis points Fed rate cut in September due to signs of weakness in the labor market.

Australia Employment Projections

In Australia, an employment change of 25.3K is expected, with a slight drop in unemployment to 4.2%. U.S. core retail sales month-over-month are forecasted at 0.3%, while total retail sales month-over-month are expected at 0.5%. Growth is anticipated to receive a boost from a projected 7% rise in auto sales. However, consumer trends show cautious spending, with a decrease in discretionary goods and services spending. Looking ahead from August 11, 2025, this week is important for central bank policies and inflation data. A calm start is expected today, but volatility may occur starting tomorrow with major releases from Australia, the U.K., and the U.S. This could lead to significant changes in the foreign exchange and interest rate markets. For Australia, we expect the RBA to lower its cash rate to 3.60% on Tuesday. This prediction is backed by the sharp drop in annual inflation to 2.1%, down from over 7% in late 2022. The rise in unemployment to 4.3% this year reinforces the case for easing policy. Given the likelihood of a rate cut, we should prepare for a weaker Australian dollar. Traders could consider buying put options on the AUD/USD pair to position for potential declines, especially if the RBA indicates further cuts. Any surprise decision to hold rates steady could lead to a sharp, albeit temporary, rally in the currency. In the U.S., Tuesday’s inflation data is crucial for guiding the Federal Reserve’s plans for a rate cut in September. After holding rates above 5% for nearly two years, the market is keen for signs of continued cooling. While headline inflation is expected to be modest, a strong core reading of 0.3% might delay expectations for a quick cut. This uncertainty around U.S. inflation suggests increased short-term volatility for the U.S. dollar. We might explore options strategies like straddles on major USD pairs or interest rate futures ahead of the announcement. This approach allows us to benefit from significant price swings in either direction without betting on the inflation report outcome. Next, we turn to the U.K., where we expect Tuesday’s labor report to indicate ongoing cooling, with wage growth forecast to drop to 4.7%. This decrease is significant compared to levels above 8% seen in 2023, giving the Bank of England more reasons to maintain its steady outlook. A weaker labor market indicates that past rate hikes are affecting the economy. This environment is generally bearish for the British pound. If the labor data meets or falls short of expectations, the currency may face further drops. We could prepare for this by considering short positions in GBP/USD or buying put options on the pound. With both the RBA and Bank of England adopting dovish stances, opportunities might arise in cross-currency pairs. If U.S. inflation data comes in higher than expected, a long USD/AUD or long USD/GBP trade could be appealing. This strategy allows us to take advantage of differing monetary policies between central banks. Finally, we will monitor U.S. retail sales on Friday to assess consumer health. While the headline figure is expected to be positive, this strength seems driven by a temporary rebound in auto sales. Excluding that factor, the underlying data points to a cautious consumer, supporting the view of a slowing economy. Create your live VT Markets account and start trading now.

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The US Consumer Price Index (CPI) report is the main highlight for markets this week. Recent weak economic data has led traders to think there might be a rate cut in September, as Federal Reserve officials are becoming more cautious. If inflation surpasses expectations, concerns may grow. The risk of stagflation is increasing, causing worry among market participants.

Inflation Expectations for July

Analysts expect a 0.2% monthly rise in headline inflation for July, down from 0.3% in June. However, the annual inflation rate is projected to rise to 2.8%, up from 2.7% previously. Core inflation is expected to rise by 0.3% monthly, compared to 0.2% in June. Year-over-year, core inflation is estimated to increase to 3.0%, up from 2.9%. Core inflation numbers are crucial, but the specifics of the report matter too. It’s important to watch if businesses pass on higher tariffs to consumers, as this could pose challenges for the Federal Reserve. Policymakers might reference past approaches, calling inflation “transitory” to justify potential rate cuts later in the year, arguing that tariffs could temporarily inflate prices. Still, if inflation persists, it will complicate the Federal Reserve’s choices and keep markets on edge as September approaches. With the important US CPI report coming this week, we anticipate a strong market reaction. Current pricing on CME Fed Funds futures indicates a 65% chance of a rate cut in September. This is influenced by recent weak data, including a Q2 GDP growth of just 0.9% and an increase in the unemployment rate to 4.2%.

Hot Inflation Risks

A surprise rise in inflation could derail hopes for a rate cut and raise concerns about stagflation. This uncertainty has already pushed the CBOE Volatility Index (VIX), a measure of market fear, from around 13 earlier this year to over 18. We are watching for any signs of a further increase. Expectations are for the annual inflation rate to reach 2.8%, with core inflation rising to 3.0%. A figure above these expectations would challenge the Federal Reserve’s recent dovish stance, indicating that price pressures may be returning even as economic growth slows. Given this uncertain outlook, strategies that benefit from significant price swings in either direction appear promising. For instance, options strangles on the S&P 500 or Nasdaq-100 indices could effectively capitalize on the volatility surrounding the CPI report. These trades can profit whether the market rises on a soft report or declines on a hotter one. We are also closely monitoring the interest rate derivatives market, especially options on Treasury note futures. A CPI report that exceeds expectations could lead to a spike in yields, undermining the narrative of an impending rate cut. Traders are preparing for this possible shock to bond prices. The Fed’s strategy of labeling inflation as “transitory” due to tariffs brings back uncomfortable memories. Back in 2021, the Fed used similar language as inflation surged to 40-year highs, which resulted in aggressive rate hikes in 2022 and 2023. Market tolerance for this narrative is likely low. Any hints in the CPI report that businesses are passing tariff costs onto consumers will be a significant warning sign. This type of inflation is challenging for the Fed to manage with monetary policy, placing policymakers in a tough spot ahead of their September meeting. Create your live VT Markets account and start trading now.

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Cryptocurrencies have made a strong comeback in August after a slow down in July. The news that private assets can now be included in 401(k) plans has boosted interest. Bitcoin has risen above $120,000, and Ethereum has surpassed $4,000. For Ethereum, hitting $4,000 is a significant achievement since it had previously been a barrier for its price. This recent rise indicates even more potential for price gains. The focus has shifted to how high prices might go, rather than if they can reach old highs. This summer is different than usual, as there has been heavy buying of risky assets, against the typical trend of less activity during this time. This year has turned the summer into one full of crypto and collectible excitement. Ethereum staying above $4,000 shows a strong upward trend. Traders in derivatives might want to keep or start long positions in futures contracts to take advantage of this momentum. The news about 401(k) plans gives a solid reason for the recent activity, suggesting new investment flows that we haven’t seen before. As buying spikes, implied volatility is rising, making call options more expensive. The Crypto Volatility Index (CVI) has gone above 90, a level that usually indicates excitement but also high costs. A smarter approach could be selling cash-secured puts or using bull put spreads to benefit from these high premiums while staying optimistic. This surge isn’t just retail investor enthusiasm; institutions are heavily involved too, confirming the trend. Open interest in CME Bitcoin futures recently broke a record of $25 billion. This level of large player involvement suggests they expect prices to go up in the coming weeks and months. The options market suggests a big upward move is coming, with a strong emphasis on gains. The 25-delta skew for Bitcoin and Ethereum options is highly positive, meaning traders are paying a lot more for call options compared to puts. This shows a widespread belief that the market is likely to rise. We saw something similar back in late 2020 when institutional news started moving the market, leading to a huge rally in 2021. While trends can be beneficial, it’s smart to use trailing stops on futures positions to safeguard profits. Taking some profits from long call positions can also help manage risk if the market changes quickly.

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FX option expiries for August 11 include some important levels to note. For EUR/USD, the range is between 1.1600 and 1.1700, and this currency pair has stayed within these limits since late last week. With the US CPI report coming soon, traders are unlikely to make big moves today. These expiries might help keep the market stable, but without any major news, we should see limited price changes.

NZD/USD Support Levels

The NZD/USD has an expiry level at 0.5930, which is close to the 100-hour moving average at 0.5932. This could offer support during the European morning session. The 200-hour moving average is slightly lower at 0.5923. Looking ahead, there are notable option expiries for EUR/USD. Key barriers exist between 1.0750 and 1.0800. With the US CPI report coming tomorrow, we don’t expect traders to push the market aggressively beyond these levels today. The market is focused on this inflation data, especially after July’s core inflation rate came in at 3.8%, higher than expected. This has strengthened the belief that the Federal Reserve will keep interest rates stable, while the European Central Bank is taking a more cautious approach. This difference in policy may limit the euro’s strength in the upcoming weeks. We’ve seen this happen before, especially during 2022-2023. The Fed’s strong rate hikes caused the EUR/USD to drop below parity for the first time in 20 years. Derivative traders likely remember this and might be positioning for a continued period of dollar strength, even if it’s not as extreme as before.

NZD/USD 50-Day Moving Average

For NZD/USD, there’s a key option expiry at the 0.6150 level. This strike price aligns closely with the 50-day moving average at 0.6145, which should provide a solid support level in the near term. These factors may limit any downside movement for now. On a fundamental level, the Reserve Bank of New Zealand indicated a continued pause during its last meeting, which has given the kiwi some stability. This was further supported by the latest Global Dairy Trade auction, where prices increased by 1.2%. However, any gains for the kiwi will face challenges from the market’s stronger appetite for US dollars ahead of key data. Create your live VT Markets account and start trading now.

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US Federal Reserve Governor Michelle Bowman recently suggested cutting interest rates for the rest of 2025, pointing to issues in the labor market as more urgent than inflation worries. In other news, China’s Consumer Price Index (CPI) and Producer Price Index (PPI) figures for July were released. Nvidia and AMD will give 15% of their chip sales revenue from China to the US for export licenses. Although Japan’s market was closed for a holiday, US equity index futures showed slight increases. In the US, military preparations were observed for a possible deployment in Washington, while Japanese markets remained shut, leading to lower trading activity. The US dollar weakened a bit, and currency pairs traded within tight ranges. In Asia, stocks saw small increases: Australia’s S&P/ASX 200 rose by 0.28%, Hong Kong’s Hang Seng climbed by 0.26%, and the Shanghai Composite increased by 0.5%.

Cryptocurrency and Market Movements

Bitcoin (BTC/USD) has gone past $121K, and Ethereum (ETH/USD) hit its highest level since December 2021, but US bond trading remained limited. The news about Nvidia and AMD’s export tax agreement with the US government has gained more attention. The market is closely watching developments in trade and interest rate policies. With Governor Bowman now pushing for rate cuts at all remaining meetings this year, the market’s focus has shifted from inflation to the weakening labor market. This change suggests traders should prepare for lower short-term interest rates, possibly using options on SOFR futures. This dovish signal supports equity indices, making call options on the Nasdaq 100 and S&P 500 appealing. It’s important to recall the Fed’s tough battle with inflation throughout 2023 and 2024, keeping rates at high levels. That struggle appears to be over, but it has negatively impacted the job market, which is the Fed’s new major concern. With the US unemployment rate recently rising from below 4%, Bowman’s comments indicate the central bank’s tolerance for job losses has been reached.

Impact of Nvidia and AMD Agreement

Initially, the news about Nvidia and AMD sharing 15% of their China sales revenue with the US was expected to hurt tech stocks, but it hasn’t. Instead, Nasdaq futures rose in response, showing that hopes for lower interest rates are more critical to the market at this moment. This implies that implied volatility for these specific tech stocks may decrease, as a major political risk has been addressed. China’s economic data remains concerning, with stagnant consumer prices and declining producer prices reflecting weak demand. The failure of another property developer, China South City, highlights that the housing crisis continues. Ongoing weakness in China, our largest trading partner, could put pressure on the Australian dollar, especially since the Reserve Bank of Australia is also predicted to cut rates this week. The ongoing issues in China’s property market are part of a longer trend that started with the defaults of major developers like Evergrande in 2023. These recent deflationary numbers and developer collapses lend support to a long-term bearish outlook on the region’s industrial demand. Therefore, traders might see it as a chance to buy puts on currencies and commodities linked to Chinese growth. In the midst of these significant economic changes, geopolitical tensions and specific market stories are adding volatility. The ongoing conflict in Ukraine and rising tensions with Iran suggest that having some portfolio protection, such as VIX calls, is a wise choice. Meanwhile, the strong rally of Bitcoin and Ether, particularly Ether reaching its highest price since late 2021, shows that a separate bull market is thriving in the crypto space, rewarding strategies based on momentum. Create your live VT Markets account and start trading now.

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Financial Markets and Trade Dynamics

Financial markets are shifting, with some Chinese property developers going out of business. There are also worries about trade relations, as seen in the US’s cautious approach to tariffs and New Zealand Prime Minister Luxon’s comments on the need for relief. Foreign exchange trading is risky and can lead to big losses. It’s important for people to know their risk level and only invest money they can afford to lose. InvestingLive offers information but does not give personalized investment advice. Readers should analyze their own situations and think about the risks before making any financial decisions. As of August 11, 2025, there are clear signs for derivative traders in the weeks ahead. There’s a strong push for China to increase soybean orders, which is boosting agricultural commodities. Soybean futures (ZS) have already risen over 8% in the past month, with prices now above $17 per bushel—levels we haven’t seen since mid-2024. China’s economy continues to struggle, with another property developer going under, so caution is advised for industrial metals. This follows the trends from the early 2020s, including issues with companies like Evergrande, pointing to a long-term problem affecting global demand. Copper prices have fallen to around $8,200 per tonne, making shorting industrial commodities or currencies like the Australian dollar a smart strategy.

Impact of Global Events on Energy and Technology

In technology, a proposed 15% export tax on chip sales to China poses a direct threat to revenue for major semiconductor companies. This situation is creating challenges for the Nasdaq 100, which is down nearly 3% this quarter. We recommend buying protective put options on the QQQ ETF to guard against a larger tech market downturn if these tariffs are implemented. Geopolitical tensions are also increasing, particularly involving Iran and the ongoing war in Ukraine. This environment is supporting energy prices, with WTI crude staying above $95 a barrel. Given the likelihood of unexpected supply news, we see value in long-dated call options on crude oil futures to take advantage of potential price increases. Create your live VT Markets account and start trading now.

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Major Crisis Deepens

The court-ordered liquidation of South City marks a serious escalation in the property crisis. This indicates that government support is lacking and creditors are losing patience. This situation casts a bleak view on Chinese markets for the near future. Looking back at the early 2024 Evergrande liquidation helps us predict the current market reaction. We expect increased volatility and a sell-off in Chinese stocks, especially those in the Hang Seng China Enterprises Index. Traders should think about buying protection through put options or preparing for a rise in implied volatility. This news comes during a time of already weak conditions. In July 2025, new home prices fell by 5.4% compared to the previous year, marking the 15th consecutive month of decline. This ongoing weakness indicates that the South City failure is not just a single incident, but a sign of a much greater issue. The property sector’s decline is heavily impacting the wider economy, with GDP growth for Q2 2025 falling to just 3.8%. Given these conditions, we recommend shorting broad market index futures like the FTSE China A50. This strategy bets on the continued negative effects from the real estate sector.

Economic Consequences

The stress on China’s economy will almost certainly affect its currency. We expect the offshore yuan (CNH) to weaken against the US dollar as investors look for safer options. This situation will likely also hurt the demand for commodities, especially industrial metals. Iron ore prices on the Singapore Exchange have already dropped below $100 per tonne this month due to poor construction forecasts. Policymakers have attempted to step in, with the People’s Bank of China lowering its key loan prime rate by 10 basis points last week. However, the severity of this crisis suggests these small changes will not restore confidence. We see these efforts as too minor and too late, meaning any short-lived market rally driven by policy changes is an opportunity to sell. The most immediate response should focus on the financial sector, which is heavily exposed to property developer debt. We are looking at put options on major Chinese banking stocks or ETFs that track this sector. The risk of a banking crisis has significantly increased. Create your live VT Markets account and start trading now.

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