The labor market is slowing down but remains strong in certain areas. Although there are signs of a slowdown, businesses are not close to making major layoffs. The latest jobs data would not have changed the Federal Open Market Committee’s recent choice. The risks between employment and inflation are changing, and this could lead to shifts in employment focus.

Tariff Impacts on Economic Conditions

Right now, the risk of inflation is seen as greater than the risk of job loss. The situation is complicated, with challenges on both sides of the Federal Reserve’s goals. Tariffs are acting unpredictably, making it harder to predict inflation and other economic factors. If tariffs work as intended, their effects will be significant. Consumers have been thinking about tariffs for a long time. It will take time for companies to adjust their prices to account for these changes. The current policy is being actively discussed, with expectations of one interest rate cut by the end of the year. We need to monitor how changing data could impact future decisions. With new information, reevaluation of current strategies is necessary. We are in a tough situation where risks exist on both sides of the Fed’s mission. While the labor market is clearly slowing, inflation is still a bigger concern. This fuels ongoing discussions within the Fed about how strict their policies should be. The jobs report from August 1st illustrates this tension, showing a gain of 190,000 jobs. However, revisions to data from May and June show a loss of 75,000 jobs. With the latest core PCE inflation data from June still at 2.8%, we are above the Fed’s target. This combination of data suggests that the Fed is likely to keep rates steady for now.

Trading in Times of Uncertainty

This uncertainty means we should think about trading around volatility. The CBOE Volatility Index, known as the VIX, has been higher than usual, recently around 18, which reflects market tension. Buying options straddles on equity indexes or interest rate futures before the next CPI or jobs report could be a smart way to prepare for possible big market movements. While one rate cut is expected this year, the timing is unclear. We should watch for any worsening in job data, such as weekly jobless claims going above 300,000, as a potential trigger for the Fed to act. This makes options on SOFR futures for the fourth quarter of 2025 an interesting opportunity in anticipation of a possible cut. The ongoing risk from tariffs adds more complexity that we must consider. We saw a similar situation in 2018 and 2019 when trade tensions complicated the Fed’s choices and led to a policy change. If these new tariffs stick around, they may raise prices and push the Fed to delay any interest rate cuts, even if the job market weakens. Create your live VT Markets account and start trading now.

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The S&P 500 index has fallen below its 200-hour moving average, which is set at 6248.77. It is currently trading at 6242.81, having reached a low of 6214.43. The index is now at 6245. The NASDAQ index had stayed above its 200-hour moving average since April 24. However, it dropped below that level today, falling to 20573 before recovering to 20692. This moving average is an important technical level for the NASDAQ.

Technical Analysis Levels

These technical levels are crucial for short-term analysis. If the NASDAQ drops below 20598 and the S&P 500 falls below 6248.79, it could signal a downward trend. Keep a close eye on these levels for possible changes in market direction. Currently, the market’s bullish trend is losing momentum at a critical point. The S&P 500 has dropped below its 200-hour moving average, a key indicator of short-term trends, while the NASDAQ is struggling to hold its similar level. This break hints that the upward trend we’ve enjoyed since spring may be coming to an end. This weakness is influenced by recent economic data. The latest Consumer Price Index for July came in slightly higher than expected at 3.4%, disrupting the steady drop in inflation we had observed. Additionally, weekly jobless claims have risen for the third week in a row, reaching 242,000, indicating some softening in the labor market. Due to this uncertainty, we’ve seen a notable rise in market volatility. The VIX has surged almost 40% this week and is now trading around 18, its highest level in months. This shows traders are looking to protect themselves against potential price swings in the near future.

Market Strategy and Outlook

In the next few weeks, it may be wise to consider buying put options on major indices like SPY and QQQ to hedge against or profit from a potential decline. Options set to expire in late August or September 2025 can provide a good position for a downturn if the indices fail to reclaim their crucial moving averages. This strategy directly responds to the market’s struggles at these important technical levels. This situation reminds us of the market pullback we saw in late summer 2023. Back then, a long rally ended with a break of key technical levels, leading to a multi-week correction of over 5% in the major indices. We should be ready for a similar scenario to emerge now. Thus, the key levels are set at 6248 for the S&P 500 and 20598 for the NASDAQ. If these indices cannot move back above these marks quickly, our bearish outlook will be reinforced. We will treat any short-term rallies toward these broken support levels as chances to establish new bearish positions. Create your live VT Markets account and start trading now.

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The AUD/USD pair has bounced back strongly, hitting the upper 0.6400s after the US nonfarm payroll report. The US dollar’s strength is fading as many expect a Federal Reserve rate cut in September. In Australia, the final S&P Global Manufacturing PMI remained steady at 51.3 for July. Additionally, Producer Prices increased by 0.7% in Q2 and 3.4% from last year, which helps support the Australian dollar. From a technical perspective, resistance is at the 55-day SMA of 0.6504, with further hurdles at 0.6625 and 0.6687. On the other hand, support levels are at 0.6418 and the 200-day SMA at 0.6391. Interest rates set by the RBA significantly impact the Australian dollar. The price of iron ore and the economic health of China also play a role, with higher rates and a strong Chinese economy boosting the currency. The trade balance is another factor to consider. A positive trade balance supports the AUD, as high export demand over imports strengthens the currency. Navigating the fast-paced forex market comes with risks and leverage; thorough research is essential before making any trading decisions. Currently, the Australian dollar is gaining strength against a weaker US dollar. This shift is largely due to a disappointing US jobs report, leading many to believe the Federal Reserve may cut interest rates in September. This potential change in policy is driving the market today, August 1, 2025. On Australia’s side, the economy looks strong. Producer prices are rising, and manufacturing activity is stable. The Reserve Bank of Australia’s hawkish approach in late 2024 and the first half of this year stems from ongoing inflation, which supports a stronger Australian dollar. Positive news from commodity prices is also encouraging. For example, iron ore futures surged above $120 per tonne in late July, supported by recent data showing unexpected growth in China’s manufacturing sector. Considering these factors, we should focus on strategies that benefit from a rising AUD/USD, such as buying call options. The pair has successfully crossed a key long-term indicator at the 0.6391 level, suggesting that the upward momentum may continue in the coming weeks. We need to keep an eye on the 0.6504 level, as this is a crucial resistance point. If the price breaks and holds above it, we could see a faster rise toward the 0.6625 area. However, if the market reverses, we should reassess our positions around the 0.6400 mark. Looking ahead, the RBA’s interest rate decision on Tuesday, August 5th, is a significant upcoming event. We will also monitor US inflation reports closely, as they will be key in confirming expectations for a Fed rate cut. History shows that when central bank policies diverge, it often leads to strong trends in currency pairs.

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The USD/JPY currency pair dropped during the early American session on Friday after the release of the US employment data for July. It was trading at 148.80, which is a 1.3% decline from the previous day. The US Bureau of Labor Statistics announced that Nonfarm Payrolls (NFP) rose by 73,000 in July, falling short of the expected 110,000. Additionally, the numbers for May and June were revised down by 125,000 and 133,000, respectively. With these revisions, the employment figures for May and June were 258,000 lower than previously reported. As a result, the US Dollar Index decreased by 1.1%, reaching 99.00. Later in the day, the Institute for Supply Management will publish the Manufacturing Purchasing Managers Index (PMI) for July. NFP is a key indicator in US jobs reports, showing the change in employment outside of farming. NFP data impacts the Federal Reserve’s monetary policy by showcasing performance in employment and inflation targets. It typically has a positive relationship with the US Dollar and a negative relationship with Gold prices. Sometimes, other components of the report, like Average Weekly Earnings or the Participation Rate, can overshadow the NFP figure, leading to unexpected market responses. Today, on August 1, 2025, the market reacted sharply to the disappointing July jobs report. With only 73,000 new jobs and major downward revisions for May and June, the data indicates a weakening US labor market. This change in outlook has made future rate hikes from the Federal Reserve much less likely. For derivative traders, the USD/JPY pair becomes especially important due to the interest rate difference between the US and Japan. The surprising weakness in the US economy could mark a shift in the long-standing policy that has benefited the dollar. We should prepare for more volatility in this pair as the market adjusts. The CME FedWatch Tool now shows that the likelihood of another rate hike by the end of the year has dropped from over 60% last week to below 25% today. This shift resembles the changes we saw in late 2023 when several weak data releases led to a quick reversal of hawkish expectations from the Fed. This historical context suggests that the dollar could continue to decline, especially if upcoming inflation data is weak. Traders might want to consider buying put options on the USD/JPY to take advantage of potential further declines. Implied volatility has risen, making options pricier, but the chance for a significant, lasting move may justify the cost. Looking at options that expire after the next Consumer Price Index (CPI) release could provide a good opportunity to capture the next major market movement. The significant market movement has pushed the 3-month implied volatility for USD/JPY to levels we haven’t seen since the banking turmoil of early 2024, currently above 11.5%. This signals that the market is preparing for wider trading ranges in the coming weeks. Therefore, it’s essential to manage positions considering this increased uncertainty. We should also keep an eye on comments from Bank of Japan officials following this development. Back in spring 2024, the yen weakened significantly when the BoJ did not provide a clear direction away from its very loose policy. Any suggestion of a less dovish approach from them now, along with US weakness, could greatly accelerate a lower USD/JPY rate.

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In June, US construction spending fell by 0.4% from the previous month, bringing the annual rate to $2.14 trillion. This marks a 2.9% decrease compared to the same time last year. Spending in the first half of 2025 is 2.2% lower than in the same months of 2024. Private construction dropped by 0.5% month-to-month, now at $1.62 trillion. Residential construction decreased by 0.7% to $883.1 billion, while nonresidential construction fell by 0.3% to $738.8 billion.

Public Construction Spending

On the other hand, public construction spending went up by 0.1% from May, totaling $514.3 billion. The education and highway sectors saw small increases, with spending rising by 0.4% to $112.7 billion and by 0.6% to $144.1 billion, respectively. Overall, the construction industry weakened in June, mainly due to drops in the private residential and nonresidential sectors. However, public construction showed slight growth, especially in education and highway projects. The construction spending report for June 2025 highlights a slowdown, falling short of expectations and signaling weakness in the private sector. This data suggests that the economy is cooling more than expected, indicating that the Federal Reserve may have less flexibility to keep interest rates high.

Market Adjustments and Economic Outlook

Markets are adjusting to this new reality, with changes in CME FedWatch tool probabilities. For example, after the weak jobs report in early July 2025 and this construction data, the chances of a rate cut by December 2025 have risen to over 50%. The weak economic data, combined with a core PCE price index of 2.8% in the latest reading, creates a complex situation for the Fed. The significant 0.7% decline in private residential spending raises concerns for the housing market. With 30-year fixed mortgage rates averaging about 6.5% in July 2025, affordability pressures remain for homebuilders. We believe that buying put options on homebuilder ETFs like ITB and XHB could effectively hedge against or speculate on further declines in the coming weeks. This downturn also affects suppliers of construction materials and industrial equipment. Companies supplying lumber, cement, and heavy machinery are likely to encounter challenges, which may not yet be reflected in their stock prices. Looking back to the slowdown of 2022, we remember that industrial stocks were quick to respond to falling demand. With mixed signals of slowing growth and ongoing, though easing, inflation, we expect market volatility to rise. The CBOE Volatility Index (VIX), which has been relatively low, may experience upward pressure as uncertainty increases. Purchasing call options on the VIX or VIX-related futures could serve as a helpful hedge against broader market turbulence. Create your live VT Markets account and start trading now.

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The US ISM Manufacturing index for July was 48.0, which is below the expected 49.5 and down from last month’s 49.0. Prices paid fell to 64.8, lower than the anticipated 70.0. Employment also dipped to 43.4, down from 45.0 last month.

New Orders and Production

New orders increased slightly to 47.1 from 46.4 in the previous month. Production improved to 51.4, up from 50.3 last month. Supplier deliveries dropped to 49.3 from 54.2 last month. Inventories decreased slightly to 48.9 from 49.2 last month. Customers’ inventories went down to 45.7 from 46.7 last month. Meanwhile, the backlog of orders rose to 46.8 from 44.3 last month. New exports were slightly lower at 46.1 compared to 46.3 last month. Imports increased to 47.6 from 47.4 last month.

Production and Prices Paid

Production and prices paid were the only parts above the 50.0 mark. The rest remained below this level. The July ISM manufacturing report showed a weaker than expected index at 48.0, indicating that the sector is in contraction. This marks the ninth straight month below the 50.0 threshold, a trend linked to economic slowdowns. We now need to focus on defensive strategies, as this data suggests a cooling economy is likely. The significant drop in the Prices Paid component to 64.8 is important. It indicates that inflationary pressures are easing more quickly than expected. The market is now pricing in a higher chance of a Fed rate cut before the end of 2025, with fed funds futures shifting right after the report’s release. Traders should think about positions that benefit from lower short-term interest rates, as this report gives the Federal Reserve more leeway to ease policy. The steep decline in employment to 43.4 is a concerning signal for the upcoming Non-Farm Payrolls report. The weak labor market outlook puts pressure on corporate earnings expectations, making call options on cyclical sectors like industrials and materials less appealing. We expect increased market volatility, with the VIX index rising from 14 to over 16. Purchasing protection through put options on broad market indices could be a wise strategy. After the data was released, the US dollar index fell as expectations for future rate hikes decreased compared to other central banks. At the same time, yields on the 2-year Treasury note, which reacts strongly to Fed policy, dropped by over 10 basis points to 4.75% as investors sought safety. This situation suggests trading opportunities in currency pairs against the dollar and supports a bullish outlook on government debt for bond traders. It’s also important to note some internal divergences in the report, like the rise in production to 51.4. This shows that while new demand is weak, some manufacturers are still working through backlogs built up during 2023-2024. Although this may create short-term fluctuations, the trends in new orders and employment are more crucial indicators for our strategy. Create your live VT Markets account and start trading now.

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The British Pound has gained momentum, rising above 1.3200 against the US Dollar. This increase follows disappointing US Nonfarm Payrolls (NFP) data, which showed only 73,000 new jobs created in July, well below the expected 110,000. The dollar is under pressure as unemployment rose to 4.2% from 4.1%. This shift has led many to rethink the chances of the Federal Reserve cutting interest rates in September. As a result, GBP/USD hit two-day highs after the US Dollar Index fell.

Technical Analysis and Market Reactions

If GBP/USD continues to drop, it might test support levels at 1.3141 and 1.3139. On the other hand, resistance levels are at the 100-day and 55-day SMAs at 1.3337 and 1.3505, respectively, before reaching the weekly high of 1.3588. Nonfarm Payrolls is a monthly report that tracks job changes in the US, excluding the farming sector. NFP data influences US monetary policy, where less job growth could lead to lower interest rates. Typically, a strong NFP report supports the US Dollar, impacting inflation and interest rates, while often negatively affecting Gold prices. However, market responses can be unpredictable, especially if figures like Average Weekly Earnings overshadow NFP numbers. The disappointing jobs report, which revealed only 73,000 new jobs, has shifted momentum to the British Pound. This big miss has pushed the pound above the 1.3200 mark against the dollar, challenging the idea of a strong US labor market.

Central Bank Policies Diverge

This report is significant and follows the US Consumer Price Index data for June 2025, which showed inflation slowing to 3.1%. The combination of weaker hiring and lower inflation is changing how the Federal Reserve may act. Futures markets, monitored by the CME FedWatch Tool, now suggest a 25% chance of a rate cut in September, up from just 5% before this jobs report. Meanwhile, the Bank of England is also grappling with stubborn domestic inflation, unlike in the US. This difference in monetary policy—where the Fed may ease while the BoE holds firm—supports the case for a stronger GBP/USD. This scenario feels similar to the policy split we observed in late 2023. Given this outlook, we believe buying call options on GBP/USD with September or October expiration dates is a smart strategy. This approach allows us to benefit from the potential rise of the pound while limiting our maximum loss to the premium we pay for the options. The weak NFP figure is the catalyst we’ve been waiting for to adopt a bullish stance. We should use the technical levels as our guidelines for this trade. The first goal for our call positions is the resistance near the 100-day moving average at 1.3337. If the pair manages to break and hold above this level, it could move toward the 1.3500 area. However, we must remember that initial reactions to job data can be exaggerated. We should closely monitor upcoming US retail sales figures for confirmation that the American consumer is indeed weakening. Any unexpectedly strong US economic data in the coming weeks could quickly reverse this move and challenge our bullish outlook. Create your live VT Markets account and start trading now.

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In July, the US added 73,000 jobs, according to the US Bureau of Labor Statistics. This was below the expected addition of 110,000 jobs and follows a revised increase of just 14,000 jobs in June. The unemployment rate climbed to 4.2%, up from 4.1%. The labor force participation rate slightly decreased to 62.2% from 62.3%. Yearly wage growth showed a small increase, with average hourly earnings rising to 3.9%, up from 3.8%. **Revisions for May and June Employment** Revisions for May and June show larger adjustments than usual. May’s employment was revised down by 125,000 jobs, and June’s was revised down by 133,000 jobs, making the total for these two months 258,000 jobs lower than initially reported. After the payrolls data was released, the US Dollar faced strong selling pressure. The USD Index fell 0.65% to 99.40. The Dollar was particularly weak against the Japanese Yen, with shifts against the Euro, Pound, and other major currencies as well. The latest job openings report showed 7.43 million available positions for June, according to the JOLTS report. In contrast, the ADP Employment Change report said the private sector added 104,000 jobs in July, with June’s loss revised to just 23,000 jobs. Signs indicate that the US job market is slowing down, changing our outlook for the weeks ahead. The July payroll number of 73,000 was a significant miss, but the huge downward revisions for May and June tell a more concerning story. This data suggests the economy is weaker than we thought. **Federal Reserve Policy Implications** This weakness in the job market may push the Federal Reserve toward a more lenient policy. With the unemployment rate rising to 4.2% and slow wage growth, the pressure to lower interest rates is growing. According to the CME FedWatch Tool, the probability of a rate cut in September has surged to over 70%, a major change from last week. For our currency strategies, we should expect continued weakness in the US Dollar. The Dollar Index has already dipped below 100, and this trend might continue. We recommend selling the Dollar against both the Japanese Yen and the Euro, utilizing futures or options to mitigate risk. This creates clear opportunities in interest rate derivatives. We believe taking long positions on 2-year and 10-year Treasury note futures is a wise strategy to benefit from the anticipated drop in yields. This is supported by June’s headline CPI falling to 3.1%, giving the Fed more flexibility to reduce policy rates without triggering inflation. The mixed signals of a slowing economy and potential support from the central bank are causing significant uncertainty. The VIX, which measures market fear, has jumped from a low of 14 to over 18 following the jobs report. Buying call options on the VIX or put options on indices may serve as a useful hedge against a possible economic downturn. This situation reminds us of the Fed’s policy change in 2019, when a slowdown in the job market led to a series of rate cuts to bolster the economy. Markets that anticipated the Fed’s shift at that time fared very well. We are now seeing a similar pattern emerge. Create your live VT Markets account and start trading now.

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The University of Michigan’s final sentiment index for July is at 61.7, slightly down from the preliminary figure of 62.0. Last month’s index was 60.7, showing a small improvement. Current conditions have increased to 68.0 from a previous reading of 58.6. However, expectations fell to 57.7 from 66.8. Inflation expectations are also shifting. The one-year outlook rose to 4.5% from 4.4%. In contrast, the five-year outlook decreased to 3.4% from 3.6%. Overall, the economic data presents a mostly soft picture, reflecting how the market is reacting.

Market Anticipation Of Rate Cuts

The market expects 59 basis points of easing by the end of the year, up from an earlier 35 basis points before the NFP report. This shift shows growing concerns about possible delays by the Federal Reserve and suggests a need for larger rate cuts. There’s a significant gap in the latest July sentiment data. While people feel that current conditions have improved, their outlook for the future has sharply declined. This difference indicates rising economic anxiety. The market has quickly adjusted, now anticipating 59 basis points of Federal Reserve easing by year-end, up from 35 before the last jobs report. The recent Non-Farm Payrolls data for July 2025 showed a disappointing increase of 95,000 jobs, sparking fears that the Fed is lagging. This raises the belief that more substantial rate cuts are becoming necessary.

Focus On Interest Rate Derivatives

In the coming weeks, we should concentrate on interest rate derivatives, particularly futures linked to the Secured Overnight Financing Rate (SOFR). These instruments are likely to gain value as the market anticipates lower rates. This situation is similar to the late 2023 market activity when traders aggressively priced in a Fed policy shift. This uncertain environment may also lead to increased market volatility. The CBOE Volatility Index (VIX), which has been fairly stable around 17, might begin to rise. It could be wise to consider call options on the VIX to protect against or take advantage of potential market fluctuations. Given the decline in consumer expectations to 57.7, we should be cautious with equity investments. While rate cuts can help stocks, they often respond to a weakening economy that can hurt corporate profits. Buying protective put options on major market indices could be a smart way to manage downside risk. Create your live VT Markets account and start trading now.

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The S&P Global Manufacturing PMI for July was 49.8, showing a slight contraction in the U.S. manufacturing sector, marking the first decline of 2025. This is a drop from June’s 52.9 and ends a time of steady growth.

Employment Drop

In July, market demand stalled. New orders increased only a bit, while new export orders fell, particularly in sales to China, the EU, and Japan. Concerns about trade policy affected business confidence and decision-making. For the first time since April, employment levels fell as companies hesitated to hire due to low demand and rising costs. Firms began relying less on their inventories, and stockpiles linked to tariffs decreased. While input costs continued to be high due to tariffs, inflationary pressures eased from June’s peak. Selling prices kept rising, marking the second-largest increase since November 2022. Output growth slowed and remained minimal. Business confidence fell to a three-month low, but firms expect output to rise in the upcoming year. Supply chain conditions improved slightly, with shorter delivery times due to better stock availability and fewer vendor backlogs. Overall, July’s data points to challenges in the manufacturing sector, such as stagnant demand and policy uncertainties. However, there is hope for stabilization thanks to easing inflation and improved supply chain conditions.

Market Strategies

The manufacturing PMI’s drop to 49.8 indicates the first contraction of 2025, a sign of significant slowdown. Falling below the crucial 50.0 mark is similar to August 2019, when the ISM index hit 49.1 amid tariff concerns leading to a market slowdown. In response, we should consider taking bearish positions in sectors that are heavily influenced by manufacturing cycles, like industrials (XLI) and materials (XLB). The stagnation in new orders and the drop in inventories are major obstacles for economic growth in the third quarter. This inventory reduction typically slows GDP growth; U.S. business inventories-to-sales ratios exceeded 1.40 in late 2022, and the following work-down period cooled the economy. We should expect this trend to negatively impact the broader market, making put options on the Russell 2000 (RUT), which is sensitive to the U.S. economy, a smart hedge. Although input cost pressures are lessening, the ongoing rise in selling prices suggests stubborn inflation. This situation of slowing growth with persistent price increases complicates the Federal Reserve’s decision-making and may delay any expected rate cuts. Such policy uncertainties often lead to increased market volatility, indicating that it might be wise to buy VIX call options in the coming weeks as a safeguard for our portfolio. The report highlights a decrease in export orders to China and the EU, signaling a weakening demand globally. Historically, during global economic challenges, the U.S. Dollar serves as a safe-haven asset, as demonstrated by the Dollar Index (DXY) rising over 15% through mid-2022. We should keep an eye on a strengthening dollar, as this would further impact earnings for U.S. multinational companies. Given the mixed signals of a slight contraction but improving supply chains, an aggressive short position may be risky. A better approach would be to use bearish debit spreads on the S&P 500 (SPX) with expirations in late August or September. This strategy allows us to benefit from a potential small decline while clearly setting our maximum risk if the market remains strong. Create your live VT Markets account and start trading now.

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