European indices and US futures have lost some of their earlier gains. The DAX is up 0.1%, and the CAC 40 has gained 0.2% in the European morning session. In the US, the S&P 500 futures show a 0.2% increase, down from an earlier rise of 0.5%. This shift follows a disappointing performance on Wall Street, largely driven by weak data from the US ISM Services PMI. Concerns over US economic data are starting to impact the markets. Investors are weighing the negative data against the possibility of relief from the Federal Reserve as the economy slows. The market has already factored in a rate cut in September and two more cuts by the end of the year. However, optimism may be limited without a more aggressive approach from the Fed. A surprise in US labor market data this Q3 could change market sentiment.

Impact of US Tariffs

Tariffs from the US government are still a worry. While trade talks are ongoing, the negative effects of tariffs continue. The upcoming Consumer Price Index (CPI) report will shed light on how these tariffs are affecting consumer prices, especially in light of the recent PMI data. The AI sector has strengthened the market, but the next quarter will test the stability of leading tech firms. The market is showing vulnerability, with stock futures losing early gains as of August 6, 2025. Recent data, like the July ISM Services PMI at a disappointing 51.2, points to a slowdown. This challenges the “strong economy” narrative that supported stock prices in the first half of the year. We cannot rely on the Federal Reserve to push the market higher from this point. Rate traders have already predicted a quarter-point cut for the September meeting, with fed funds futures showing over a 90% likelihood. Any additional positive news from the Fed is likely already reflected in stock prices. A significant risk ahead is a potential weakening in the US labor market, which could trigger a market correction. The VIX is currently around multi-year lows at about 14, making it a good time to consider buying protective options. We might explore purchasing VIX call options or put options on the S&P 500 to guard against a sudden decline.

Inflation and Trade Negotiations

It’s also important to monitor how tariffs affect inflation during ongoing trade negotiations. The upcoming CPI report is crucial; it may reveal that businesses are starting to pass higher costs on to consumers. Reflecting on the trade disputes from 2018-2019, we saw how tariffs created months of market uncertainty. This year’s rally has been very narrow, largely driven by big AI and tech stocks. With the Magnificent 7 accounting for over 30% of the S&P 500’s value, any dip in their performance could drag down the entire market. Traders should consider buying protective puts on tech-heavy ETFs like the QQQ to mitigate this concentration risk. Create your live VT Markets account and start trading now.

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The USDCAD pair has responded to recent economic data. The USD fell after a weaker-than-expected Non-Farm Payroll (NFP) report. This report led the market to expect a 60 basis points (bps) rate cut by the end of the year, up from the prior expectation of 35 bps. Federal Reserve officials hinted at a possible rate cut in September, which has increased traders’ expectations. The ISM Services PMI reached a new high for prices, making traders cautious ahead of the upcoming US Consumer Price Index (CPI) release. Investors are also looking forward to the US Jobless Claims data and the Canadian employment report for more insights on economic conditions.

Canadian Economic Conditions

In Canada, inflation is near the upper limit of the target range, supported by strong economic data, including a solid employment report. The Bank of Canada (BoC) kept interest rates unchanged but may adjust them based on economic growth projections. Markets anticipate a 18 bps rate cut in Canada by year-end. On the daily chart, USDCAD has rejected the 1.3860 level and is holding lower as traders await new data. The 4-hour chart shows the price consolidating between 1.3760 and 1.3815, with buyers targeting the upper end and sellers aiming for a drop to 1.37. Similarly, the 1-hour chart shows buying and selling interests within this range. The USD fell after last week’s weaker Non-Farm Payrolls report, which indicated a gain of only 155,000 jobs. This changed expectations around the Federal Reserve’s actions, leading to a significant shift towards a probable rate cut in September, with Fed funds futures indicating a nearly 90% chance. Meanwhile, Canada’s economy looks more robust. The July CPI data remained steady at 2.9%, with core inflation staying high near the top of the Bank of Canada’s target range. This came after a strong Canadian jobs report last month, which added 45,000 jobs and exceeded expectations. This contrast is likely to put downward pressure on the USDCAD pair. The rejection of the 1.3860 level last week was notable, and sellers may see a return to that area as an opportunity. A drop below recent lows could lead to a move toward the 1.3500 mark in the coming weeks.

Trading Strategies

For traders dealing in derivatives, buying put options may be an appealing strategy, especially with strike prices below the current consolidation range, like 1.3700 or 1.3650. Another option is to sell call spreads, placing the short leg around the 1.3860 resistance level. This approach could benefit from both a price drop and time decay if the pair remains stable. The main risk to this outlook is the US Consumer Price Index (CPI) report due next week. The recent ISM Services PMI showed a concerning rise in its prices paid index to the highest level this year. A strong inflation report could undermine expectations for a September rate cut and drive USDCAD sharply higher. We observed a similar rapid shift in late 2023 when the market aggressively priced in Fed cuts, only to reduce those expectations early in 2024. This illustrates how quickly market sentiment can change based on a single report. Traders should remain flexible and recognize that the current narrative is unstable. In the short term, USDCAD is trading in a tight range between 1.3760 and 1.3815. Tomorrow’s US Jobless Claims and Friday’s Canadian employment report will be important catalysts. A weak US number paired with a strong Canadian report could finally break the pair out of this consolidation to the downside. Create your live VT Markets account and start trading now.

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Super Micro Computer, Inc. (SMCI) saw its stock price drop more than 16% after releasing its earnings report. This decline was much worse than the 12.2% move that analysts expected, signaling a bearish trend. Before this drop, the stock had skyrocketed almost 97% since its last earnings report and 125% since the market low. Such rapid increases often trigger profit-taking by traders following risk management rules. Even when earnings are good, a stock can decline if expectations are too high. Institutional investors might contribute to the decline by gradually selling shares, which could mean the correction lasts longer. A quick recovery seems unlikely; the stock is more likely to need time to stabilize. Other factors, like market trends and seasonality, can also affect stock prices after earnings. Emotional trading, such as buying stock during declines, can lead to poor decisions like revenge trading. A better approach is to stay patient and analyze the situation. Understanding expected moves and institutional actions can lead to smarter trading choices while keeping in mind the ongoing short-term risks. The significant drop in Super Micro Computer’s stock after its earnings report should serve as a serious warning. The price fell over 16%, much beyond the 12.2% move expected by the options market. This decline isn’t just a simple dip; it hints at deeper issues affecting the stock. We must recall the tremendous rise this stock has experienced since the AI boom began in 2023. After such large gains, big investors often feel compelled to sell shares to secure profits. This predictable selling can continue for weeks, creating a steady resistance for the stock. The market environment has also shifted from the unrestricted growth seen last year. Recent reports from July 2025 indicate that competitors like Dell and HPE are making headway with their own AI server solutions. Additionally, industry forecasts now suggest a slowdown in hyper-scale server spending for the rest of 2025, which the stock hasn’t yet reflected. This situation feels reminiscent of Netflix’s experience in early 2022. After a significant plunge post-earnings, Netflix entered a much longer downtrend. A swift recovery is rare in situations like this, so we shouldn’t expect one now. Given this outlook, buying puts with September or October 2025 expirations could be a smart move. This strategy helps safeguard against or profit from further declines. Although implied volatility is currently very high, making options pricey, it also highlights the market’s apprehension, which is often warranted in the short term. For those seeking a less aggressive approach, selling a bear call spread above key resistance levels is another effective tactic. This strategy allows us to profit as the stock doesn’t quickly recover, taking advantage of the high implied volatility. It provides a way to earn while waiting for the situation to stabilize. Over the next few weeks, the key will be to stay disciplined, not emotional. Although the temptation to buy this dip is strong, resisting that urge and waiting for price stabilization is the professional approach. Let’s allow institutional sellers to finish their work before we even think about finding a bottom.

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The GBPUSD pair bounced back from an important level after the NFP report came in weaker than expected. This caused broad selling of the USD, as markets changed their views on potential interest rate cuts by the Federal Reserve. Initially, the market expected a 35 basis point cut by the end of the year. However, after the NFP report, this expectation increased to 60 basis points. Federal Reserve officials hinted at a possible rate cut in September. More favorable data could influence Fed Chair Powell at the Jackson Hole Symposium. At the same time, the rise in prices measured by the ISM Services PMI might keep traders cautious ahead of the US CPI release.

Bank Of England Rate Cut Expectations

The Bank of England is expected to lower interest rates by 25 basis points, in line with its quarterly plan. Recent UK data was mixed: inflation rose unexpectedly, but employment figures fell short. The BoE will likely continue its careful and data-driven approach, with another rate cut expected by the end of the year. In technical analysis, GBPUSD bounced off 1.3140 and is approaching resistance at 1.3368. Sellers may look to profit from a price drop, while buyers are hoping for a breakout to higher levels. Shorter timeframes show consolidation and resistance around 1.3310, with upcoming US Jobless Claims and the BoE’s rate decision acting as key market drivers. Recent weaknesses in US jobs data have shifted our outlook and made a Fed rate cut in September seem almost certain. The CME FedWatch Tool now shows over a 75% chance of a cut next month. This change in sentiment makes shorting the US dollar against other currencies attractive. On the other side, the Bank of England is expected to lower rates tomorrow, August 7th, but their situation is unique. The latest inflation report from the Office for National Statistics revealed that the UK CPI remained stubborn at 2.9% in July, well above the 2% target. This forces the BoE to proceed with more caution, suggesting their rate cuts will be slower and more predictable compared to the Fed’s potential changes.

Volatility And Trading Strategies

With the uncertainty surrounding US inflation data next week and the Jackson Hole meeting later this month, we are focusing on volatility. The Cboe’s GBP Volatility Index (BPVIX) has risen to a three-month high near 9.5, as traders prepare for larger price movements. This could make using options, like straddles, a smart strategy to profit from sharp moves without taking a specific directional bet. For traders seeking a direct view, the technical levels provide a clear guide for the coming weeks. We should consider selling the pair near the key resistance of 1.3368, but we need to be agile. The US Jobless Claims report tomorrow will offer another insight; data from last week indicated claims remained stable around 217,000, showing that the labor market is still holding up. It’s essential to be mindful of how quickly the Fed can change its approach, as we learned during the regional banking stress in 2023. That situation demonstrated that once the Fed signals a significant policy shift, it can lead to sustained dollar weakness. If GBP/USD convincingly breaks above the resistance at 1.3368, it could indicate a new upward trend beginning. Create your live VT Markets account and start trading now.

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June’s retail sales in the Eurozone rose by 0.3%, just below the expected 0.4%. This comes after May’s figure was revised from a drop of -0.7% to -0.3%. In June, food, drinks, and tobacco saw a 0.2% increase. Non-food products increased by 0.6%, and automotive fuel in specialized stores grew by 0.4%. This data gives a general sense of retail trends in the area for the month.

Impact of June Retail Sales on Markets

The slight increase in June retail sales, at 0.3%, has already been factored into the market. This information is now outdated and isn’t influencing major trading decisions. Traders are focusing on the upcoming data for July and August to assess consumer health in the third quarter. More notably, July’s inflation held steady at 2.5%, remaining above the European Central Bank’s goal. This complicates matters for the ECB ahead of its meeting in September, creating uncertainty that could lead to volatility in interest rate swaps and options related to the Euro Stoxx 50. Recent surveys, such as the July flash composite PMI, which registered 49.9, indicate that economic activity is barely growing. This runs counter to the slightly positive but dated retail sales report from June. We experienced a similar situation in 2024, resulting in fluctuating and stable markets.

Strategy for Market Volatility

Given this mixed outlook, making large bets on European indices is risky right now. A wiser strategy for the upcoming weeks could be to invest in volatility through options strategies like straddles. This approach allows us to capitalize on significant market movements in either direction once the ECB offers clearer guidance. Create your live VT Markets account and start trading now.

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The UK construction sector faced challenges in July, with the PMI dropping to 44.3, far below the expected 48.8. This marks the sharpest decline since May 2020. Every sub-sector saw a decline, with residential building activity taking a hard hit. **Adapting to Challenges** Construction companies are responding to these tough times by buying fewer materials and cutting back on staff. While there is a bit more optimism compared to June, overall expectations remain low. Businesses reported fewer tender opportunities and noted that clients are hesitant to start new projects. Ongoing uncertainties, both at home and abroad, are likely to keep investments low in this sector. The significant drop in the UK construction index to 44.3 indicates a serious economic slowdown. This is the steepest decline in overall industry activity we’ve seen since the first pandemic lockdown in May 2020. The decline affects residential, commercial, and civil engineering projects, revealing a deeper issue. This concerning data puts the Bank of England in a tough spot, especially since the key interest rate has been steady at 4.75% for the past nine months. July’s CPI showed inflation at 3.1%, still above the 2% target. Given the downturn in this important sector, another rate hike seems unlikely. The market is now leaning toward a higher chance of a rate cut before the year ends. **Foreign Exchange and Stock Market Implications** The outlook for foreign exchange traders is negative for the British Pound. Lower interest rates compared to the US Federal Reserve and the ECB may lead to capital flowing out of the UK. In the coming weeks, we plan to explore put options on GBP/USD to hedge against or profit from further declines in the pound. Interest rate derivatives will also be crucial, particularly futures related to the SONIA rate. Following this data release, market expectations have shifted dramatically. The chance of a 25-basis-point rate cut by the Bank of England’s November 2025 meeting has surged to over 60%, up from 35% just a week ago. The report highlights a “sharp drop in residential building,” pointing to vulnerabilities in the stock market. Recent data from Nationwide shows a 1.2% decrease in UK house prices for July 2025, the largest monthly drop in over a year. As a result, buying put options on major UK homebuilders like Barratt Developments and Taylor Wimpey seems like a smart strategy. This weakness is likely to affect the broader UK stock market, especially the FTSE 250, which is more tied to the domestic economy compared to the internationally-focused FTSE 100. Indicators such as companies buying fewer materials and reducing staff home suggest falling corporate profits in the upcoming quarters. A bearish outlook on the FTSE 250 through futures or options may be justified. Create your live VT Markets account and start trading now.

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The USDCHF pair declined after a disappointing NFP report, leading to a quick market adjustment. Initially, traders expected a 60 basis points rate cut by the end of the year, compared to 35 basis points before the report. Federal Reserve officials have suggested a potential rate cut in September, with softer data possibly influencing Fed Chair Powell’s decision at the Jackson Hole Symposium. The ISM Services PMI indicated rising prices, causing caution as we approach next week’s US CPI.

Swiss Monetary Policy

Swiss monetary policy remains stable, with the Swiss National Bank (SNB) on a long pause and no rate hikes anticipated. Recent Swiss CPI data showed a slight inflation improvement, and the market does not expect any rate cuts from the SNB. U.S. tariffs on Switzerland, originally set at 35%, are likely to decrease to 10-20%, similar to those on other countries. On the daily chart, the USDCHF trades above a crucial resistance zone, indicating potential support for a rally to 0.83. Sellers are targeting a drop towards 0.79. The 4-hour chart shows price rebounding from a minor trendline after the NFP report, with buyers looking for new highs and sellers aiming for lower lows. The 1-hour chart presents a similar outlook, with buyers eyeing 0.83 and sellers preparing for declines. Upcoming U.S. Jobless Claims figures may influence perceptions of labor market strength. After a softer jobs report, we saw the dollar sell off. However, this reaction may have been exaggerated. U.S. jobless claims remain stubbornly low, with last week’s initial claims at just 218,000, suggesting that the labor market is tighter than the report indicates. This strength creates uncertainty about the Federal Reserve’s future actions.

Rate Cuts Context

The market quickly priced in more rate cuts, but we should consider the earlier context of this year. The Fed only began cutting rates in March 2025 after inflation proved unexpectedly persistent in the second half of 2024. With the July CPI data showing core inflation still high at 3.6%, further aggressive rate cuts are not assured. In Switzerland, the situation is quieter, which provides strength to the franc. The Swiss National Bank has maintained its position for nearly a year, and with domestic inflation at a comfortable 1.5%, they see no need to change. The significant trade tariff issue with the United States was settled at 15% late last year, easing pressures on the franc. Given these mixed fundamentals, derivative traders should brace for potential volatility instead of betting on a clear direction. As USD/CHF trades between major technical levels, strategies like buying straddles or strangles could be useful. This approach would allow traders to profit from significant price movements, whether up or down, especially with next week’s CPI release looming. In the next few weeks, attention will focus on U.S. data, particularly inflation and employment figures. The Fed’s perspective at the upcoming Jackson Hole Symposium will be crucial in shaping expectations for the rest of the year. We find ourselves in a waiting game, eager to see whether persistent inflation or a weakening labor market will dictate future policy. Create your live VT Markets account and start trading now.

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Germany’s construction PMI for July increased to 46.3 from 44.8, marking its highest level since February 2023. This change suggests a slight easing in the construction downturn. The uptick is partly due to more commercial building projects. However, challenges persist as companies continue to cut jobs and reduce buying activities due to a lack of new work. Although the PMI has risen by about four points since January, the construction sector remains in recession when compared to trends in manufacturing and services. Input prices are still climbing, and business expectations for the next year have not yet reached expansion levels.

Commercial Construction and Residential Trends

Commercial construction experienced its first growth since March 2022, while residential construction is declining at a slower pace. However, civil engineering dropped in July after three months of growth, despite strong performance in June. The outlook for the construction sector remains grim, with low confidence among companies. New orders are falling due to high prices and cautious customers, negatively affecting residential construction. Employment has declined for 40 straight months, and while input prices have risen for five months, they are now increasing at a slower pace than usual. As of August 6, 2025, the small improvement in Germany’s construction PMI appears more like a trap than a genuine trend. We view the rise to 46.3 as a minor correction in a deep recession, not a recovery sign. Traders might consider this an opportunity to establish short positions by selling out-of-the-money call options on construction giants like Hochtief, capitalizing on the still-bleak overall outlook. The contrast between improving commercial work and weak residential building suggests a pairs trading opportunity. We recommend going long on companies focused on commercial and infrastructure projects while shorting firms that concentrate on residential housing. Heidelberg Materials’ recent Q2 2025 earnings reflect this difference, showcasing strength in commercial segments but ongoing struggles in housing.

Broader Economic Consequences

This weak data from a key sector supports our bearish view on the overall German economy. With the most recent inflation figures around 2.5%, the European Central Bank has limited options for cutting rates to boost growth. This situation is likely to restrain the DAX index and exert downward pressure on the EUR/USD exchange rate in the coming weeks. Looking ahead, the drop in new orders and the 40th consecutive month of declining employment are crucial signals for us. They indicate there is no genuine demand to support a sustained recovery, echoing sentiments from false starts in 2023 and 2024. Therefore, any strength in the sector should be seen as a temporary bounce and an opportunity to buy put options on German real estate ETFs. Create your live VT Markets account and start trading now.

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Gold prices are on the rise after a recent boost from disappointing Non-Farm Payroll (NFP) data. This trend is linked to a softer outlook on interest rates. Upcoming US Jobless Claims and Consumer Price Index (CPI) reports are expected to influence the market further. Jobless claims may reduce worries about the job market, while a higher CPI could create more uncertainty. Overall, gold is likely to keep climbing as real yields are expected to fall due to possible easing from the Federal Reserve.

Gold’s Technical Overview

In the daily chart, gold is moving up towards the important resistance level at 3,438. Sellers may jump in at this point, trying to push the price down to the 3,245 support level, while buyers hope for a breakout to higher prices. The 4-hour chart shows the price is stable between 3,349 and 3,385, with both buyers and sellers trying to steer the direction of the market. The 1-hour chart hints that buyers could push past 3,385, while sellers might aim to drop below 3,349. As we wait, tomorrow’s US Jobless Claims will likely set the next direction for the market. As of August 6, 2025, gold is showing positive movement after last Friday’s weaker jobs report. The metal is gaining slowly, mostly due to momentum, as everyone waits for significant economic updates. We think this trend could continue for another couple of days. All attention is on tomorrow’s Jobless Claims and next week’s inflation report. For the August 7th jobless claims, analysts expect a small drop to about 220,000, indicating that the job market isn’t weakening too rapidly. This could limit gold’s upward movement for now.

Impact of Economic Indicators on Gold

Next week’s Consumer Price Index (CPI) report will be crucial. Recent data from July 2025 shows core inflation stubbornly staying above 3.5%. If the CPI is high again, it might scare the market and lead to a quick drop in gold prices. On the other hand, a lower number may push gold prices higher. Looking at the big picture, we believe the outlook for gold is strong. The market currently sees a greater than 70% chance that the Federal Reserve will lower interest rates at the September meeting, which supports assets like gold that don’t yield returns. We expect real yields to keep falling from their highs earlier this year, which should help gold rise over time. This situation has been seen before during the Fed’s easing cycle in 2019 when decreasing real yields led to a significant gold price rally. Short-term dips may happen, but the overall environment favors rising prices. These dips can present good buying opportunities. For traders dealing in derivatives, the current range between 3,349 and 3,385 is key. A strong break above 3,385 could suggest buying call options, anticipating a move towards the main resistance around 3,438, where traders can lock in some profits. In contrast, if the price falls below the 3,349 support level, it might drop to 3,245. In this case, traders could consider buying put options to benefit from the decline. This approach provides a clear way to manage risk in a potential short-term downturn. Create your live VT Markets account and start trading now.

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Dip Buyers are Taking Action

Dip buyers are showing interest again after a rough start to August. Today, European indices and US futures are both rising. This comes after some choppy trading where maintaining gains has been tough. We view this increase as cautious, rather than a strong rally, especially in light of recent weak US services data. This uncertainty is also seen in options pricing. The VIX, which measures expected volatility, has stayed around 18 this week. This is higher than the calm periods we experienced in the second quarter. The increased premium means it’s costlier to buy protection, but it also offers better returns if you sell it. For traders who think this bounce could be short-lived, buying put spreads on indices like the DAX or S&P 500 could be an affordable way to prepare for another market drop. The sudden sell-offs we saw at the end of 2023 remind us to stay alert for quick changes. Since purchasing outright long puts is expensive now due to the high implied volatility, using spreads can lower the initial costs.

Alternative Trading Strategies

If we think the market will stay in its current range, selling premium might be appealing. For example, an iron condor on the Euro Stoxx 50 could profit if the index remains between two specific price points in the coming weeks. This strategy takes advantage of the market’s unclear direction right now. All eyes are now on the upcoming inflation reports. The latest US CPI figures are set to be released next week, which have been major market movers over the past two years. If the number is higher than expected, it could quickly dampen today’s positive mood and trigger another wave of selling. Create your live VT Markets account and start trading now.

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