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The Fed kept interest rates steady, leading to disagreement among two members, while Canadian policy stayed the same, underscoring uncertainty.
The Federal Reserve has kept interest rates steady, but two members disagreed, pushing for a 25 basis point rate cut. Chairman Powell indicated that consumer spending is slowing down and private sector job growth is weaker, though he chose a cautious path due to strong economic fundamentals. He highlighted that inflation is still above the 2% target, and the effects of future tariffs remain uncertain. The Fed will review upcoming inflation and employment reports before their next meeting in September.
In the currency market, the US dollar gained significantly. The EUR/USD fell below important levels, and the USD/JPY rose, nearing its 200-day average. The GBP/USD remained bearish, while the USD/CHF hit new highs. Both the USDCAD and AUDUSD saw major movements, with the USDCAD rising above crucial levels, indicating a potential bullish turn.
Michele from JPMorgan expects the Fed to keep interest rates steady while waiting for more economic data.
The U.S. Federal Reserve is expected to keep interest rates the same at its September meeting. Policymakers are waiting for more economic data before making any changes.
Although inflation has dropped from its highest point, it is still above the Federal Reserve’s target of 2%. This means the Fed is likely taking a cautious approach and has no immediate plans to change policy.
Potential Rate Cut Timeline
The market thinks the Fed will take its time before lowering rates. The earliest chance for a rate cut is now seen in 2025. We believe the Federal Reserve will hold interest rates steady at its September 2025 meeting. More economic data is needed before any changes can be made. This indicates the market will be in a waiting period. Inflation remains stubbornly above the 2% target, although it has cooled significantly from its peak. The June 2025 Consumer Price Index report showed headline inflation at 3.1%. This highlights the challenge of fully controlling inflation, justifying the Fed’s cautious stance. The job market is also too strong for an immediate policy change. The June 2025 jobs report showed an increase of 210,000 jobs. This robust labor market gives the Fed reason to keep rates higher for longer without triggering a major economic downturn. As a result, expectations for the first rate cut have been pushed to late 2025 or early 2026.Market Outlook and Trading Strategies
For derivative traders, this outlook suggests it may be beneficial to place trades that bet on a market with limited movement in the coming weeks. Strategies like selling volatility with iron condors on stock indices could take advantage of a market that is waiting for direction. The CBOE Volatility Index (VIX) is currently low, indicating a lack of immediate market trends. Traders should stay alert for sudden changes around key data releases. Any unexpected weakness in the August payrolls report or a surprise dip in inflation could quickly change market expectations for future Fed meetings. Being nimble is important in this environment, using defined-risk option spreads instead of making outright directional bets. Looking back to mid-2023 and early 2024 can help us understand how to navigate this situation. During that time, the Fed was also on hold, and the markets tended to move sideways between data releases. This suggests focusing on short-term opportunities, rather than committing to long-term trends until clearer signals emerge from the Fed. Create your live VT Markets account and start trading now.Asia’s economic updates: Japan’s interest rate decision and China’s contrasting PMIs analysis
Today’s economic calendar in Asia features two important events: the Bank of Japan’s interest rate decision and the release of PMIs from China. The official PMIs from China’s National Bureau of Statistics (NBS) will be released today, while the Caixin/S&P PMIs will follow in the coming days.
Differences Between NBS and Caixin PMIs
The NBS and Caixin/S&P Global PMIs are different in several ways. The NBS PMI is produced by a government agency and focuses on large, state-owned enterprises across different industries. In contrast, the Caixin PMI comes from the private sector and targets small and medium-sized enterprises (SMEs) that are more exposed to market conditions. There are also differences in sample sizes: the NBS surveys around 3,000 firms, while Caixin surveys only 500. The NBS PMIs are released monthly at the end of each month and cover both manufacturing and non-manufacturing sectors. The Caixin PMIs are reported early the following month and only include manufacturing and services data. The NBS PMI tends to reflect government-influenced economic stability, whereas the Caixin PMI reacts more to market changes. Both indices have their importance: the NBS gives a broad overview of China’s economy, while Caixin highlights the more vibrant private sector. Later today, the Bank of Japan will release a statement and an updated outlook report. Governor Ueda’s press conference will take place at 0630 GMT. The Bank of Japan’s timing can vary, so the report may not be released at a specific time. Tomorrow’s meeting of the Bank of Japan and the release of China’s PMIs are key events to watch. These figures could influence market direction and volatility in the coming weeks. Traders in derivatives should be prepared for potential market movements based on these outcomes.Trading Strategies and Market Implications
We’ve noticed a consistent split in China’s data over the past year, and tomorrow’s figures are likely to continue this trend. For instance, in June 2025, the official NBS PMI was a modest 50.2, while the Caixin manufacturing PMI signaled stronger activity at 51.4. This difference between state-led sectors and private enterprises presents unique trading opportunities. With this divergence, consider using options strategies on Chinese equity ETFs to benefit from rising volatility in either direction. If the official PMI falls short, it may negatively impact commodity prices like copper, suggesting a cautious approach or put options on mining stocks. However, a strong result from Caixin could lift sentiment for certain tech and export-focused stocks. Regarding the Bank of Japan, the primary focus should be on future policy signals rather than just the decision on rates tomorrow. Recall that in March 2024, the Bank of Japan ended negative interest rates, significantly affecting the yen’s value. Since then, their approach has been very gradual. Japan’s core inflation has stubbornly stayed above the 2% target, recently reaching 2.5% in June 2025, putting pressure on the central bank to take action. The yen has also remained weak, hovering near 150 against the dollar for much of the past year, which impacts the economy. A hawkish tone from Governor Ueda could lead to a major shift in the market. Traders should consider positioning for a stronger yen in the upcoming weeks, possibly by using JPY call options or by shorting USD/JPY futures. Implied volatility on yen currency pairs is likely to increase around and after Governor Ueda’s press conference, so being prepared for this volatility is essential. Create your live VT Markets account and start trading now.Australian dollar under pressure near 0.6450 as US dollar demand rises ahead of decisions
The Australian Dollar is now trading at its lowest point for July, around 0.6450 against the US Dollar. This drop comes after strong demand for the US Dollar due to encouraging US economic data and expectations surrounding the Federal Reserve’s upcoming monetary policy announcement.
Australian Inflation Data
Australia’s Consumer Price Index (CPI) increased by 0.7% in the second quarter of 2025. This was lower than the previous quarter’s rise of 0.9% and fell short of the expected 0.8%. The Reserve Bank of Australia’s Trimmed Mean CPI went up by 0.6% quarterly and 2.7% annually, also slightly missing forecasts. In June, the annual CPI rose to 1.9%, down from 2.1% in May. Following this news, the AUD/USD pair dropped below 0.6500. In the US, 104,000 new jobs were created in July, exceeding the expected 78,000. The GDP grew by 3% in the second quarter, outperforming the anticipated 2.4%. Market speculation is focused on the Federal Reserve’s upcoming rate decision. Many expect the central bank to keep interest rates steady. US President Donald Trump has called for a rate cut, considering the country’s economic situation. The AUD/USD pair has seen continued declines, staying below key support levels. Short-term support is noted at 0.6437, with resistance around 0.6470.Market Analysis
The Australian Dollar is falling because local inflation is lower than expected. This reduces the likelihood that the Reserve Bank of Australia will raise interest rates, which weakens the currency. This is quite different from the strong US economy. Given this contrast, we suggest that currency traders consider buying put options on the AUD/USD pair. This strategy can be profitable if the currency continues to drop. It allows you to bet on the decline of the Australian Dollar while knowing your maximum potential loss. Our outlook is further supported by recent data from China, Australia’s largest trading partner, which showed that factory output slowed in June 2025. This typically leads to less demand for Australia’s raw materials, putting more pressure on its currency. Additionally, we learned last week that Australian consumer confidence hit a six-month low. In contrast, the US economy appears very strong. Recent data showed a 3% growth and an addition of 104,000 jobs in July. Just last week, Federal Reserve officials indicated that they are not in a rush to cut interest rates. This underlying strength should help keep the US Dollar in demand. This situation recalls the period from 2018 to 2019 when the US raised rates while Australia did not. That policy difference caused the AUD/USD to drop by over 10%. History indicates that when these two economies move in opposite directions, the trend can last for a while. We are closely monitoring the 0.6437 price level. If it drops below this, we could see a quicker decline toward 0.6350. Any bounce back toward the 0.6470 level may present an opportunity to make bearish bets. The upcoming Federal Reserve announcement will be a significant event that will impact the market. Create your live VT Markets account and start trading now.Rabobank forecasts EUR/USD will rise in the next six to twelve months after a recent drop
The EUR/USD is facing challenges after a recent decline. The pair was expected to adjust, but it has already hit a target of 1.15.
In recent months, EUR/USD has seen a prolonged rally. Current market data shows a short position on the USD while investors remain optimistic about the EUR. This situation could lead to short-covering favoring the USD.
Eurozone Economy
Despite some recent weakness, the EUR has been one of the top-performing G10 currencies, gaining almost 6% against the USD since mid-March. Germany’s fiscal policies are helping stimulate the Eurozone economy. Europe depends on the US for NATO support, especially given the situation in Ukraine. However, uncertainties around energy prices and trade agreements are challenging for European exporters. A strong EUR is not beneficial for these exporters. We expect the EUR to soften in the coming months, particularly with anticipated Fed rate cuts in 2026, which may lead to a rise in EUR/USD in the next 6 to 12 months. This information carries risks and is not financial advice. It’s wise to do comprehensive research before making investment decisions, keeping in mind the associated risks.Market Positioning
The EUR/USD pair is having trouble staying above 1.15 after its notable increase. The rally since mid-March appears to be overstretched, making a downward correction likely. Since the pair has already met its forecast, caution is warranted for any potential gains in the short term. Market positioning shows a crowded trade, with many investors holding long positions on the Euro and short positions on the USD. The latest Commitment of Traders report indicates these long Euro positions are near record highs for 2025, suggesting a quick reversal is possible. Such crowded positioning often leads to sharp price movements as traders adjust their bets, which would favor the dollar. A strong Euro at this level does not support European exporters, particularly with energy costs uncertain as winter approaches. In past cycles, like in the late 2010s, a rapidly rising Euro has prompted comments from European Central Bank officials. Thus, we should think about strategies that could profit if the Euro declines, such as buying put options. With this outlook for the upcoming weeks, traders may want to position themselves for a weaker EUR/USD. This strategy could involve buying put options to bet on a drop below key support levels, perhaps targeting around 1.1350 initially. Selling call options or setting up bear put spreads could also be effective ways to prepare for a decline while managing trade costs. However, it’s important to note that this bearish view is only for the short term. The possibility of the Federal Reserve cutting interest rates in 2026 provides a floor for how much the EUR/USD might drop. Any short-term trades should come with a clear exit strategy to prepare for the longer-term trends. Create your live VT Markets account and start trading now.A cautious commentator noted complacency and possible hawkishness from the FOMC in light of strong labor market conditions.
The article addresses concerns about the recent Federal Open Market Committee (FOMC) meeting. There are no expectations for a rate cut, but the article cautions against complacency and warns of a more hawkish statement or news conference than expected.
The U.S. labor market shows little slack, and inflation indicators point to underlying upward pressure. The article mentions that two dissents are expected, including one from Fed Governor Waller, which might be seen as an attempt to gain favor with Trump.
Concerns About Complacency Confirmed
We were right to be cautious about the Federal Reserve. The statement from today’s meeting and the following press conference proved our fears about complacency. The tone was more hawkish than the market anticipated, confirming worries about a strong labor market and ongoing inflation. Recent data supports this stance. The June 2025 Core PCE inflation report showed an increase of 3.1%, indicating that price pressures are not easing towards the 2% target as quickly as hoped. Additionally, the labor market remains strong, with the latest jobs report indicating a gain of over 220,000 jobs, keeping unemployment steady at 3.9%. For derivatives traders, this suggests that volatility may increase in the coming weeks. The CBOE Volatility Index (VIX), which has been around a low of 14, could see a significant rise as the market processes the likelihood of no rate cut in September. We experienced a similar situation in 2022 when unexpected hawkishness from the Fed led to sharp increases in market uncertainty.Adjusting Trading Strategies
Traders should rethink options related to short-term interest rates. Any bets on immediate rate cuts are now opposing the Fed, which is not a wise strategy. Instead, consider strategies that benefit from rates staying higher for a longer time, such as selling out-of-the-money Fed Funds futures calls or buying puts. This environment also necessitates protective strategies in the equity markets. A hawkish Fed increases the risk of a market downturn, making it wise to buy put options on indices like the S&P 500 or rate-sensitive sectors like technology as a solid hedge against potential losses. The unexpected hawkish stance today makes these defensive strategies even more urgent. Finally, the two dissents we anticipated, especially from Governor Waller, add an element of political uncertainty to future Fed policy. This complicates long-term rate forecasts beyond just economic data. As a result, even longer-dated options may carry a higher premium due to this unpredictability. Create your live VT Markets account and start trading now.Meta rises 9.05% and Microsoft increases by 6.5% in after-hours trading following earnings reports
Meta Platforms and Microsoft both reported strong quarterly earnings, exceeding expectations for revenue and earnings per share (EPS).
Meta’s Q2 2025 results showed an EPS of $7.14, higher than the forecasted $5.85. Their revenue reached $47.52 billion, surpassing the anticipated $44.87 billion.
Similarly, Microsoft’s Q2 2025 results revealed an EPS of $3.65, which is more than the projected $3.35. Their revenue was $76.44 billion, exceeding the expected $73.76 billion. In specific business segments, Intelligent Cloud earned $29.88 billion, beating the $29.1 billion forecast. The More Personal Computing segment brought in $13.5 billion, surpassing the $12.64 billion estimate. Productivity & Business Processes reported $33.1 billion, topping the anticipated $32.2 billion.
Market Reaction
These results show continued growth in cloud services, personal computing, and productivity. After the announcements, Meta’s shares rose by 9.05% in after-hours trading, while Microsoft’s shares increased by 6.5%. These strong financial results highlight the resilience of major tech companies, even in challenging economic conditions. With impressive earnings from Microsoft and Meta, we can expect increased optimism in the tech sector. High implied volatility in both stocks at market open provides an opportunity for sellers to profit. Traders might consider selling out-of-the-money puts or put credit spreads to take advantage of the anticipated volatility and collect premiums. This strong performance will likely have a positive impact on the broader market, especially the Nasdaq 100 index. Microsoft and Meta together make up over 14% of the QQQ exchange-traded fund. Their joint success creates favorable conditions for bullish strategies on the index, like buying call spreads, in the coming weeks.Economic Context
These results come at a crucial time, addressing recent market concerns. After the June 2025 CPI report showed core inflation stubbornly at 3.2%, worries of an economic slowdown were increasing. The strength in tech earnings offers a positive narrative, illustrated by the VIX, the market’s fear gauge, which has fallen below 14 in overnight trading. We witnessed a similar situation in early 2024 when excitement about AI developments drove tech stocks up, lifting the whole market. This shows how tech leadership can counter broader economic worries. Current results suggest we may be entering another phase where the strength of big tech influences market trends. In the coming weeks, the focus should be on bullish, risk-defined positions instead of chasing immediate price increases. Look for minor pullbacks in these leading stocks to start long positions using options like call debit spreads. However, it’s vital to monitor upcoming economic data, as it will determine whether this tech-led rally can maintain momentum through the quarter. Create your live VT Markets account and start trading now.President Trump renews appeal for lower interest rates after strong US economic growth statistics
President Donald Trump has once again asked the Federal Reserve to lower interest rates. This comes after the US economy grew by 3.0% from April to June, which was better than expected. Most experts think the Fed will keep its interest rates between 4.25% and 4.50%.
The Federal Reserve mainly determines US monetary policy, aiming to maintain price stability and full employment. Adjusting interest rates is their primary method, which affects the US Dollar. When rates go up, the Dollar usually strengthens because it attracts foreign investment. Conversely, lower rates can weaken the Dollar.
Federal Open Market Committee Meetings
The Federal Open Market Committee (FOMC) meets eight times a year to review economic conditions and make monetary policy decisions involving twelve Fed officials. In times of crisis, the Fed uses Quantitative Easing (QE) to boost credit flow. QE involves creating money to buy high-quality bonds, which generally weakens the US Dollar. On the other hand, Quantitative Tightening (QT) stops these bond purchases and usually supports a stronger Dollar. This monetary policy information is for your reference only and not investment advice. It’s wise to conduct independent research before making any investment decisions involving potential risks and losses.Calls for Interest Rate Cuts
There are renewed requests from the administration for the Federal Reserve to cut interest rates to help the economy. The Fed has already reduced the Fed Fund Target Range to 3.75%-4.00% this past year. However, many expect the Fed to keep rates steady at their next meeting. The Fed’s careful approach is logical, given the latest economic data. In June 2025, the Consumer Price Index (CPI) showed inflation at 2.8%, which is still above the Fed’s 2% target. Although GDP growth for Q2 was a modest 1.9%, this doesn’t indicate an urgent need for stimulus, allowing the FOMC to be patient. This scenario seems similar to 2019 when the previous administration pushed for rate cuts amidst stronger 3.0% GDP growth. Now, with the economy appearing less stable, the Fed faces a tougher decision. For traders in derivatives, the mix of political pressure and economic data creates chances for volatility in the U.S. Dollar. With the US Dollar Index (DXY) around 104, any unexpected dovish comments could lower it. Conversely, a solid, hawkish stance could cause it to rise. We suggest considering long straddles or strangles on currency ETFs like UUP to prepare for a significant price swing without committing to a direction. Investors can also look at interest rate futures to speculate on the Fed’s upcoming actions. Current contracts for Secured Overnight Financing Rate (SOFR) futures suggest a strong likelihood of a rate hold in the next quarter. If you believe the Fed will respond to pressure and announce a surprise cut, buying these futures might be a smart move. Create your live VT Markets account and start trading now.Bank of Canada’s Governor addresses the media after keeping the policy rate at 2.75%
The Governor of the Bank of Canada addressed questions about the bank’s decision to keep the interest rate at 2.75%. Despite unpredictable trade policies in the US, the Canadian economy is holding strong, showing modest growth in consumption expected for the third and fourth quarters.
The Bank of Canada’s policy statement indicates uncertainty due to US tariffs. GDP growth and inflation expectations vary in different scenarios, but they mostly hover around 2% for the next few years. In the second quarter, Canadian exports dropped by about 25%, while imports fell by roughly 10%, widening the output gap.
Canadian Dollar Performance
The Canadian Dollar is weak right now due to ongoing buying of the USD, with USD/CAD trading above 1.3800 after the BoC’s decision. The Canadian Dollar shows varying strength against major currencies today, performing best against the Australian Dollar. The next interest rate decision by the Bank of Canada is likely to keep the rate at 2.75%. The Canadian Dollar has bounced back from earlier lows, showing that the market is still adjusting. Economic indicators and other factors could influence future projections. The Bank of Canada is remaining cautious, holding its interest rate at 2.75% for now. This careful approach comes from uncertainty over US trade policy and a domestic economy that is under pressure. For the time being, expecting a strong Canadian Dollar in the coming weeks might not be realistic.Rate Differential Impact
The interest rate gap between Canada and the United States, with the Fed funds rate at 3.50%, makes holding US dollars more attractive. With USD/CAD above 1.3800, there’s a chance the Canadian dollar could decline further. We are exploring strategies that profit from a rising USD/CAD, such as buying call options. The significant 25% decline in our exports during the second quarter highlights the current vulnerability of our economy. This unpredictability leads to market swings, and we should expect this volatility to continue. Strategies that benefit from price movements, regardless of direction, are particularly appealing in this environment. Recent data supports this cautious outlook. Statistics Canada reported that June 2025 inflation was 2.1%, below the bank’s target. Looking back at the trade disputes from 2017-2019, we saw similar pressures that weakened the Canadian dollar. This historical pattern suggests we should brace for further challenges this quarter. Implied volatility on USD/CAD options has already reached a 12-month high, showing the market expects larger moves. With a hesitant central bank and weak economic data, the Canadian Dollar’s path appears to be downward. Buying Canadian dollar puts or setting up put spreads could be a smart move given this outlook. Create your live VT Markets account and start trading now.Major US indices closed mixed, with NASDAQ gaining and Dow and S&P declining.
The NASDAQ index ended the day up, bouncing back from a dip into the negatives. It increased by 31.38 points, or 0.15%, closing at 21,129.67.
Meanwhile, the S&P index fell for the second day in a row, down by 7.96 points, or 0.12%, to close at 6,362.90. The Dow industrial average also went down, dropping 171.71 points, or 0.3%, ending at 44,461.28.
