Trump and Mexican President Sheinbaum will meet today to talk about Mexico’s tariff proposal, which is due by August 1. Mexico wants to change its tariffs on different products to comply with the USMCA agreement and address other concerns. Under the current rules, products that meet USMCA standards have a 0% tariff. Non-compliant imports face a 25% tariff, with steel also at 25% and aluminum at 10%. Auto and auto parts that don’t meet the standards also incur a 25% tariff. There’s a proposal to raise this tariff to 30% starting August 1, pending further legal actions.

Potential Trade Agreement Impact

If an agreement is reached, it may require investment in the US and tackle issues like fentanyl. Trump is focused on increasing domestic auto manufacturing, but specific solutions are still unclear. These discussions may affect future trade relations between the US and Mexico. We’re closely watching for increased volatility around the Mexican peso and US companies that operate across the border. Implied volatility on peso options has already risen by 15% this past week, showing market anxiety before the August 1 deadline. This situation feels similar to the market fluctuations during the US-China trade talks in 2018. Trading the Mexican peso is a direct way to respond to this event. As of July 2025, the peso has weakened to 18.5 against the dollar due to fears of new tariffs. A surprising deal could trigger a strong rally, so buying short-term peso call options might be a good strategy to take advantage of this potential increase.

Sector Impact and Market Reactions

We’re also paying attention to the auto and industrial sectors, as they are most at risk. Last year, US auto parts exports to Mexico hit a record $35 billion, so a 25% tariff could severely disrupt supply chains. Traders may want to buy protective put options on auto ETFs or specific companies with major production in Mexico. Additionally, if talks break down, it could negatively affect the entire market. We remember how tariff announcements in 2019 led to declines in the S&P 500, and we could see a similar “risk-off” reaction again. Keeping an eye on VIX futures for any spike above the 20 level could be a wise move to protect broader portfolios. Create your live VT Markets account and start trading now.

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The USDJPY has reached a new session high, exceeding 149.53 and the 50% retracement level at 149.375. It’s also crossed the key psychological barrier of 150.00, currently sitting at 150.26. The 200-day moving average and the 50% midpoint now act as solid support levels, indicating a bullish trend when trading remains above them. The next target is the April swing high at 150.48. If this level is broken, the next resistance could be around 151.20, followed by the 61.8% retracement at 151.616.

Japanese Interest Rates

The Bank of Japan has kept its interest rates steady with no plans for an increase. With the US and EU also holding rates, Japan’s low rates lead to a weaker yen, pushing USDJPY higher. Recent US dollar purchases during dips in 2025 have added momentum to this currency pair. Now that USDJPY is clearly above 150.00, it signals a strong case for bullish strategies. The break above the 200-day moving average indicates a longer-term shift in momentum. Derivative traders might want to take positions that benefit from the pair’s continued rise in the coming weeks. This upward trend is supported by strong economic data from the US. The Federal Reserve’s decision to keep rates steady is backed by the June jobs report, which showed a robust gain of 250,000 jobs—significantly exceeding expectations. Additionally, the recent US CPI data for June is at 3.4%, placing pressure on the Fed to avoid rate cuts.

Japanese Economic Picture

On the other hand, Japan’s economic situation keeps the Bank of Japan on hold, affecting the yen negatively. The latest national inflation figures for June 2025 show only 1.8%, which is below the central bank’s target. This supports their dovish approach and increases the interest rate gap with the US, making the dollar more attractive. For derivative trades, buying call options with strike prices near the next resistance levels seems promising. Specifically, we’re looking at August and September contracts with strikes around 151.00 or 151.50 to take advantage of the possible rise. This strategy allows for upside while limiting risk to the premium paid. However, we must remember past events as we approach these higher levels. We recall the Ministry of Finance’s intervention in the fall of 2022 when USDJPY was in the 150-152 range. Traders should consider placing tight stop-losses on long futures positions or buying inexpensive out-of-the-money put options to hedge against a sudden downturn. Watch for key levels: the recently broken 200-day moving average at 149.53 and the support area at 149.37. If prices fall below these points, it would indicate a failed bullish break. As long as we remain above this zone, the path of least resistance continues to favor an upward move for USDJPY. Create your live VT Markets account and start trading now.

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The EUR/USD pair has gained slightly after a significant sell-off earlier this week. This decline was mainly due to a tough stance from the Federal Reserve and lower inflation worries in Germany. Right now, the Euro is at 1.1450, with potential resistance around 1.1460. The strength of the US economy is shown by a robust second-quarter growth, while the Federal Reserve remains careful about cutting interest rates. Recent US GDP figures show a 3% growth rate in the second quarter, which is better than expected and a reversal from the previous quarter’s decline. A new trade deal with South Korea also helps the US Dollar, along with reduced trade worries with Japan and the EU. In Germany, the preliminary CPI showed a lowered inflation rate of 1.8%, down from 2% in June. The Euro has been only slightly affected by this, even though Germany’s unemployment rate remains low at 6.2%. The Euro is trying to bounce back to 1.1450, but resistance might appear at the 1.1500 mark. Investors are focusing on the US PCE Price Index, which measures inflation, for clues about the Federal Reserve’s future actions, especially with the Nonfarm Payrolls data approaching. There’s an increasing divide between the US and European economies. The US has just recorded a strong 3% GDP growth, while German inflation has dropped to 1.8%. This difference suggests that the US Dollar will continue to be strong against the Euro. We think the Federal Reserve will be careful about cutting interest rates, especially after the sharp increases in 2023 and 2024. On the other hand, the European Central Bank might be more likely to ease its policies since inflation is below target. This growing policy gap could push the EUR/USD pair lower. Given this situation, we are considering strategies that benefit from a declining or stagnant EUR/USD. Buying put options could be a direct way to bet on the pair dropping towards the earlier 1.1300 levels. Alternatively, selling call spreads above the 1.1500 resistance level might allow us to collect premiums, anticipating that the pair won’t go higher. We are closely watching the upcoming US Personal Consumption Expenditures (PCE) data and the Nonfarm Payrolls report. We expect implied volatility to rise before these releases, making options more expensive. This environment could favor strategies that sell premiums for those who believe the 1.1500 resistance will hold strong.

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Gold prices have bounced back sharply after hitting a one-month low of $3,268. This rise is fueled by increased demand for safe-haven assets, as trade tensions rise and the US Dollar weakens slightly. Currently, gold is trading around $3,306, up 0.95% for the day, benefiting from uncertainty ahead of the August 1 tariff deadline. The trade situation remains unpredictable. President Donald Trump plans to impose final tariffs on countries that haven’t reached agreements. Recently, a 25% tariff was placed on Indian imports, and tariffs on Brazilian goods were increased. In a somewhat positive move, a 15% tariff on South Korean goods is part of a new trade agreement, but the temporary ceasefire with China is nearing its end. Key US economic reports, including the Core Personal Consumption Expenditures Price Index, are expected soon. The Federal Reserve is keeping interest rates steady at 4.25%-4.50%, which has lowered market expectations for a rate cut in September to 37.2%. Even as the Fed holds rates, Treasury yields have dropped, indicating a shift in market sentiments. Gold demand has surged, with the World Gold Council reporting a 45% increase in value over the past year. Central banks added 166 tonnes of gold to their reserves in Q2, showing they view gold as a strategic asset. The XAU/USD is trading in a range between $3,250 and $3,450, with weak technical indicators suggesting a stable market unless there’s a significant breakout or breakdown. With the tariff deadline approaching on August 1, gold is stabilizing around the $3,306 mark. This quiet period indicates that the market is waiting for clear signals from upcoming trade news. Traders should be careful of volatile moves driven by headlines. Recent market data highlights this caution: the VIX volatility index rose to 22.5 this week, its highest level in three months. Additionally, the latest CFTC report shows a 12% increase in net-long positions in gold futures held by managed money, indicating that larger traders are optimistic about price increases. Considering the $3,250 to $3,450 trading range, we recommend options strategies. A long strangle—buying both an out-of-the-money call and put—can help traders profit from significant price moves in either direction following announcements. This strategy allows traders to prepare for a breakout without committing to a specific outcome. Looking back at past trade disputes from 2018-2019 gives us insight into the current circumstances. During that time, gold prices rose over 20% as tariff escalations created uncertainty and drove investors towards safe-haven assets. A similar scenario may occur if the trade truce with China fails. Strong demand from central banks, which added 166 tonnes of gold last quarter, provides crucial support for gold prices. This institutional buying reinforces the $3,250 mark as a significant price floor, suggesting that dips toward this level may present buying opportunities. While high Federal Reserve interest rates would typically pressure gold prices, falling Treasury yields tell a different story. The market appears to believe that aggressive trade policies could weaken the economy, leading the Fed to cut rates later this year. This expectation offers support for gold, even with the current hawkish outlook from the Fed.

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US initial jobless claims stand at 218,000, lower than the estimated 224,000. Last week’s figure was 217,000. The four-week moving average of initial claims is 221,000, down from 224,500 the previous week. Continuing claims fell to 1.946 million, down from 1.955 million last week, which is below the estimate of 1.955 million. The four-week average for continuing claims is now 1.949 million, slightly down from 1.954 million.

Stable Job Market

These numbers indicate a stable job market, with a small drop in continuing claims. Chair Powell noted that the supply and demand for workers remains balanced, which supports this stability. A US jobs report is due tomorrow. The recent jobless claims show a steady labor market, which is good for the economy. Initial claims are staying below 225,000, suggesting that employers are not aggressively laying off workers. This stability eases the pressure on the Federal Reserve to change interest rates drastically. This jobs data matches the recent Core CPI reading for June 2025, which was stuck at 3.1%. With the Fed funds rate steady at 4.75% since February 2025, the market sees a low chance of a rate cut before the fourth quarter. This makes tomorrow’s employment report crucial for changing those expectations.

Volatility and Strategic Options

Given this mixed outlook, we should expect more volatility around tomorrow’s announcement. The VIX has stayed low at about 14.5 this past month, which may be too low given the uncertainty. This situation reminds us of the summer of 2023 when similar ‘good news is bad news’ reactions led to sharp market swings after jobs reports. Traders might look at options strategies that profit from significant price moves in either direction, like a long straddle on the SPY ETF. This strategy allows for gains from the expected volatility after the jobs numbers are released, whether the news is positive or negative. Alternatively, if you believe stability will continue, selling covered calls on current stock positions could earn income while we wait for clearer signals. We should carefully monitor the continuing claims numbers, as their higher level indicates some weakness despite the solid initial claims. If tomorrow’s report shows an increase in the unemployment rate or slow wage growth, it could confirm this weakness and quickly shift market sentiment. This could lead to a drop in bond yields and spark renewed anticipations for an earlier Fed rate cut. Create your live VT Markets account and start trading now.

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Canada’s GDP dipped by 0.1% in May, which was as expected. The previous month also saw a 0.1% decline. A preliminary estimate for June suggests a small GDP growth of 0.1%. The goods-producing industries faced challenges, mainly because of a slowdown in mining, quarrying, and oil and gas extraction, even though manufacturing showed some growth.

Services Producing Industries

The services-producing industries stayed mostly steady. Within this group, real estate, rental and leasing, and transportation and warehousing sectors grew. However, retail trade and public administration faced declines. Out of 20 sectors, 7 grew in May. The date today is 2025-07-31T14:55:44.645Z. These two months of slight economic drop and a weak June estimate suggest that the Canadian economy is stalling. This supports the idea that the Bank of Canada will keep cutting rates, as it began to do in June and July this year. Derivative traders should prepare for lower interest rates in the months ahead.

Economic Outlook

This sluggish trend matches recent statistics. The June 2025 Consumer Price Index (CPI) showed inflation dropped to 2.8%, while the latest Labour Force Survey revealed the unemployment rate rose to 6.2%. These numbers give the central bank a strong reason to lower rates further to boost the economy. Given this situation, the Canadian dollar may come under more pressure. The USD/CAD exchange rate has risen from about 1.35 in spring to over 1.38 now. Traders might consider buying call options on USD/CAD to prepare for further weakness in the Canadian dollar. The bond market reflects this outlook. Canadian two-year bond yields, which fell below 3.5% after the last rate cut, will likely continue to decrease. Traders should think about buying bond futures or using interest rate swaps to bet on lower short-term yields. The report’s details suggest a pairs trading strategy in equity derivatives. The ongoing weakness in the oil and gas sector, indicated by Western Canadian Select crude prices nearing $70 a barrel, makes put options on energy sector ETFs appealing. In contrast, the surprising strength in manufacturing may make selling puts on select industrial stocks a good strategy. Create your live VT Markets account and start trading now.

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Germany’s annual CPI inflation held steady at 2% in July, which is higher than the expected 1.9%. The monthly CPI rose by 0.3% after staying unchanged in June. On the other hand, the Harmonized Index of Consumer Prices increased by 1.8% year-on-year, missing the forecast of 1.9%. The euro remained stable against the dollar, trading around 1.1450 after the inflation report, showing a daily rise of 0.4%.

Understanding Inflation

Inflation measures how prices for goods and services increase over time, expressed as a percentage. Core inflation excludes unpredictable items like food and fuel. Economists and central banks pay close attention to this figure because inflation above 2% can lead to higher interest rates and a stronger currency. High inflation generally supports a country’s currency, as central banks often raise interest rates to manage it, making the currency more appealing. In contrast, low inflation can weaken a currency due to reduced attractiveness. Gold is often seen as a safe investment during periods of high inflation, though rising interest rates can make interest-earning assets more attractive. Lower inflation can help support gold prices by allowing for lower interest rates. Germany’s stable inflation impacts the euro and financial markets, influencing decision-making on monetary policy. On July 31, 2025, these inflation figures are important for the coming weeks. Since headline inflation is steady at 2%, the European Central Bank (ECB) is likely to hold off on cutting interest rates. We expect the ECB to keep its cautious approach throughout the August holiday period. This situation contrasts with the United States, where core inflation has been steadily declining, reaching 2.5% as reported in June 2025. The Federal Reserve has paused its rate hikes, leading to a policy difference that favors the euro. This is a key reason for the euro’s recent strength against the dollar.

Strategic Trading Decisions

Our trading strategies now lean bullish on the euro. We can consider buying near-term call options on EUR/USD futures, aiming for a rise towards the 1.1550 level. This strategy allows us to benefit from potential gains while limiting our risk, particularly if German economic weakness—like the recent drop in the July manufacturing PMI to 48.5—begins to impact the currency. The euro’s stability after the report indicates that implied volatility might be undervalued. There is a clear tension between Germany’s persistent inflation and its slowing industrial sector. This could lead to a sharp price movement, so buying straddles or strangles on the euro may be a smart way to profit from a big move in either direction. Looking at gold, the metal has been trading around $2,450 an ounce. With European inflation stable and not increasing, the pressure for aggressive ECB rate hikes has eased for now. This stable but high rate environment is generally favorable for non-yielding gold, making it a strong option for portfolio diversification. We remember how sharply the markets reacted to inflation reports in 2023 when central banks were rapidly increasing rates. Now, the market is more sophisticated and reacts less to small changes. This suggests we should concentrate on overall central bank policy trends instead of overreacting to a single data point. Create your live VT Markets account and start trading now.

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South Africa’s trade balance in rands rose from 21.67 billion to 22.04 billion in June. This change highlights the country’s trading activities over the month. The overall numbers give us a glimpse into how imports and exports are performing. The increase shows a shift in the trade balance. These figures are important for understanding the country’s economic situation. Keeping track of trade balances helps us see economic trends and trade relationships with other countries. In June 2025, the trade surplus increased slightly to R22.04 billion, which is a small boost for the South African rand. This improvement indicates some strength in our export sector. However, it should be seen as a stabilizing factor, not a sign of a major currency rally. This news is supported by recent data from the Minerals Council of South Africa, showing a 3.5% rise in coal exports for the second quarter of 2025. Yet, the SARB has reported a slowdown in foreign investments in July. These mixed signals suggest a tug-of-war for the currency’s direction. Global factors are also affecting the rand. The U.S. Federal Reserve has pointed out ongoing inflation, which keeps the dollar strong against emerging market currencies. This external pressure may limit any significant gains for the ZAR in the coming weeks. We also need to consider local factors, especially reports of increased load-shedding from Eskom that could reduce industrial output and future exports. This brings to mind a similar situation in early 2024 when a decent trade surplus was overshadowed by domestic power issues, resulting in ZAR weakening. This pattern suggests we should be cautious. Given these conditions, we think making clear bets on the USD/ZAR is too risky. The mixed signals indicate that the market may trade within a range rather than follow a clear trend. Thus, we recommend using strategies that benefit from low volatility, like selling strangles or iron condors on the USD/ZAR pair. This strategy allows us to earn premiums while the market absorbs the positive trade news against a strong dollar and local energy risks. We will focus on options expiring in late August and September to take advantage of this expected period of consolidation. We see more opportunities in managing volatility than in guessing the market direction.

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In June 2025, the core Personal Consumption Expenditures (PCE) in the U.S. rose to 2.8% year-over-year, slightly above the expected 2.7%. Month-over-month, the PCE increased by 0.3%, which matched forecasts. PCE prices, excluding food, energy, and housing, also rose by 0.3%, and services without energy and shelter saw a 0.2% increase compared to the previous month. The overall PCE figures showed a year-over-year increase of 2.6%, slightly ahead of the anticipated 2.5%. The month-over-month rise was in line with predictions at 0.3%, based on an unrounded PCE figure of 0.2805%, which rounded to 0.3%.

Personal Income And Expenditures

Personal income grew by 0.3%, or $71.4 billion, rebounding from a decline of 0.4% the month before. Personal consumption expenditures rose by $69.9 billion (0.3%), although actual consumption only increased by 0.1%, following a revised figure of -0.2% from last month. Total personal outlays surged by $69.5 billion, keeping the personal saving rate steady at 4.5%, which amounts to $1.01 trillion in total savings. Meanwhile, major stock indices have made gains, with the Dow Industrial average rising by 118 points, the S&P index up by 62 points, and the NASDAQ increasing by 120 points. The latest Personal Consumption Expenditures (PCE) data presents a mixed picture. Inflation remains stubborn, with the core year-over-year figure at 2.8%, slightly higher than the 2.7% that was anticipated. Consumer spending appears weak, up only 0.1% for the month. These mixed signals put the Federal Reserve in a tough situation, and traders should expect more uncertainty. The market has been hoping for the Fed to indicate a start to rate cuts after keeping rates steady at 5.25% for over a year. However, ongoing inflation makes immediate cuts less likely. After the report, the CME FedWatch tool shows the probability of a rate cut at the September meeting has dropped below 40%.

Market Volatility And Trading Strategies

For traders in derivatives, this suggests increased volatility over the coming weeks. The VIX, which measures expected stock market volatility, has been hovering just above 18, and it’s expected to stay high or even rise around future data releases. In this environment, buying options like straddles or strangles on major indices such as the S&P 500 could be a smart strategy to prepare for significant market moves in either direction. We’re also noticing personal income rising faster than spending, leading to a personal savings rate of 4.5%. This indicates that consumers are cautious despite having the capacity to spend, a trend also shown in the recent Q2 GDP estimate, which indicated growth slowing to 1.8%. This underlying weakness suggests that buying put options on indices or specific consumer-discretionary stocks may be a wise hedge. Looking back, this situation resembles the volatile markets from 2023 and 2024. During that time, each inflation report caused big intraday swings as traders adjusted based on changing Fed expectations. We should be ready for a similar pattern through August 2025, with sharp reactions to employment and manufacturing data. As a result, traders should pay attention to interest rate derivatives, as the direction of Treasury yields has become less clear. Options on Treasury futures are likely to see increased activity as the market weighs whether persistent inflation or slowing growth will catch the Fed’s attention. Employing defined-risk strategies like iron condors could be effective in a range-bound Treasury market until a clearer trend emerges. Create your live VT Markets account and start trading now.

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The US Employment Cost Index for the second quarter of 2025 rose by 0.9%, exceeding the expected growth of 0.8%. During the same period, wages increased by 1.0% quarterly, up from 0.8% before. Benefits saw a quarterly rise of 0.7%, down from the previous growth of 1.2%. This report is the best source for tracking wage growth, but it is released quarterly, unlike the more frequent Average Hourly Earnings data.

Federal Reserve Monitoring

The Federal Reserve pays close attention to this data to evaluate economic conditions in the labor market. Recent figures indicate some acceleration in wage growth, but benefits are not keeping up. Today’s Q2 Employment Cost Index data was stronger than expected, showing a 0.9% increase. Although benefits costs slowed, wages rose to 1.0% for the quarter. This suggests that wage pressures in the economy are not easing as quickly as desired. The Federal Reserve now faces a tougher challenge, as this data indicates inflation may remain high. This report follows the June 2025 CPI data, which showed core inflation stubbornly around 3.2%, well above the Fed’s target. With the Fed funds rate at 5.25%, this wage data dims the chances of a rate cut later this year. For derivative traders, this changes the outlook on future Fed policy in the coming weeks. It might be wise to position for interest rates to stay high longer, which could involve selling September or December SOFR futures contracts. Following this release, the market reacted, pushing the 2-year Treasury yield up 10 basis points.

Impact on Equity and Currency Markets

In equity markets, continued wage pressure could hinder corporate profits and stock valuations. We can expect more volatility, so buying VIX call options for August or September could be a smart hedge. Protective put options on interest-rate-sensitive indices like the Nasdaq 100 are now more appealing than they were yesterday. This scenario is also positive for the US dollar, as a more hawkish Fed increases the interest rate gap with other central banks. We can expect the dollar to strengthen against currencies like the Euro and the Yen. This reflects the trend we saw in 2023 when strong economic data consistently boosted the dollar. Looking ahead, all eyes will be on next week’s August jobs report. The market will closely examine the Average Hourly Earnings figure for signs that this ECI strength is continuing. A strong AHE figure would support this hawkish outlook and likely enhance these trading trends. Create your live VT Markets account and start trading now.

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