NZD/USD edged up in the Asian session on Wednesday and traded just above the mid-0.5800s. Gains were limited, with little follow-through ahead of the Federal Open Market Committee (FOMC) rate decision. The pair remained below the 200-day Simple Moving Average (SMA). Traders awaited the two-day FOMC outcome due later in the North American session before taking new positions.

Dollar Consolidation In Focus

The US Dollar consolidated after pulling back from its highest level since May 2025. A firmer tone in equity markets reduced demand for safe-haven assets and supported the New Zealand Dollar. Expectations that higher crude oil prices could lift inflation added support to the US Dollar. Reduced expectations for near-term Federal Reserve rate cuts also limited USD declines. Middle East tensions also restrained risk appetite and supported the US Dollar. These developments helped cap NZD/USD gains. On Tuesday, Iranian security official Ali Larijani and Basij commander Gholamreza Soleimani were reported killed in Israeli air strikes. Iran’s army said it would retaliate for Larijani’s death, while the US military said it targeted sites along Iran’s coastline near the Strait of Hormuz, described as a critical energy chokepoint.

Key Levels And Policy Crosscurrents

We are seeing the NZD/USD pair hovering above the mid-0.5800s, but it’s clearly struggling to gain any real traction ahead of the big FOMC decision. The pair remains capped below its 200-day moving average, signaling that traders are hesitant to push it higher without a clear signal from the US Federal Reserve. This indecision suggests that the market is bracing for a significant move. The core issue is the market’s shifting expectation for Fed rate cuts, which is keeping the US Dollar strong. With US CPI inflation data last week coming in at a persistent 3.4% year-over-year, the odds of a rate cut at this meeting have plummeted to just 15% according to the CME FedWatch tool. We saw how similar stubborn inflation readings in late 2025 pushed rate cut expectations further out, and that dynamic is supporting the dollar now. At the same time, geopolitical tensions in the Middle East are providing a floor for the dollar’s value due to its safe-haven status. The recent events involving Israeli strikes on Iranian officials and US military action near the Strait of Hormuz—a chokepoint for nearly 20% of global oil supply—are keeping traders on edge. This backdrop favors holding dollars and limits the appeal of riskier currencies like the Kiwi. Looking back to the volatility we experienced in the second half of 2025, any subtle shift in the Fed’s language caused sharp, multi-day moves in currency pairs. We should expect similar sensitivity today, meaning the current quiet period is likely to end abruptly after the announcement. This suggests that a directional bet placed now is highly speculative. Given this uncertainty, traders could consider options strategies that profit from a spike in volatility, regardless of the direction. Buying straddles or strangles allows a trader to benefit from a large price swing, which is a likely outcome following the Fed’s statement and press conference. This approach hedges against the risk of guessing the direction incorrectly in a news-driven market. However, we must also consider that the Reserve Bank of New Zealand is running its own restrictive policy, holding its cash rate at 5.5% to fight domestic inflation. This provides some underlying support for the Kiwi and could mute the pair’s downside if the Fed’s message is less aggressive than anticipated. This tug-of-war between two hawkish central banks explains the current tight trading range. Create your live VT Markets account and start trading now.

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AUD/USD rose to about 0.7115 in Asian trading on Wednesday. The Australian Dollar gained against the US Dollar after a 25 bps rate rise by the Reserve Bank of Australia (RBA). The RBA lifted the Official Cash Rate by 25 bps to 4.10% from 3.85% at its March meeting. This followed another 25 bps increase in February, making it the second straight rise this year.

Rba Signals Inflation Focus

The RBA said inflation was still too high and noted concerns about second-round effects from higher energy costs linked to the Middle East conflict. The bank also said the latest move did not set a fixed course for future policy. Markets expect the US Federal Reserve to leave rates unchanged at its March meeting on Wednesday. Jerome Powell is set to hold a press conference before his term ends in May. Some analysts think the Fed may not cut rates until October or December 2026 due to geopolitical uncertainty. The Fed decision is due later on Wednesday. We see a clear policy split forming between the Reserve Bank of Australia and the US Federal Reserve. The RBA just pushed its interest rate to 4.10% yesterday to fight inflation, while the Fed is widely expected to stay on hold later today. This widening interest rate difference should continue to support the Australian dollar over the US dollar.

Trading Implications For Audusd

The RBA’s move is understandable, as Australian inflation was still running at 3.8% at the end of 2025, remaining stubbornly above the central bank’s target band. In contrast, the US economy is showing signs of moderation, with the February jobs report indicating a gain of a solid but not inflationary 190,000 positions. This gives the Fed reason to pause and assess the impact of global tensions. For traders, this suggests a bullish stance on the AUD/USD pair in the near term. Buying call options with strike prices around 0.7200 could be a strategy to capitalize on expected upward momentum over the next few weeks. This approach allows traders to define their maximum risk to the premium paid for the option. However, we must consider that implied volatility is currently elevated, with one-month options pricing in around 9.5% of expected movement, making them more expensive. A surprise hawkish tone from the Fed today remains the primary risk that could reverse the pair’s direction. To manage costs and risk, using a bull call spread might be more prudent than buying calls outright. Looking ahead, the uncertainty surrounding the US dollar will persist as Fed Chair Powell’s term ends in May. The market has pushed expectations for the first Fed rate cut out to late 2026, which should provide a floor for the dollar. This suggests the AUD/USD’s climb may be a steady grind higher rather than a sharp rally. Create your live VT Markets account and start trading now.

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On Wednesday, the People’s Bank of China (PBoC) set the USD/CNY central rate at 6.8909 for the next trading session. This compared with the previous day’s fix of 6.8961 and a Reuters estimate of 6.8798. The PBoC’s main monetary policy aims are price stability, including exchange rate stability, and supporting economic growth. It also works on financial reforms to open and develop China’s financial market.

Governance And Independence

The PBoC is owned by the state of the People’s Republic of China, so it is not an autonomous body. The Chinese Communist Party Committee Secretary, nominated by the Chairman of the State Council, has strong influence over management, and Pan Gongsheng holds both that role and the governor post. The PBoC uses tools such as a seven-day reverse repo rate, the Medium-term Lending Facility, foreign exchange actions, and the reserve requirement ratio. The Loan Prime Rate is China’s benchmark rate and affects borrowing, mortgages, and savings rates, as well as the Renminbi’s exchange rate. China has 19 private banks, including WeBank and MYbank. In 2014, China allowed domestic lenders funded fully by private capital to operate in the state-led sector. The central bank’s stronger-than-expected fixing for the Yuan today signals an intent to slow its depreciation rather than reverse its course. This action, set against a backdrop of market expectations for a weaker currency, suggests the PBOC is managing a gradual decline. Traders should therefore anticipate continued intervention to prevent any rapid sell-offs in the coming weeks.

Market Implications And Strategy

We see this move in the context of China’s mixed economic data from early 2026, where NBS figures showed retail sales growth slowing to 3.5% year-on-year for the January-February period, creating pressure for monetary easing. This contrasts with more robust export numbers, forcing policymakers into a delicate balancing act. The underlying economic weakness suggests the Yuan will remain under pressure despite these daily fixings. Looking back, the policy divergence with the West that we saw throughout 2025 has become even more pronounced. The US Federal Reserve has maintained a hawkish stance in the first quarter of 2026, holding its benchmark rate steady at 5.50% amid persistent wage inflation data. This widening interest rate differential continues to make holding dollar assets more attractive than yuan-denominated ones. Given the pressure on the currency, we don’t expect the PBOC to cut its main policy rate, the Loan Prime Rate (LPR), in the near term. Instead, it is more likely they will opt for a cut to the Reserve Requirement Ratio (RRR) for banks to inject liquidity without directly weakening the Yuan. This subtle policy move would aim to support the domestic economy while trying to maintain currency stability. For derivative traders, this environment points towards elevated volatility in the USD/CNH pair. The PBOC’s inconsistent and often surprising daily fixes create opportunities for those positioned to profit from sharp, short-term price swings. Strategies that benefit from volatility, such as buying options, should be considered over outright directional bets on the Yuan’s value. Create your live VT Markets account and start trading now.

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EUR/USD edged down after two sessions of gains, trading near 1.1530 in Asian hours on Wednesday. Movement was limited as the US Dollar held steady ahead of the Federal Reserve decision later today. Markets expect the Fed to keep rates unchanged at 3.50%–3.75% for March, based on the CME FedWatch Tool. A hold would be the second consecutive pause.

Focus On Powell Comments

Attention is on comments from Chair Jerome Powell about how higher oil prices may affect policy. Oil has risen amid Middle East tensions and resistance from US allies to President Donald Trump’s request on securing shipping through the Strait of Hormuz. The US military said it struck Iranian coastal sites near the Strait of Hormuz over threats from Iranian anti-ship missiles, Reuters reported. The BBC reported Israel said it killed senior Iranian figures, including Ali Larijani and Gholamreza Soleimani, in airstrikes. Higher energy prices are adding to inflation pressures and complicating the European Central Bank outlook. The ECB decides on Thursday and is expected to leave the Rate On Deposit Facility at 2.0% in March. Before the latest tensions, markets expected the ECB to stay on hold through 2026. Traders now price in a possible hike as early as July, and Peter Kazimir said rates could rise sooner than previously expected.

Volatility And Policy Divergence

We are now seeing the EUR/USD pair hovering around 1.0850, which is a stark contrast to the 1.1530 level we saw around this time in 2025. With both the Federal Reserve and the European Central Bank set to announce policy this week, implied volatility is picking up. Traders should be prepared for a significant move as central bank guidance diverges. Looking back to March 2025, the Fed was holding rates in the 3.50%–3.75% range, but today they sit much higher at 4.25%-4.50%. With recent US inflation data from February 2026 showing a persistent headline CPI of 3.2%, the market is now less certain about the timing of the Fed’s first rate cut this year. This uncertainty suggests that options strategies, like buying a straddle on the EUR/USD, could be useful to profit from a large price swing in either direction following the Fed’s announcement. The situation is also different at the ECB, which held its deposit facility rate at 2.0% in March 2025. Today that rate is 3.75%, and with the latest Eurozone inflation figures at 2.6%, the ECB is also in a cautious position. The rate differential between the Fed and ECB remains a primary driver, and any surprise hawkishness or dovishness from either side will move the market. We saw how geopolitical flare-ups in the Middle East during 2025 impacted oil prices and complicated monetary policy. Those tensions remain a factor today, with Brent crude oil currently trading above $85 a barrel. This persistent inflationary pressure from energy prices supports the case for buying volatility, as it creates a “wild card” that central bankers must address in their forward guidance. Therefore, we should consider that the calm before these meetings may not last. Rather than taking a direct bet on the direction of EUR/USD, it seems more prudent to position for a breakout. The key is to watch how Jerome Powell and Christine Lagarde frame the impact of stubborn inflation and energy costs on their future rate paths. Create your live VT Markets account and start trading now.

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Silver (XAG/USD) traded in a tight range in the Asian session on Wednesday. It was near $79.35 and little changed on the day, as traders awaited the FOMC rate decision. The rising trend line from $66.65 was broken near $83.45, pointing to higher downside risk. Price also sits below the rising 200-period SMA on the 4-hour chart near $83.00. The MACD moved back towards the zero line and signal line, with only small positive readings. The RSI is near 38, below the 50 level. Resistance is seen around $83.00–$83.50, where the broken trend line and the 200-period SMA meet. A move above that area could target the mid-$86.00 zone. Support is near $79.00, with further support around $78.00. A break below $78.00 may open a move towards the mid-$76.00 area. The technical analysis for this report was produced with help from an AI tool. Given the upcoming FOMC decision, we are seeing silver consolidate around the $79.35 level with a clear bearish tilt. Recent economic data supports this cautious stance, as last week’s February Consumer Price Index (CPI) came in slightly hot at 3.4%, and the latest jobs report showed a robust addition of 250,000 non-farm payrolls. These figures suggest the Federal Reserve may maintain a hawkish tone, which would strengthen the dollar and pressure silver prices. For those anticipating a downside move, purchasing put options with a strike price near $78.00 could be a viable strategy to capitalize on a break of the current support. Selling call credit spreads with the short leg above the major resistance at $83.50 offers another way to profit if silver remains capped below this key technical ceiling. This approach benefits from both a drop in price and time decay leading into the post-FOMC environment. On the other hand, if we believe the Fed might surprise with a more dovish statement, the current consolidation offers an opportunity to position for a rally. Buying call options or initiating bull call spreads upon a confirmed break above the $83.50 resistance zone would be a tactical approach. Such a move would invalidate the recent breakdown and could signal a resumption of the broader uptrend we saw develop during 2025. The immediate uncertainty surrounding the FOMC announcement makes this an ideal setup for a volatility play. A long straddle, involving the simultaneous purchase of an at-the-money call and put option, would profit from a significant price swing in either direction following the rate decision. This strategy is best employed if you expect a sharp move but are unsure of the ultimate direction. Looking back, we remember the strong rally silver experienced from the low $60s to over $85 throughout the second half of 2025, which was fueled by expectations of rate cuts. The current weakness is a direct challenge to that narrative, further evidenced by recent outflows from silver ETFs, which have seen a net reduction of over 1.5 million ounces in the past two weeks. Meanwhile, the latest ISM Manufacturing PMI of 49.5 indicates slightly contracting industrial activity, creating mixed signals for silver’s industrial demand component.

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The United States military said it targeted sites along Iran’s coastline near the Strait of Hormuz, Reuters reported on Wednesday. It said Iranian anti-ship missiles there posed a risk to international shipping. US Central Command (CENTCOM) said US forces used multiple 5,000-pound deep penetrator munitions. It said the strikes hit hardened Iranian missile sites along the coastline near the Strait of Hormuz.

Market Reaction And Immediate Pricing

At the time of writing, West Texas Intermediate (WTI) was down 0.31% on the day at $94.67. We see that U.S. forces have struck Iranian missile sites along the coast near the Strait of Hormuz. This action targets hardened facilities that were deemed a threat to international shipping. The initial market reaction has been muted, with West Texas Intermediate crude oil actually ticking down slightly. This price drop for WTI seems disconnected from the growing geopolitical risk and is likely due to domestic factors. The latest Energy Information Administration report showed a surprise inventory build of 3.2 million barrels at the Cushing, Oklahoma storage hub, easing immediate supply concerns in the U.S. market. This suggests the physical market is currently well-supplied, but this situation may not last. The key indicator for us to watch is not the spot price, but implied volatility. The CBOE Crude Oil Volatility Index (OVX) has already jumped over 15% to 42.5, showing that options traders are pricing in a much higher probability of sharp price swings in the near future. This divergence between the calm spot price and the nervous options market presents an opportunity.

Lessons From Prior Shipping Disruptions

We learned from the shipping disruptions in the Red Sea back in 2025 that the direct impact on oil production isn’t the only factor. During that period, we saw the risk premium on Brent crude widen by nearly $10 per barrel due to increased shipping and insurance costs alone. A direct conflict in the Strait of Hormuz would have a much larger and more immediate effect. The scale of the risk is immense, as nearly 21 million barrels of oil per day, or about 20% of global daily consumption, pass through this narrow waterway. Any significant disruption, or even the credible threat of one, could send prices soaring far beyond recent highs. This is not a risk that the market can ignore for long. Given the elevated volatility, we should consider buying out-of-the-money call options on Brent crude for May and June expirations. This provides exposure to a potential price spike while limiting downside risk to the premium paid. Strike prices between $105 and $110 offer a cost-effective way to position for a significant escalation. We should also monitor the spread between Brent and WTI crude. This spread, currently at $5.20, is likely to widen significantly if the crisis is localized to the Middle East, as international Brent prices would react more strongly than the more insulated U.S. benchmark. Trading this spread offers another way to capitalize on the developing situation. Create your live VT Markets account and start trading now.

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WTI, the US crude oil benchmark, traded near $95.00 in early Asian hours on Wednesday. Traders awaited the US Energy Information Administration (EIA) report due later on Wednesday. WTI rose amid fighting in the Middle East and supply disruption concerns. Iran attacked production facilities in the United Arab Emirates and Iraq on Tuesday.

Geopolitical Risk Premium Returns

The Guardian reported this was the first time since the war with the US and Israel began that Iran hit oil and gas production sites, rather than refineries, terminals, and storage. Separately, the Israeli military said Ali Larijani and Basij force head Gholamreza Soleimani were killed in Israeli air strikes. These developments increased concern about retaliation and further supply cuts, which may support prices in the near term. However, rising US stockpiles could limit price gains. The American Petroleum Institute (API) reported US crude inventories rose by 6.6 million barrels for the week ending March 13. This followed a 1.7 million barrel fall the week before, versus a market forecast for a 600,000 barrel decline. We remember the sharp spike to $95 a barrel around this time in 2025 when direct conflict in the Middle East intensified. Those attacks on production facilities, a significant escalation at the time, serve as a potent reminder of how quickly the geopolitical risk premium can inflate prices. With WTI now trading closer to $82, much of that immediate fear has subsided, but the memory keeps volatility expectations elevated.

Supply Cushion And Market Volatility

The fundamental supply picture today is vastly different from the fears that dominated last year. U.S. crude oil production remains robust, with recent Energy Information Administration (EIA) data showing output holding near a record 13.3 million barrels per day. This strong, non-OPEC supply provides a substantial buffer to global markets that did not feel as secure during the 2025 panic. That surprising 6.6 million barrel inventory build reported in mid-March 2025 was a powerful early signal of underlying market softness, which was overshadowed by conflict. We are seeing echoes of that now, as the latest EIA report showed a surprise stock build of 1.4 million barrels last week, against forecasts for a draw. This signals that demand may be softer than anticipated, a trend supported by recent slowing industrial data from China. Given this tension between persistent geopolitical risk and a well-supplied physical market, traders should consider strategies that manage volatility. Buying out-of-the-money call options provides a cheap way to gain exposure to a sudden price spike from another flare-up, while still limiting downside risk. At the same time, selling bearish call spreads could be effective, capitalizing on the strong price resistance formed by high U.S. production levels. Create your live VT Markets account and start trading now.

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Australia’s Westpac leading index (month-on-month) fell to -0.1% in February. It had been -0.04% in the previous period. The latest reading shows a slightly weaker month-on-month result than before. No further details were provided in the release.

Leading Index Signals Softer Momentum

The leading index for Australia has slipped further into negative territory, now at -0.1%. This points to a continued loss of economic momentum over the next three to six months. This fresh data reinforces the view that the Reserve Bank of Australia will be under pressure to consider easing its policy stance sooner than previously expected. We see this as a clear signal to position for a weaker Australian dollar, particularly against the US dollar. With our own interest rates likely peaking, the yield advantage that supported the AUD through 2025 is now eroding. We should consider buying AUD/USD put options that expire in the second quarter to capitalize on this expected weakness. For the stock market, this slowdown is a headwind for corporate earnings, especially in consumer-facing sectors. This aligns with recent statistics showing the unemployment rate has edged up to 4.0% and retail sales growth has stalled. Selling ASX 200 index futures or buying protective puts on major bank stocks is a prudent strategy. This economic picture is also being clouded by softer global conditions, as key commodity prices like iron ore have recently fallen below $100 per tonne, a sharp contrast to the highs we saw in 2025. This increases the likelihood of market volatility in the coming weeks. We believe buying options that profit from a rise in the S&P/ASX 200 VIX index is a cheap way to gain exposure to this uncertainty.

Bond Markets Price In Easing

In the fixed income market, the data suggests that bond yields have more room to fall. As expectations for rate cuts build, existing bond prices should rise. We can act on this by buying Australian 3-year Treasury Bond futures, positioning for the market to price in a more dovish RBA. Create your live VT Markets account and start trading now.

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Japan’s adjusted merchandise trade balance moved to a deficit of ¥374.2bn in February. In the previous period, it recorded a surplus of ¥455.5bn.

Shift From Surplus To Deficit

This marks a shift from surplus to deficit between the two readings. This sharp reversal from a surplus to a ¥374.2 billion deficit in Japan’s trade balance is a significant signal for us. The data points towards a potential weakening of the Japanese Yen, as it suggests lower international demand for Japanese goods. We should therefore consider positioning for a higher USD/JPY in the coming weeks. Traders should look at buying call options on the USD/JPY currency pair to capitalize on potential yen weakness with defined risk. Current market data shows the interest rate differential between the U.S. and Japan remains wide, with the Federal Reserve holding rates steady while the Bank of Japan maintains its accommodative stance, further supporting a stronger dollar. This fundamental backdrop makes long USD/JPY derivatives an attractive strategy. For the Nikkei 225 index, the situation is more complex, creating opportunities for volatility plays. A weaker yen is typically beneficial for Japan’s large exporters, potentially boosting their stock prices. However, the underlying trade deficit hints at slowing global demand, which could hurt the very same companies.

Nikkei Volatility Strategy

This conflicting dynamic suggests an increase in market uncertainty and implied volatility. We can exploit this by purchasing straddles or strangles on the Nikkei 225 futures, which would profit from a large price move in either direction. Implied volatility on three-month Nikkei options has already risen from 16% to 18.5% in the past week, indicating the market is already pricing in more turbulence. Looking back, we saw a similar situation in mid-2025 when rising energy import costs temporarily widened the trade deficit. That period led to a choppy but ultimately range-bound Nikkei, while the yen experienced a steady decline. This historical precedent reinforces the view that the clearest trade is on the currency. Therefore, we must also monitor commodity prices, particularly crude oil, as a key driver of Japan’s import costs. Japan imports over 99% of its crude oil, and recent data shows Brent crude prices have climbed 8% in the last month to over $90 a barrel. A sustained rise in energy costs could keep the trade balance in deficit and put continued downward pressure on the yen. Create your live VT Markets account and start trading now.

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USD/JPY slipped by less than 0.1% on Tuesday and ended near 158.90 after a narrow session. It has now fallen for two days since last week’s year-to-date high around 159.75, with the 160.00 area still holding. The Federal Reserve is expected to keep its policy rate at 3.75% on Wednesday, with markets pricing near-zero chance of a change. Focus is on the Summary of Economic Projections and Jerome Powell’s press conference, with 22 basis points of cuts priced for the full year.

BoJ Decision And Key Risks

The Bank of Japan is due on Thursday and is also expected to hold at 0.75%. Energy prices linked to the Strait of Hormuz closure are cited as a risk to Japan’s growth, while core inflation is above target and wage growth is firm. On the daily chart, the pair trades at 158.93, above the 50-day EMA near 156.50 and the 200-day EMA just below 152.70. The Stochastic oscillator is above 90, and support sits at 158.00, 156.50, 154.30, and 152.70. Resistance is at 159.50 and near 159.75, with 160.50 above that. The technical analysis was produced with help from an AI tool. We remember how the USD/JPY was poised below the 160.00 level in late 2025, with everyone waiting on the central banks. The market was trapped, reluctant to push higher before getting more clarity on policy direction from both the Fed and the Bank of Japan. That period of consolidation was a direct result of uncertainty over future interest rate differentials.

Fed Signals And Inflation Turning Points

Looking back, the Federal Reserve’s decision during that period was pivotal. While they held rates at 3.75%, their updated economic projections subtly shifted the dot plot, signaling a clearer path to the rate cuts we have seen since then. U.S. CPI data from early 2026 confirmed this disinflationary trend, with the headline figure recently falling to 2.9%, giving the Fed cover to continue its easing cycle. The Bank of Japan remained cautious in 2025, citing energy price risks, but underlying wage pressures eventually forced their hand. We saw in the spring wage negotiations that major firms agreed to an average pay increase of 4.5%, the highest in decades, which fueled expectations for further policy normalization. This fundamental shift has provided underlying support for the yen that was absent last year. From a technical standpoint, the overbought stochastic signal back in 2025 was a correct warning of exhaustion. The failure to decisively break above 160.00 led to the pullback we are now consolidating from. One-month implied volatility, which had spiked to over 10% around those meetings, has since settled into a more modest 7% range. In the coming weeks, traders should consider that the path of least resistance has likely shifted. With the Fed now in a cutting cycle and the BoJ on a slow but steady tightening path, the powerful uptrend of 2025 is no longer in control. Selling out-of-the-money call options to collect premium on any rallies toward the 158.00 level could be a prudent strategy. This view assumes a continued, orderly divergence in monetary policy. The primary risk is a surprise pause from the Fed, perhaps triggered by a rebound in U.S. service sector inflation, which has remained sticky above 4%. Such a development would challenge the current outlook and could trigger a sharp reversal back toward last year’s highs. Create your live VT Markets account and start trading now.

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