There is a 50-50 chance of making a deal with the EU. President Trump suggested that Powell might be considering lowering interest rates. He expects most deals to be finalized by August 1 and mentioned possible frameworks for an agreement with China. When it comes to Canada, the approach may focus on implementing tariffs instead of continuing negotiations.

Potential Communication Strategies

Some agreements might be reached through written communications instead of in-person meetings. The Federal Reserve welcomed the President’s visit, which seemed to reduce his previous criticisms. About the US dollar, President Trump made it clear that he would never support a weaker currency. He also mentioned that the US might take action against Hamas members. Given these comments, we expect market volatility to increase. The 50-50 chance of a major trade deal and the firm August deadline create significant uncertainty. We believe this will push the VIX index, currently around 13, back toward the high teens. We recommend buying options rather than selling them to prepare for this. The comments about Powell indicate a clear move toward lowering monetary policy, a view supported by market trends. The CME FedWatch Tool now shows over a 70% chance of a rate cut at the next meeting, a big shift from a few months ago. This signals that it may be wise to use interest rate futures to bet on lower rates for the rest of the year.

Currency And Equities Strategy

This dovish policy is likely to put downward pressure on the US dollar, regardless of the President’s statements. As the Federal Reserve lowers rates, the advantage of holding dollars decreases, making other currencies more appealing. We plan to buy call options on currency pairs like the Euro to Dollar (EUR/USD), expecting the dollar’s recent strength to weaken. For stocks, the situation is mixed but leans positive due to potential rate cuts. However, the risk of tariffs on Canada and possible breakdowns in negotiations with the EU suggest a careful approach. We prefer using derivatives to gain exposure to the tech-heavy Nasdaq 100, which is less affected by trade wars, rather than the industrials in the Dow Jones. The August 1 deadline set by the President offers a clear timeline for traders. Implied volatility for options expiring in late July and early August will be quite high. We plan to use calendar spreads by buying longer-term options while selling the pricier short-term ones. There is a noticeable difference in tone between negotiations with China and those involving our North American and European allies. This indicates a relative value trade favoring assets linked to a potential resolution with China. Historical data from the 2018-2019 trade war shows that Chinese stocks rebounded quickly on any signs of a deal, and we expect this pattern to occur again. Create your live VT Markets account and start trading now.

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**Corporate Impacts of Tariffs** Corporate America is feeling the effects of new U.S. tariffs. U.S. importers are primarily covering the initial costs, leading to worries about losing customers if they raise prices. Major companies like GM, Nike, and Hasbro are mostly absorbing these costs, but price increases may happen later this year. Inflation for some goods is rising, evidenced by the June Consumer Price Index jumping to 2.7% year-on-year, up from 2.4% in May. Interestingly, Chinese suppliers have lowered prices by about 20%, less than expected. Several companies are reporting financial challenges due to tariffs. GM spent $1 billion on tariffs in the second quarter but did not raise prices broadly. Stellantis faced a $350 million profit decline. Hasbro predicts a full-year tariff expense of $60 million and is planning to raise prices and cut costs. Nike estimates a fiscal impact of $1 billion and also intends to raise prices. RTX has seen profit drops due to tariffs, while Walmart has slightly adjusted some prices by managing inventory. Smaller businesses, like florists, are struggling to absorb or pass on these costs. The overall tariff burden has surged to 17% from 2.3% last year. Companies are tightening their budgets, exploring ways to boost productivity, and revising strategies while monitoring market responses. **Market Volatility and Opportunities** Given the pressures on corporate America, we believe that market volatility is mispriced right now, creating opportunities. Companies are absorbing costs rather than raising prices immediately, leading to uncertainty about future profit margins and consumer inflation. The CBOE Volatility Index (VIX) has hovered around 13-14, below its historical average of about 19. This suggests that options for hedging or speculation are relatively cheap. We expect sectors heavily reliant on imported goods, such as consumer discretionary and industrials, to perform poorly in the short term. Earnings warnings from Nike and Stellantis may signal a broader trend we’ll see in upcoming quarterly reports. Data from FactSet suggests a slight decrease in S&P 500 net profit margins for the third quarter, supporting bearish strategies on ETFs like XLY (Consumer Discretionary) and XLI (Industrials). This cost absorption might keep inflation figures lower than expected, providing the Federal Reserve a chance to cut interest rates. The latest Consumer Price Index (CPI) report showed a year-over-year increase of 3.3%, a manageable figure that supports the idea of monetary easing if it remains stable. The CME FedWatch Tool indicates over a 60% chance of a rate cut by September, a probability that may increase if companies continue to hold off on price hikes. We can look back at the 2018-2019 trade conflict for context. During that time, affected companies first experienced profit margin drops before eventually passing costs to consumers. In this period, stocks in impacted sectors initially lagged behind the S&P 500 but eventually caught up when price increases were implemented. This suggests we may see short-term weaknesses in some company stocks, followed by an eventual inflationary turn. Create your live VT Markets account and start trading now.

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The British Pound (GBP) might see some more drops, but it probably won’t go below 1.3450, with another support level at 1.3490. In the next few weeks, GBP is expected to move between 1.3450 and 1.3590. Recently, GBP fell from a high of 1.3588 to a low of 1.3504, missing the predicted resistance level of 1.3610. In the short term, GBP may dip a bit more, but it should stay above the key support levels.

Forecast for British Pound

Previous forecasts suggested a positive trend for GBP, although it was slower due to overbought conditions. This was confirmed when it dropped to 1.3504 without crossing the support level of 1.3490. Despite this decline, GBP is likely to stabilize between 1.3450 and 1.3590. It’s essential to remember that financial data comes with risks and uncertainties. Make trading decisions based on careful research. You are responsible for any risks, including possible investment losses. This information is for your reference and is not investment advice. Considering the expected movements within a set range, traders should think about strategies that benefit from low volatility. This means selling options contracts with strike prices safely outside the predicted 1.3450 to 1.3590 range. This strategy helps generate income as long as the currency stays within these limits. Recent UK economic data supports this stable outlook. The Consumer Prices Index recently met the Bank of England’s 2.0% target for the first time in almost three years, reducing the likelihood of a quick interest rate change. This economic calm strengthens our view that the pound won’t have a strong reason to break its current range anytime soon.

Economic Factors Influencing GBP

This situation is different in the United States, where Federal Reserve officials are cautious about lowering rates too quickly. The different timelines for potential rate changes between the two central banks are likely to keep the currency pair limited. For example, markets see a greater than 60% chance of a Bank of England rate cut by September, which should prevent any significant rises for the pound. A practical way to use this perspective would be to develop a strategy like an iron condor. This involves selling a call option above the 1.3590 resistance and a put option below the 1.3450 support. This strategy directly benefits from the idea that the pound will stay within these boundaries. The premium earned from selling these options acts as a cushion against minor price shifts. Historically, currency pairs often experience low-volatility phases during summer or when central bank policies are clear. Recently, implied volatility for sterling options has been decreasing, as shown by data from derivatives markets, making it more appealing for us to sell premium. This situation rewards traders who expect stability rather than a significant price change. Create your live VT Markets account and start trading now.

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EUR/CHF is stabilizing after maintaining important support levels, hinting at a potential base formation. A strong position above 0.9290 might lead to further gains, according to FX analysts. The pair bounced back after touching the previous low of 0.9210, showing a gradual rise. It recently established a higher low at 0.9290, indicating a developing base pattern and a possible continuing rebound.

Key Objectives and Resistance Levels

The next targets are around the 200-day moving average near 0.9385 and the upper limit of the current range at 0.9430/0.9445, which acts as a resistance zone. If the pair cannot stay above 0.9290, there is a risk of a deeper downtrend. This information includes forward-looking statements with risks and uncertainties. The markets and instruments discussed are for informational purposes only and should not be seen as recommendations. The author does not hold positions in the mentioned stocks and has no business ties with the companies discussed. Both FXStreet and the author are not registered investment advisors and do not provide personalized recommendations. It’s important to do thorough research before investing due to associated risks, including the chance of total investment loss. With the pair stabilizing, we see this as an opportunity for bullish derivative trades with defined risk. The bounce from the low suggests sellers are ran out of steam, making this a favorable time to consider strategies that benefit from a possible upward move. We’ll use the key level of 0.9290 as our line in the sand for any tactical moves.

Fundamental Shifts and Technical Strategies

This technical view is backed by changes in monetary policy expectations. Switzerland’s annual inflation rate dropped to 1.4% in May, giving the Swiss National Bank a strong reason to cut interest rates again, which would weaken the franc. This development supports the idea of continued rebound in the currency pair. On the other hand, inflation in the Eurozone is more persistent, recorded at 2.6% in recent estimates. This difference indicates that the European Central Bank might take longer to cut rates compared to its counterpart in Zurich. Such a policy gap usually strengthens currencies and supports our outlook for potential gains. In response, we’re considering buying call options with strike prices close to the 0.9385 moving average target. This strategy lets us take advantage of a rise toward the upper resistance boundary while keeping our maximum loss to just the premium paid. It’s a controlled way to engage in the potential rebound noted by analysts. To mitigate the risk of a downturn, we’d also think about buying put options if the pair falls below 0.9290. Historically, this pair can be highly volatile after central bank policy changes, so having a strategy to profit from or hedge against a new downtrend is wise. This approach prepares us for either scenario. Create your live VT Markets account and start trading now.

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A Reuters report says that the OPEC+ panel will likely keep its current oil policy during the upcoming review on Monday. This decision comes as they continue to assess the global oil market. OPEC+ is carefully watching how supply and demand are changing to maintain market stability. The upcoming meeting will allow them to evaluate how their policy affects oil prices and production.

Panel Decision Impact

Market participants are keenly observing the panel’s decision, which could affect future energy markets. OPEC+ remains crucial in determining global oil supply. External economic factors are also being analyzed as OPEC+ plans its next steps. The panel will consider a wide range of current data and market conditions in their assessment. With the expectation that OPEC+ will continue production cuts, we believe this news is already reflected in the market. This alleviates a significant short-term concern, shifting traders’ focus to demand trends and supply outside of OPEC+. The market will now be more responsive to other incoming data. We are closely watching demand signals, especially from China. The Caixin manufacturing PMI recently fell back into contraction at 49.5 for October, indicating weaker factory activity. This, coupled with ongoing worries about a global economic slowdown, poses a challenge for higher oil prices. These demand concerns are currently limiting the positive effects that supply cuts typically bring.

Supply Side Dynamics

On the supply front, rising U.S. production serves as a strong counterbalance. The Energy Information Administration reported that U.S. output has reached a record 13.2 million barrels per day. This significant non-OPEC+ output helps fill some of the gaps created by the cartel’s cuts, leading to a “push-pull” scenario that restricts drastic price swings in either direction. Given these conflicting factors, we expect a period of fluctuating prices and increased volatility rather than a clear trend. For derivative traders, this environment favors strategies that benefit from price variations, such as selling iron condors or strangles to earn premiums as options lose value. We see fewer chances for straightforward directional bets until there are notable changes in demand or non-OPEC supply. Historically, market responses to well-flagged production decisions are usually subdued. Attention quickly shifts to the next major catalyst, which will likely be upcoming inflation reports and comments from central banks. These elements will greatly affect the strength of the U.S. dollar, which typically moves in the opposite direction of oil prices. Create your live VT Markets account and start trading now.

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In June, US durable goods orders dropped by 9.3%. This decline was not as bad as the expected 10.8% decrease. May had seen a big jump of 16.5%, the highest since July 2014. The transportation sector saw the largest impact, falling by 22.4% or $32.6 billion. Without transportation, orders actually grew by 0.2%, slightly lower than the revised 0.6% from May. When excluding defense items, orders fell by 9.4%, down from a 15.7% rise in May, which was previously adjusted from 15.5%. Non-defense capital goods, excluding aircraft, decreased by 0.7%, compared to a 2.0% increase in May. Future factory orders will refine these preliminary numbers for June.

June Decline and Market Reaction

June’s decline marked the steepest drop since April 2020. One reason for this volatility could be President Trump’s focus on selling big-ticket items like defense equipment and aircraft to improve trade figures. Market reactions are showing slight gains: the Dow is expected to open 68 points higher, while the S&P index is anticipated to rise by 10.15 points and NASDAQ by 8.63 points. The market’s rise can be attributed to the fact that the -9.3% decline in durable goods orders was less severe than the predicted -10.8% drop, offering traders some relief. The key takeaway is that the market was prepared for even worse news. Beyond the headline number, the 0.2% increase in orders excluding transportation is particularly noteworthy. This indicates that businesses are still investing in equipment and machinery, which is a positive sign. It’s crucial to focus on this steady spending rather than the more volatile overall figures. This resilience matches other recent data. The Institute for Supply Management’s (ISM) latest manufacturing index showed improvement in the “new orders” component, moving from 45.6 to 46, suggesting that the worst of the slowdown may be in the past and that core business spending is stabilizing.

Factors Driving Swings and Trading Strategies

The major fluctuations are mainly due to transportation and defense, as Michalowski pointed out. The 22.4% drop in transportation orders significantly impacted the overall numbers. We should expect this trend to continue, leading to major market volatility each month with the durable goods report. Such a large drop is notable, harkening back to the April 2020 shutdowns. The surge the previous month was the largest since 2014, highlighting how extreme these changes have become. Politically motivated sales of aircraft and defense goods could lead to these unpredictable monthly swings being the norm. For trading strategies, this suggests using options to navigate the expected fluctuations. It would be wise to consider buying volatility or employing spreads on industrial sector ETFs. This approach can help manage or profit from sharp market moves. The contrast between the erratic overall figures and the steadier core data presents opportunities for traders who can look deeper. Create your live VT Markets account and start trading now.

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The European Central Bank (ECB) is likely to keep interest rates stable after making eight cuts. The economic outlook has shown a bit of improvement since June. This cautious approach seems wise given the current uncertainties. Market predictions indicate a 50/50 chance of another rate cut by December.

Policymaker Comments Indicate a Pause

We interpret the comments from policymakers as a clear sign that the cycle of rate cuts is likely paused for now. This pause means that traders expecting significant rate cuts may need to rethink their strategies. The focus has shifted from how many more cuts there will be to how long rates will stay the same. Recent data supports this stance. Eurozone inflation unexpectedly rose to 2.6% in May, up from 2.4% in April. Additionally, strong wage growth of 4.7% in the first quarter gives the central bank a solid reason to wait. This persistent inflation makes another quick cut unlikely. Given varying expectations for moves by the end of the year, we expect increased volatility in euro-denominated assets. Traders may want to consider buying straddles or strangles on indexes like the Euro Stoxx 50. These strategies can benefit from significant market moves in either direction.

Adjusting Positions in Interest Rate Swaps

We recommend adjusting positions in interest rate swaps to reflect a longer period of higher rates than previously thought. The forward curve may still indicate a higher chance of rate cuts than what Mr. Nagel has suggested, and we believe it’s mispriced. Taking fixed positions on swaps with a 6-month to 1-year term could be an effective way to prepare for this pause in policy. Historically, policy pauses during uncertain economic times have led to unstable markets until clearer trends emerge. With the ECB appearing more focused on inflation compared to the US Federal Reserve, we see potential for the Euro to gain strength. Using call options on the EUR/USD currency pair is a cost-effective way to bet on this policy divergence. Create your live VT Markets account and start trading now.

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The USD is stronger today ahead of the durable goods orders report. Expectations are set at -10.8% after last month’s significant jump of 16.4%. Non-Defense Capital Goods, excluding aircraft, is anticipated to rise by 0.2%, down from 1.7% last month. After the ECB decided to keep rates unchanged, ECB’s Villeroy pointed out that a stronger Euro has a disinflationary effect. Similarly, ECB’s Rehn emphasized taking a meeting-by-meeting approach to monetary policy due to concerns about economic growth. ECB’s Kazaks recommended maintaining current interest rates to let recent easing measures take effect.

Economic Projections

The ECB survey has lowered inflation forecasts for 2025 and 2026 to 2.0% and 1.8%, respectively. GDP growth expectations were slightly adjusted, with 2025 projected at 1.1% and 2026 also at 1.1%. In the UK, June retail sales increased by 0.9% month-over-month, though this is below the expected 1.2%. Year-over-year sales rose by 1.7%. Japan’s BoJ may consider a rate hike before the year ends, as upcoming data will guide their decision. Germany’s July Ifo business climate index improved to 88.6. In the US market, stock futures are steady, while bond yields are mostly unchanged or slightly higher. Oil prices are slightly up, gold prices have dropped, and Bitcoin has fluctuated, decreasing to $116,502. Recent comments from ECB officials suggest a cautious approach ahead. Both Villeroy and Rehn are warning about growth risks, showing they are not rushing to change policy. This dovish stance, along with lowered inflation expectations from the Survey of Professional Forecasters, indicates the Euro may weaken in the coming weeks.

Currency Strategies

This situation creates a clear policy divergence, especially after the US durable goods orders beat expectations, showing only a -1.1% drop instead of the anticipated -10.8%. Given this contrast, we plan to buy put options on the EUR/USD currency pair, allowing us to benefit from a potential decline while limiting our risk to the premium paid. In Japan, we are monitoring reports suggesting officials may raise rates by the end of the year. This change would mark a significant shift from years of very loose monetary policy and could lead to a stronger yen. As a result, shorting currency pairs like USD/JPY or EUR/JPY through futures contracts looks appealing. The below-expectations UK retail sales data, despite a rebound, supports our negative outlook on the British pound. As the economy shows weakness, the Bank of England might feel pressured to ease policy sooner. We will look for chances to position ourselves for further GBP/USD declines. The current calm in US stock indices, alongside mixed messages from central banks, creates some uncertainty. The CBOE Volatility Index (VIX) has been hovering near historical lows around the 12-13 level, indicating complacency and resulting in lower option premiums. We see this as an opportunity to buy protection or make directional bets with limited risk, such as purchasing puts on broad market indices. Gold’s quick drop of over $25 from its recent highs is a reaction to the stronger US dollar and stable yields. The loss of momentum suggests that selling call spreads above the market to collect premium could be profitable. Meanwhile, Bitcoin’s steep decline to a new weekly low below $115,000 before recovering shows that high volatility is still the norm, presenting opportunities for nimble traders using careful risk management. Create your live VT Markets account and start trading now.

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The Japanese yen is falling because of ongoing political uncertainties. European stock markets began the day lower as they await news on trade. The European Central Bank claims inflation will stay at 2% for the medium term, with no need for immediate interest rate changes. German business confidence and French consumer sentiment didn’t quite meet expectations, and UK retail sales were lower than predicted.

Major Currency Movements

The dollar is making a comeback, with both EUR/USD and GBP/USD decreasing. The USD/JPY has increased against the yen due to Japan’s political troubles. Commodity currencies like USD/CAD and AUD/USD are also facing challenges because of changing exchange rates. European stocks dipped early on, impacted by Volkswagen’s disappointing earnings and LVMH’s weak sales report. The DAX index is down 0.8%, and updates on the US-EU trade deal are still pending, causing caution in the markets. Gold has fallen to $3,340, while cryptocurrencies like Bitcoin have dropped to two-week lows. As the week wraps up, investors are focused on trade news and upcoming tech earnings. It’s also important to watch the US jobs report and Trump’s deadline on August 1st. We see the dollar’s rise as a key indicator for the next few weeks, especially with EUR/USD and GBP/USD crossing below important moving averages. The weak Ifo data from Germany and a slowing money supply in the Eurozone support a bullish view of the dollar. Therefore, we plan to buy call options on the dollar index or sell put spreads on the euro.

Trading Strategies and Market Outlook

The political issues affecting the yen create a clear trading opportunity. A rise above 147.80 is significant, and we’ve seen this before; during the 2022-2024 period, differentials drove USD/JPY well above 150. We will create bullish positions using call options on USD/JPY, aiming for a return to those historical highs. Warnings from Volkswagen and LVMH may be just the start for European stocks, which are sensitive to trade news. During previous tariff uncertainties, like in 2018, we’ve seen significant drops in export-heavy indices like the German DAX. We believe buying put options on the DAX is a good way to protect against further negative trade news. With major events like tech earnings and the August 1st jobs report approaching, we expect a significant increase in market volatility. The CBOE Volatility Index (VIX), usually below 15 in stable markets, could rise to the 20-25 range seen during past uncertain times. We’re buying VIX call options to take advantage of this anticipated volatility. Comments from officials like Kazaks and Rehn support our view that the European Central Bank will stay cautious. The downward adjustment of inflation forecasts makes a hawkish policy shift unlikely, making the euro less appealing. This aligns with our bearish view on EUR/USD and our strong dollar positions. The simultaneous drop in gold and Bitcoin suggests investors are seeking the safety of cash instead of alternative assets. When the dollar strengthens substantially, it tends to draw money away from non-yielding assets like gold, which recently faced resistance at the $3,430 mark. We’re watching for chances to short gold futures if it falls below recent support levels. Create your live VT Markets account and start trading now.

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Recent market trends indicate a shift towards a slightly aggressive stance as trade uncertainty lessens. Expectations for central bank rate changes by the end of the year are as follows: – **Federal Reserve**: Expected to cut rates by 43 basis points, with a 97% chance of no change at the next meeting. – **European Central Bank (ECB)**: Projected to cut by 16 basis points, with an 86% likelihood of holding steady. – **Bank of England (BoE)**: Anticipates a 47 basis point reduction, with an 82% chance of a rate cut soon. – **Bank of Canada**: Forecasts a 12 basis point cut, with a strong chance of no change. – **Reserve Bank of Australia**: Expects a 56 basis point cut, with an 87% probability of a cut at the next meeting. – **Reserve Bank of New Zealand**: Planning for a 35 basis point decrease. – **Swiss National Bank**: Facing a 7 basis point cut. – **Bank of Japan**: Expected to raise rates by 22 basis points but likely to hold steady at their next meeting.

Impact of Trade De-escalation

The easing of trade tensions and expansionary policies have helped mitigate tariff effects, likely supporting this trend. However, reduced momentum may occur as current market realities set in, necessitating new drivers. There could be vulnerabilities in the market if positions in risk assets become too stretched. Dellamotta points out that betting against a recession is not as straightforward as before. With the S&P 500 reaching record highs over 5,400 in June 2024, it’s evident that the easing of trade tensions is already reflected in asset prices. Future growth will need specific triggers, rather than just general optimism. The path ahead appears more complicated, especially concerning the Federal Reserve. Although the market expects rate cuts, the latest US Consumer Price Index data for May showed inflation at 3.3%—cooling but still above the 2% target. For derivative traders, this means preparing for uncertainty around when the Fed will act instead of betting on a guaranteed cut.

Shifting Monetary Policies

Central banks are already changing their approaches. Both the Bank of Canada and the ECB cut their key interest rates by 25 basis points in early June 2024. In contrast, the BoE kept its rate steady at 5.25% during its June meeting, despite high expectations for a cut. This divergence opens up opportunities in currency pairs and cross-market trades since monetary policies are not aligned. Due to the stretched positioning in risk assets, traders might want to implement strategies that benefit from increased volatility. Given the fragility of the market, any unexpected negative growth could lead to sharp sell-offs. Therefore, long volatility positions through options could be profitable. For example, buying straddles or strangles on major indices might provide protection and profit potential from sudden market moves in either direction. Historically, markets often rise on the expectation of rate cuts but can become choppy or even drop when cuts actually happen, confirming underlying economic weakness. We have observed this pattern in previous easing cycles, where the first cut marked a short-term peak for stocks before a consolidation phase. Thus, it is wise to be cautious about chasing rallies and be ready for a more complex, two-sided market in the upcoming weeks. Create your live VT Markets account and start trading now.

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