The EUR/USD pair is facing losses as the US Dollar gains strength from positive economic data in the US. The Euro has dropped from a high of 1.1790 to 1.1710, although it is still on track for a 0.8% weekly gain after bouncing back from 1.1555 last week. The European Central Bank’s recent choices and positive comments from President Christine Lagarde initially supported the Euro. However, disappointing Eurozone data has weakened this support. The German IFO Business Climate Index showed a slight improvement, but some subindexes fell short of expectations.

Positive US Data

In the US, business activity exceeded predictions, especially in the services sector. A drop in weekly Initial Jobless Claims further strengthened the US Dollar. Among major currencies, the Euro performed particularly well against the Japanese Yen. A possible trade deal between the US and the EU, which includes 15% tariffs with specific exemptions, has contributed to optimism about the Euro. Still, a decline in Durable Goods Orders in the US indicates a cautious economic outlook. US economic signals suggest that the Federal Reserve may stick with its current interest rate policy. Right now, the market feels like a tug-of-war, making it risky to bet on the direction of EUR/USD in the near term. The dollar’s strength is backed by solid data, including Initial Jobless Claims near historic lows at around 210,000 and the S&P Global US Services PMI rising to 54.8, indicating healthy growth. Given this volatility, traders should consider strategies that benefit from a range-bound market, like selling out-of-the-money call and put options. Optimism from Ms. Lagarde’s remarks is being tempered by the Eurozone’s economic challenges. Weak German IFO data is a key concern, supported by recent figures showing a 0.4% decline in Germany’s industrial production. This suggests limited upward potential for the Euro, making it hard for the pair to break decisively above 1.1800 without new positive news.

Market Outlook

In the US, strong labor and service data contrast with leading indicators like falling Durable Goods Orders. Historically, significant drops in these orders often precede economic downturns, similar to what we saw before the 2008 crisis. This conflicting data suggests the Federal Reserve is likely to keep its current stance, making traders alert to any new inflation data. The Euro’s strength against other currencies, particularly the Yen, indicates that investors are not abandoning the currency but are instead repositioning their capital. This supports the idea of pair trading, such as going long on EUR/JPY to take advantage of Euro strength while hedging against broad dollar moves. Implied volatility on EUR/USD options has recently been around 7.0%, reflecting uncertainty and providing an opportunity to collect premium if the pair consolidates as expected. Create your live VT Markets account and start trading now.

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Transatlantic Trade Relations

The meeting between von der Leyen and the President is a crucial moment for the market. Her words, focusing on “how we can keep” relations strong, indicate some existing weakness in our partnership. This choice of language introduces uncertainty that traders need to consider. The stakes are high. Recent data from the U.S. Census Bureau shows that trade between the US and EU exceeds $1.3 trillion each year. A negative outcome from this meeting in Scotland could threaten this huge economic connection, affecting many sectors. This isn’t just a minor discussion; it’s about a key part of the global economy. We remember how the market reacted during the previous administration when tariffs on steel and aluminum were introduced. This led to sharp changes in industrial stocks and commodity prices. History shows that even the possibility of new trade barriers can lead to spikes in the CBOE Volatility Index (VIX), as seen during trade disputes from 2018 to 2020. We are closely monitoring this trend.

Investment Strategies

Given this situation, we recommend buying volatility before the weekend meeting. This might involve purchasing straddles or strangles on major indices like the S&P 500 (through SPY options) or the Euro Stoxx 50. These strategies can benefit from significant price moves in either direction, allowing us some protection against guessing the meeting’s outcome. We are also focusing on sectors that are strongly affected by transatlantic trade, like German automakers and French luxury goods. Buying puts on vulnerable companies or sector-specific ETFs could be a smart way to hedge against potential tariffs, which have often been used in past conflicts. The EUR/USD currency pair will be an important indicator of the meeting’s mood and possible results. We expect increased volatility and are considering options on currency futures to profit from any significant moves triggered by news from Scotland. Create your live VT Markets account and start trading now.

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The Euro is falling as the US Dollar gets stronger, largely due to the Federal Reserve’s actions. Positive economic data from the US suggests that high interest rates may last longer. The EUR/USD pair is facing pressure, but hopes for a possible US-EU trade deal are limiting the Euro’s losses. The Euro started lower in the US trading session, even after gaining 0.8% for the week.

European Central Bank Announcement

The European Central Bank (ECB) hinted at keeping interest rates steady for a while. President Christine Lagarde expressed confidence in economic growth. However, data from the Eurozone didn’t help the Euro. The US IFO Business Climate Index showed slight improvement, but expectations for the economy remained unchanged. In contrast, US business activity surpassed expectations. The services sector saw significant growth, and Initial Jobless Claims dropped, boosting the US Dollar’s recovery. Overall, the Euro is on track for a solid week, fueled by optimism surrounding a trade deal with the US. The German IFO Business Climate Index ticked up slightly on Friday.

Bears Driving The EUR/USD Pair

The EUR/USD pair is under increasing bearish pressure. Technical indicators show a downward trend, with support around the 1.1715 level being tested. The Federal Reserve aims for price stability and full employment when setting US monetary policy. Interest rates are adjusted in response to inflation and unemployment data. The Fed uses Quantitative Easing (QE) and Quantitative Tightening (QT) during financial crises. QE can weaken the Dollar, while QT generally strengthens it. Given the strong US Dollar, we think the EUR/USD pair will likely continue to fall. The recent US inflation report showed a rate of 3.4% for April 2024, which supports the Fed’s decision to keep interest rates high for a longer period. This difference in policies is expected to further pressure the Euro. Strategies that benefit from a decline in the Euro’s value against the Dollar should be considered. With the ECB possibly signaling a rate cut as early as June—contrasting sharply with the Fed’s position—the case for a weaker Euro is strong. Last week, US initial jobless claims were a modest 222,000, showing ongoing strength in the labor market and supporting the Dollar. Ms. Lagarde’s optimistic comments do not overshadow the data indicating a slowing Eurozone economy. The market has largely anticipated an ECB rate cut, making the Dollar—with its higher yield—more appealing to investors. Historically, when central banks diverge in monetary policy, significant currency trends occur. For example, between mid-2014 and early 2015, as the Fed ended its QE and the ECB expanded its bond buying, the EUR/USD fell by more than 20%. We might be entering a similar phase where sustained Dollar strength prevails for months. From a technical perspective, the EUR/USD pair is facing strong resistance near the 1.0900 level. We see a chance to buy put options with strike prices below the current support around 1.0800. This strategy offers a clear, defined way to potentially profit as the pair moves down toward the 1.0725 area. The ongoing QT from the Federal Reserve is also a steady boost for the Dollar. By reducing its balance sheet, the Fed is systematically removing liquidity from the financial system, which generally supports a stronger currency long-term. While hopes for a US-EU trade deal may provide temporary support for the Euro, we see any resulting rallies as chances to initiate or increase bearish positions. The macroeconomic outlook and monetary policy remain the main drivers. Create your live VT Markets account and start trading now.

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European stock indices ended the week on mixed notes. The German DAX fell by 0.32%, while France’s CAC rose by 0.21%. The UK’s FTSE 100 decreased by 0.20%, Spain’s Ibex dropped by 0.13%, and Italy’s FTSE MIB increased by 0.31%. Looking at the week overall, the trends varied. The German DAX declined by 0.30%, while France’s CAC increased slightly by 0.15%. The UK’s FTSE 100 gained 1.43%, Spain’s Ibex rose by 1.77%, and Italy’s FTSE MIB saw a gain of 1.03%.

US Market Overview

As European markets closed, US stocks were trading close to their daily highs. The Dow industrial average went up by 0.13%, the S&P index increased by 0.24%, and the NASDAQ index rose by 0.28%. On the other hand, the Russell 2000 dipped by 0.15%. In Europe’s bond market, Germany’s 10-year yield climbed to 2.712%, while Italy’s yield increased slightly to 3.578%. The UK’s yield fell to 4.631%, France remained steady at 3.380%, and Spain’s yield dropped to 3.312%. In the US debt market, we saw minor changes. The 2-year yield stood at 3.93%, with slight declines in other maturities. The 5-year yield ended at 3.962%, the 10-year at 4.401%, and the 30-year at 4.942%. Given the mixed signals from European markets, we recognize an opportunity in the clear differences between Germany and other major indices. The DAX’s underperformance sharply contrasts with the gains in the UK, Spain, and Italy. This suggests that a one-size-fits-all approach to European derivatives isn’t ideal, and we need focused strategies.

Opportunities in the European Market

The divide is also visible in the bond markets, where German yields rose, unlike those in the UK and Spain which fell. This likely reflects growing worries about persistent inflation in Germany, the Eurozone’s largest economy. Such concerns may put pressure on officials like Lagarde at the European Central Bank. Recent data shows German industrial production unexpectedly fell by 0.1% in April 2024, continuing a trend of economic sluggishness that raises our caution. In contrast, the UK’s FTSE 100 benefits from an optimistic outlook. UK inflation fell to 2.3% in April, its lowest in almost three years, leading to speculation that the Bank of England’s Bailey might cut interest rates sooner than other central banks. We should consider taking long positions on FTSE 100 futures or bullish call options to seize this positive momentum. The American market appears more stable, with major indices recording modest gains and bond yields slightly down. This follows the US CPI data from April, which showed inflation easing to 3.4%, suggesting that Powell at the Federal Reserve may have room to cut rates later this year. We see this as a chance to sell out-of-the-money puts on the S&P 500, collecting premium while betting on continued stability. Given these differing economic paths, a pair trade seems like a sensible response for the upcoming weeks. We are considering strategies that go long on the FTSE 100 while shorting the German DAX, aiming to profit from their differing fortunes. Historically, policy divergence between the Bank of England and the ECB has led to lasting trends in relative index performance. Create your live VT Markets account and start trading now.

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The EURUSD fell to a low of 1.1702, dropping below the swing area low of 1.17109. It quickly bounced back above the 100-hour moving average at 1.17334, but traders had trouble finding a clear direction. A lot of option expirations at the 1.1700 level put downward pressure on the price as traders approached the expiration time. After a brief rise above the 100-hour moving average, the price returned to a larger swing area.

European Markets Close

As European markets closed, the EURUSD was in a state of uncertainty. The weekly low occurred on Monday at 1.16142, serving as a key swing level for buyers. The week’s high was on Thursday at 1.1788, creating resistance for sellers. As the weekend neared, prices stayed close to the weekly highs and above the 50% midpoint of July’s trading range. For a downward trend to continue, the price must break below the 200-hour moving average at 1.1677. Based on Michalowski’s observations, derivative traders should prepare for a notable price movement. The current tight trading range signifies low market volatility, which often comes before a big directional shift. Recently, implied volatility in the EUR/USD one-month options market has dropped to near yearly lows. This means options are relatively inexpensive for strategies aiming to capitalize on a breakout.

Market Positioning

The economic landscape suggests a potential downside move for the pair. Recent data shows that US Q2 GDP grew at a strong 2.4%, while business activity in the Eurozone, especially Germany’s manufacturing PMI at a concerning 38.8, indicates a slowdown. This economic gap generally boosts the dollar’s strength against the euro over time. We are also monitoring differing inflation rates and how central banks are responding. Eurozone inflation is high at 5.3%, but the European Central Bank might have to pause rate hikes due to a sluggish economy. Conversely, the Federal Reserve is facing strong US economic data and might keep a firmer approach to ensure inflation returns to target rates. Recent positioning data from the Commodity Futures Trading Commission shows that large speculators still hold long positions in the euro but have been reducing these positions over the past few weeks. This suggests that their confidence in the euro’s strength is decreasing, which aligns with the struggle at major resistance levels. A decrease in bullish bets could lead to a swift sell-off if key support levels are broken. Therefore, we see a chance to buy volatility with strategies like long straddles or strangles that could benefit from significant movements either way. For a more directional approach, buying puts with a strike price below the 200-hour moving average at 1.1677 might be a good way to prepare for a confirmed bearish breakdown. The goal is to use the current low volatility to enter positions before the market reaches a clear direction. Create your live VT Markets account and start trading now.

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The Canadian Dollar (CAD) dropped by 0.3% against the US Dollar (USD), continuing its losses from Thursday. The CAD struggles due to wider interest rate gaps between the US and Canada, even as the overall situation remains stable. The fair value for USD/CAD is around 1.3553.

Bank of Canada Rate Decision

No important domestic data will be released until the Bank of Canada’s rate decision next Wednesday. Rates are expected to stay at 2.75%. Recent comments from officials suggests a neutral stance that leans slightly dovish. Markets believe there could be a reduction of 11 basis points by the end of the year, which might help the CAD if this neutral tone continues. The downward trend in the medium-term has steadied, with recent prices showing lows just under the 1.36 level and resistance around the mid-1.37s. The RSI has moved closer to neutral, going from below 30 in June to nearly 50. This suggests that prices may be range-bound between 1.3600 and 1.3720 in the short term. This information includes risks and uncertainties and is not an investment recommendation. It’s important to conduct thorough research, as investing in open markets can lead to losses. You alone are responsible for any risks, losses, and costs involved, and neither the author nor the platform can guarantee error-free information. We see the recent weakness in the CAD is mainly due to the significant difference in interest rates between the US and Canada. The Federal Reserve’s rate is close to 5.50%, while the Bank of Canada is at 4.50%. This yield advantage attracts capital to the US Dollar, helping to explain why the exchange rate is above what is considered fair value.

Central Bank Rate Decision

All attention is now on the central bank’s rate decision next week, with the swap markets indicating a greater than 60% chance of a rate cut. Recent inflation rates have slowed to 2.7%, supporting the case for easing. However, a surprisingly strong jobs report in April, showing 90,000 new jobs, adds complexity to the situation. This uncertainty ahead of the announcement suggests that implied volatility may be lower than expected. From a technical perspective, we expect a period of consolidation, with the Relative Strength Index hovering around 50. We find strategies that benefit from stable price movements, like selling an iron condor with strikes outside of 1.3600 and 1.3720, to be appealing as we approach the announcement. This strategy allows us to take advantage of the market’s current stability while managing our risk. If the rate decision indicates a dovish path, we may adjust our strategies to prepare for a possible breakout above the mid-1.37s resistance. Historically, periods when central bank policies diverge, such as from 2017 to 2018, have led to significant movements in currency pairs. Therefore, buying call options that expire in the coming weeks could be a wise way to benefit from potential gains if the central bank hints at more easing. Create your live VT Markets account and start trading now.

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The New Zealand Dollar (NZD) seems to be in a consolidation phase, trading between 0.6015 and 0.6055. In the long run, there is a chance for the NZD to climb, with the next target at 0.6080. In the last 24 hours, the NZD hit a high of 0.6047 but closed at 0.6029, down slightly by 0.29%. We expect the NZD to continue trading within the 0.6015 to 0.6055 range for now.

Potential for Growth

In the next one to three weeks, the NZD may continue to rise if it stays above the strong support level of 0.5985. It’s important to remember that all market forecasts involve risks and require careful research before making financial decisions. We see the current phase of low volatility as a special opportunity for option traders. The narrow trading range means that option premiums, especially for at-the-money options, are lower than usual. This is a great environment for positions that stand to benefit from a future breakout. The possibility for upward movement is backed by strong economic factors in New Zealand. The quarterly inflation rate of 4.0% in the first quarter of 2024 is well above the central bank’s target, prompting a hawkish approach. The decision to maintain the Official Cash Rate at a 15-year high of 5.5% during the May meeting supports the currency’s strength.

Opportunities and Strategies

Given the likelihood of an upward trend, we recommend considering call options with a strike price near the current upper range, like 0.6050. This strategy allows you to gain on a possible surge towards 0.6080 while keeping risk limited to the premium paid. However, it’s essential to stay disciplined and respect the strong support level. To protect against a dip below 0.5985, buying put options with a strike around that level can provide valuable insurance for any long positions. This is a wise move since dropping below this support would challenge the bullish outlook. Historically, times of low volatility and tight ranges often lead to sharp price movements when a catalyst arises. Therefore, a long straddle strategy—buying both a call and a put option at the same strike price and expiration date—might be useful. This position benefits from significant price shifts in either direction, making it wise in the current uncertain environment before a clear trend is established. Create your live VT Markets account and start trading now.

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US farmers are facing rising costs due to tariffs on important imports. A 25% tariff on imported steel means higher prices for farm equipment, like tractors and irrigation systems. Parts for this equipment from countries such as China and the EU are also subject to tariffs, driving up repair costs. Key farming supplies, like fertilizers and chemicals, are also affected by these tariffs. Tariffs on phosphate fertilizers from Morocco and on urea ammonium nitrate from Russia and Trinidad lead to increased nitrogen prices. Additionally, tariffs on herbicides and pesticides from China raise the costs of controlling weeds and pests.

Impact On Farm Exports

Tariffs on petroleum products increase diesel prices, which affects tractor operation and grain drying expenses. Retaliatory tariffs from China, Mexico, Canada, and the EU are impacting US farm exports, including soybeans, pork, beef, and dairy. For example, US soybeans now have a 25% tariff when exported to China. The costs of packaging materials like plastic, aluminum, and steel have also risen due to these tariffs. There are talks about using the revenue from tariffs to offer rebates, which may help farmers. To improve international relations, the US is trying to get commitments from other countries to buy American agricultural products in exchange for lowered tariffs. Recently, Trump announced that Australia will import US beef for the first time. According to Michalowski, a post by the former president about Australia importing US beef is a strong bullish signal. This may boost Live Cattle futures, which are currently trading around $1.85/lb on the CME. We are looking into long positions through call options to take advantage of a potential price increase as this new market opens.

Implications For Currency Markets

Tying tariff reductions to agricultural purchases might also apply to other struggling commodities. The retaliatory tariffs from China during the 2018-2019 trade war caused US soybean exports to drop by over 50%. Any similar agreements now would be significant. We will keep an eye on Lean Hog and Soybean futures for any announcements that could lead to sharp price increases. However, American farmers continue to feel pressure from tariffs on key inputs like steel and fertilizer. Deere & Co. has already lowered its profit forecast for the year, citing weak demand as farmers cut back on equipment purchases due to high costs and lower incomes. This suggests a possible bearish outlook on agricultural equipment and input suppliers, prompting us to consider put options on stocks like DE. This situation also affects currency markets. For Australia to import US beef, it will need to convert its currency into US dollars, which could weaken the AUD/USD exchange rate. With the US Federal Reserve keeping interest rates steady and the Reserve Bank of Australia under less pressure to raise rates, we see a chance to short the Aussie dollar. Create your live VT Markets account and start trading now.

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The US Dollar is strong against most G10 currencies as we approach Friday’s North American session. The Swedish Krona is the only G10 currency that has gained against the USD. Meanwhile, the Australian Dollar and Japanese Yen are falling behind, while the British Pound, New Zealand Dollar, and Canadian Dollar have slightly lost value.

Market Overview

In the wider market, equity futures are stable at record highs, with US 10-year yields rising above 4.40%. Oil prices remain steady above $65 per barrel, although copper prices are fluctuating due to tariffs. Gold prices have decreased, returning to their 50-day moving average, as the recent bull trend has flattened. During this session, all eyes will be on the release of durable goods data and the Kansas City Fed services activity index. The Federal Reserve is currently in a communications blackout before their anticipated decision to keep interest rates the same next Wednesday. The upcoming statement and Fed Chair Powell’s press conference are expected to be crucial, especially regarding votes and the possibility of a dovish dissent. We see the current strength of the dollar as an important trend, especially against the struggling Australian Dollar and Japanese Yen. The unexpected addition of 272,000 jobs in the latest US employment report provides solid reasoning for this difference. This situation supports strategies such as buying call options on the USD or put options on currency-specific ETFs. With the central bank not communicating, we expect increased volatility around next week’s interest rate decision. Although recent inflation data has eased to a 3.3% annual rate, the strong labor market creates uncertainty about what comes next. The CBOE Volatility Index (VIX) is currently low at 13, making options strategies like straddles on major indices cost-effective for anticipating sharp moves.

Market Stabilization

The stability of equity futures at record levels suggests a moment of caution rather than a rush to buy. Rising 10-year yields above 4.40% can particularly pressure high-growth sectors, making protective put options on tech-heavy indices a smart move. Historically, when the Fed holds rates steady in a strong economy, the market can become range-bound until a clearer policy direction takes shape. We believe the drop in gold prices is directly due to the stronger dollar and rising bond yields. Its return to the 50-day moving average is a key sign of lost momentum, breaking a strong trend that started in March. This means that bearish positions, like buying puts on gold ETFs, could be profitable if yields continue to rise. Market attention is focused on the upcoming statement and Mr. Powell’s press conference. While CME’s FedWatch Tool indicates a near-zero chance of a rate change, the most important information will be in the updated economic projections and dot plot. Any change in the median forecast for rate cuts this year will likely influence market direction for the rest of the month. Create your live VT Markets account and start trading now.

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The Pound Sterling fell against major currencies due to slower-than-expected growth in UK Retail Sales. Retail Sales increased by 0.9% from last month and 1.7% from last year, both below predictions. While sales of automotive fuel and department store goods were strong, sales in non-food stores dropped significantly. The UK has secured a free trade deal with India, creating opportunities in sectors like liquor, textiles, and cars. However, a slowdown in the UK’s private sector, driven by global trade uncertainties, may continue to negatively affect the currency. The Composite PMI for July stood at 51.0, falling short of forecasts.

Expected US-EU Trade Agreement

The US is set to announce a trade agreement with the EU, which will likely boost the US Dollar as it strengthens ties with key trading partners. The market is looking forward to important US data releases and the Fed’s upcoming decisions on monetary policy. The Fed is expected to keep interest rates in the 4.25%-4.50% range, and future statements will be closely monitored for hints on interest rates and inflation. US Durable Goods Orders for June are predicted to have dropped by 10.8%. Traders should watch the support and resistance levels of the GBP/USD pair, which is trading below key technical indicators. This economic backdrop may include potential shifts in US monetary policy, such as quantitative easing or tightening, directly affecting the dollar’s value. With conflicting economic signals, we believe traders should be ready for ongoing pressure on the Pound Sterling. The UK’s private sector growth recently slowed to a three-month low, with the S&P Global/CIPS Flash Composite PMI for June at 51.7, raising concerns about a cooling economy. This indicates that derivative positions might be beneficial if the currency declines or stagnates. Nonetheless, it’s important to note that recent official data showed UK retail sales volumes rose significantly by 2.9% in May, contradicting earlier reports of a slowdown. This consumer strength could cause short-term volatility and penalize overly pessimistic bets. Therefore, any strategies betting against the pound should be designed with defined risks.

Watchful Eye on the Federal Reserve’s Policy

On the other side of the Atlantic, attention is on the Federal Reserve’s upcoming monetary policy decisions. With interest rates currently at a two-decade high of 5.25%-5.50%, the market has factored in that the central bank will likely keep rates steady for now. We are watching for any change in tone regarding the timing of potential rate cuts, as this will significantly influence the US Dollar. Recent US economic data, including a modest 0.1% rise in durable goods orders for May, suggests a resilient but cooling economy. Historically, when the US central bank maintains a hawkish stance while others consider easing, it tends to support the dollar. This strengthens the argument for strategies that favor the dollar over the pound. The GBP/USD pair is currently trading around its 50-day moving average, indicating no clear directional momentum. This technical situation, along with mixed economic data from both countries, makes aggressive trades risky. We believe option strategies aiming to benefit from a slow decline or range-bound price action, rather than a sharp drop, are the best approach in the coming weeks. Create your live VT Markets account and start trading now.

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