The United States has struck a trade deal with Japan, creating a positive vibe in the market. Japan plans to invest $550 billion in the US, cut tariffs to 15%, and increase rice imports from the US. As a result, Japan’s Nikkei 225 Index jumped over 3.5%, reaching its highest point since July 2024. US stock futures also rose by 0.2% to 0.3%, reflecting this upbeat mood.

US Dollar Performance

This week, the US Dollar weakened, especially against the Swiss Franc. The US Dollar Index stayed just below 97.50 early Wednesday. Prime Minister Mark Carney announced that Canada would shift its trade focus to other allies. The USD/CAD is trading below 1.3600 after dropping over 0.5% on Tuesday. The EUR/USD is down after three days of growth, while GBP/USD holds steady above 1.3500 after a rebound. Gold prices hit a new monthly high of over $3,430 on Tuesday.

Understanding Tariffs

Tariffs are fees on imports meant to help local businesses compete. They are paid at the port, unlike taxes, which are paid at the time of purchase. President Trump aims to use tariffs to strengthen the US economy, targeting major trading partners like Mexico, China, and Canada. We think the new trade agreement creates a “risk-on” environment for stocks. The rise in the Nikkei 225 suggests that traders might want to buy call options on Japanese indices to take advantage of the upward trend. With the CBOE Volatility Index (VIX) below 15, a number that indicates low market fear, conditions look good for ongoing stock market growth. The substantial $550 billion investment from Japan is likely to boost long-term demand for the US dollar. Although the dollar is weak now, we expect this influx to support it in the coming months. Historically, large foreign investments, like those in the late 1990s, have led to a stronger currency. Given Carney’s comments, we see a chance to invest in the Canadian dollar. Statistics Canada recently reported an unemployment rate of only 6.1%, indicating solid economic fundamentals and a potentially stronger currency independent of US trends. We recommend trading this by selling USD/CAD futures or buying put options on the pair. The previous president’s focus on tariffs continues to create uncertainty, benefiting safe-haven assets. Gold, recently trading above $2,340 an ounce, reflects this geopolitical tension, even as overall sentiment improves. We suggest keeping positions in gold call options to guard against sudden negative trade news. Create your live VT Markets account and start trading now.

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US Treasury Secretary Scott Bessent provided updates on trade talks. He described the EU’s retaliatory actions as a negotiation strategy and noted that discussions with the EU are improving, although a deal is not finalized yet. The expected agreement with the EU is likely to have tariffs in the 10-20% range, similar to the deal made with Japan, which is viewed as a move towards stability. Bessent is optimistic about relations with China, believing that this approach allows the US to have broader discussions. He prefers “supply de-risking” over completely separating from China. The recent 15% agreement with Japan regarding autos is a separate deal. As negotiations move forward, deals like the one with Japan could be seen positively by investors, as they lower risks and offer more predictability.

Market Impact on Volatility

Bessent’s comments clearly signal a strategy to sell volatility. His words are meant to ease market fears about a trade war, which usually lowers option prices since worries about large price swings decrease. The CBOE Volatility Index (VIX) has typically dropped when geopolitical risks diminish, so traders might want to consider strategies like short straddles on major indices. The expected EU deal, even with a 10-20% tariff, removes the worst-case scenario. European automakers, which exported over $40 billion in vehicles to the US last year, would view this positively. We recommend buying call options on the German DAX index or on specific automakers like Volkswagen and BMW in the coming weeks for potential gains from this expected easing.

Long Term Trends with China

Bessent’s remarks about China point to a lasting trend. According to early 2023 data from the U.S. Census Bureau, Mexico has officially surpassed China as the top exporter to the United States for the first time in two decades. This shows that de-risking is not just talk. It supports longer-term bullish positions in companies that benefit from near-shoring and North American supply chains. We can look back at the Japanese agreement as a reference for market reactions. When that deal was announced in late 2019, it eased fears of broader auto tariffs and gave equities a slight boost as certainty returned. This suggests a similar, possibly moderate, rally could happen now, making short-term call options on industrial ETFs a sensible strategy to prepare for an announcement. Create your live VT Markets account and start trading now.

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For the week ending July 18, 2025, US MBA mortgage applications rose by 0.8%, bouncing back from a prior decline of 10.0%. The market index increased to 255.5, up from 253.5. The purchase index now stands at 165.1, a rise from 159.6. In contrast, the refinance index fell to 747.5, down from 767.6 last week. **Mortgage Rate Trends** The average 30-year mortgage rate increased slightly to 6.84% from 6.82%. Typically, when mortgage rates go up, mortgage applications go down. This recent mortgage data indicates a stalemate in the housing market rather than a significant change. The slight increase in purchase applications, even with slightly higher rates, shows a consistent demand. However, there is no major reason for a market breakout. We believe the central bank policy continues to drive the derivatives market more than the weekly housing numbers. The key concern for traders is the Federal Reserve’s direction, which is unclear due to mixed data. The latest June 2025 Consumer Price Index (CPI) shows an improvement at 2.8%, but it is still above the Fed’s 2% target. This leaves policymakers cautious, making bets on upcoming rate cuts risky. **Policy and Market Implications** Chairman Powell’s recent comments highlight this caution, stating that the Fed is “data-dependent” before making any changes to policy. This uncertainty suggests that instruments tied to rate expectations, like SOFR futures, may stay within a certain range in the coming weeks. We think the market has already factored in a high chance of rates remaining steady through the next meeting. For traders focused on housing-related products such as options on the ITB homebuilders ETF, now is a good time for selling volatility. National home prices have remained surprisingly stable. The most recent S&P Case-Shiller Home Price Index shows a 4.5% year-over-year increase. This stability makes a major price drop unlikely, which favors strategies like iron condors or covered calls over outright directional bets. This period of stagnation is reminiscent of the 2022-2024 cycle when the market adapted to higher rates through lower transaction volumes instead of sharp price drops. It demonstrated that the housing market can handle higher borrowing costs for a long time. We expect to see a similar pattern of low-volume, sideways trading continue. Create your live VT Markets account and start trading now.

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The Euro has dropped from recent highs against the US Dollar due to uncertainty over EU-US trade talks. Ahead of the European Central Bank’s upcoming monetary policy meeting, the EUR/USD pair shows a hopeful outlook. After rising 1.3% over three days, the pair has since fallen from 1.1760 to about 1.1730. Despite this decrease, the overall trend stays positive as it has bounced back from earlier lows.

European Trade Negotiations

The recent US-Japan trade deal lifted market mood but failed to help the Euro facing EU-US deal hurdles. In reaction, EU officials are visiting Washington and are ready to take retaliatory action if negotiations do not go well. A key event to watch is the European Commission’s Consumer Sentiment Index for July, due later. The ECB’s decision on Thursday is also expected to provide insights into future policy as inflation hovers around 2%. There’s caution around a potential US trade pact, leading to speculations about possible monetary changes. The Euro weakened amidst trade uncertainties and threats of tariffs, as market predictions narrowed before the ECB’s policy announcement. The US Dollar has gained strength after the revised Japan trade deal was revealed. With the conflicting signals regarding the Euro, we suggest that derivative traders look for strategies that take advantage of volatility, rather than betting on a specific direction. The upcoming monetary policy meeting presents a risk where significant price movement is likely, making this environment less ideal for straightforward bets.

Options Strategy for Traders

We recommend using a long straddle strategy with options expiring just after the central bank’s announcement. This involves buying both a call option and a put option at the same strike price, allowing traders to profit from large price changes in either direction. The one-week implied volatility for the EUR/USD pair has recently exceeded 7%, indicating that the market anticipates a bigger-than-usual price move. The recent data supports this expectation of a sharp price shift. Although Eurozone inflation dropped to 2.4% in April, which may open the door for a potential ECB rate cut in June, progress on trade talks remains sluggish. Meetings of the EU-US Trade and Technology Council have not alleviated market anxieties, especially with renewed tariff concerns. For traders already holding long Euro positions, buying put options could be a wise hedge against unexpected hawkish moves or failed negotiations. Historically, policy surprises can lead to extreme price swings, like in December 2015 when the pair jumped over 3% in one day after disappointing stimulus news. This protective approach can help manage downside risk ahead of Thursday’s known event. The strength of the US Dollar also plays a crucial role, as the U.S. Federal Reserve seems focused on maintaining higher interest rates. Recent U.S. inflation data, with the Consumer Price Index at 3.4% in April, contrasts sharply with Europe’s economic landscape. This difference in policies naturally applies downward pressure on the currency pair over time. Create your live VT Markets account and start trading now.

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Immediate Resistance and Support Levels

The US Dollar Index (DXY) is holding steady around 97.40 after three days of losses. A downward trend is visible on the daily chart, indicating a bearish outlook, as the DXY is below the nine-day EMA. The DXY could find support at $96.38, which is a three-year low reached on July 1. If it drops further, the DXY might hit the lower boundary of the channel at 95.00. The immediate resistance is at the nine-day EMA level of 97.83, with further resistance at the channel’s upper boundary of $98.30. If it breaks through these levels, the DXY may reach the 50-day EMA at 98.63, moving toward a two-month high of $99.42. In percentage terms, the dollar is strongest against the Euro but shows only slight changes against other major currencies. The base currency is listed on the left, with the quote currency at the top. For example, a change from the US Dollar to the Japanese Yen indicates a shift of -0.11%. This information should not be taken as advice to buy or sell. All risks are your own, and you should conduct thorough research before making any decisions. There is no guarantee of accuracy or timeliness, and no specific investment advice is provided.

Strategic Positioning and Risk Management

Given the ongoing bearish trend in the descending channel, we are preparing for further weakness in the dollar in the near term. We believe that buying put options on dollar futures or related currency ETFs is the most effective strategy. Our initial target for these positions is the support level at 96.38. Recent data supports this view; the University of Michigan’s Consumer Sentiment index dropped to a six-month low of 69.1 in May 2024, indicating rising economic pessimism. This weak sentiment makes a decline to the channel’s lower boundary at 95.00 a likely scenario. We will monitor options volatility closely, as it may signal a faster downward movement. However, we must stay alert for a potential reversal, especially since ongoing inflation keeps the Federal Reserve with a “higher for longer” policy. A clear break above the immediate resistance at the nine-day EMA of 97.83 would prompt us to close our bearish positions. At that time, we would consider buying call options in anticipation of a recovery toward the 98.30 resistance level. Historically, crowded trades in the dollar can reverse suddenly, leading to sharp moves. The latest CFTC data from late May 2024 shows a decline in speculative net-long positions on the dollar, indicating that market conviction is waning, though a short squeeze remains possible. Therefore, we prefer the defined risk of options over directly shorting futures contracts. The dollar’s strength against the Euro shapes our strategy for specific currency pairs. If the index weakens as anticipated, we expect the EUR/USD pair may struggle compared to other currencies. As such, we will focus our bearish dollar strategies on pairs like USD/JPY, which recently showed a change of -0.11%, to capture potentially larger moves. Create your live VT Markets account and start trading now.

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EU Trade Commissioner Sefcovic is set to meet with US Commerce Secretary Lutnick. The EU is in regular communication with the US, focusing on finding a negotiated solution. While they are working toward a resolution through discussions, the EU is also preparing additional options, which may include further countermeasures.

Trade Solution Strategies

To carry out these countermeasures, the EU suggests merging two lists into one. These measures could involve tariffs and regulations like the Anti-Coercion Instrument (ACI). Both parties are looking for a compromise, and recent news of a US-Japan deal has brought some optimism to the markets. However, it’s important to note that Japan’s situation is different. Prime Minister Ishiba is under pressure to maintain political relevance. For more details, visit investingLive. Given the clear nature of the upcoming talks between Sefcovic and Lutnick, the best approach seems to be using options to trade on the expected volatility. The preparation for countermeasures indicates a significant market movement is likely in either direction. This makes long straddles or strangles on key European indices a smart strategy. Traders can benefit from sharp price changes, regardless of whether the news is good or bad. We see that market volatility appears low compared to the political risks. Europe’s main volatility index, the VSTOXX, has recently been around the 15 level, which is low by historical standards during times of trade uncertainty. This suggests that the market may be complacent, presenting an opportunity to purchase call options on the VSTOXX. Such options would likely increase in value if negotiations take a negative turn and countermeasures are announced.

Sectoral Impact and Precautions

It’s crucial to keep a close eye on sectors that could be affected by new tariffs, particularly European automakers. In 2023, Germany exported over €38 billion worth of vehicles to the United States, highlighting the financial stakes involved. Traders may want to buy put options on a German stock index or a European automotive sector ETF as a hedge or a speculation against a favorable outcome. This scenario resembles the trade disputes of 2018, which led to immediate spikes in market volatility and sharp downturns when tariffs were announced. While markets seem reassured by the recent US-Japan deal, we view the pressure on Ishiba as a unique situation. Furthermore, the EU’s new Anti-Coercion Instrument, which took effect in late 2023, provides a strong and untested tool for retaliation that the markets may not have fully accounted for. Create your live VT Markets account and start trading now.

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The European Central Bank (ECB) is likely to keep its current policies unchanged in its next meeting. The deposit rate is at 2.00%, which falls within the neutral range of 1.75% to 2.25%. The ECB plans to stay flexible, focusing on data and reviewing policies at each meeting. Most analysts expect a rate cut in September, but market estimates show only a 44% chance of this occurring by the end of the third quarter.

Future Policy Decisions

Future policy will depend on trade developments and economic data. Conditions are expected to improve, raising hopes for rate cuts in September and December. Support from fiscal policies is anticipated, yet traders only predict a 26 basis point reduction in rates by the end of the year. This cautious viewpoint hints at possible risks for the euro if additional rate cuts occur. The ECB is taking a wait-and-see approach, aligning its policies with general economic trends. Low’s analysis suggests that the next policy meeting will be uneventful, which should keep short-term volatility low. This could be a good chance to sell front-month options on Euro-based assets, as the central bank indicates a desire to wait. The significant moves are likely to come after the summer holidays. We think the market is underestimating the chances of a September rate cut, which currently sits below 50%. Recent data from Eurostat showed that headline inflation unexpectedly rose to 2.6% in May, while core inflation is slowly decreasing, allowing policymakers to stick with their data-driven approach. This gap between market expectations and reality offers an opportunity for derivative positions targeting the third quarter. The economic outlook remains mixed, supporting a cautious approach from officials. Although the HCOB Flash Eurozone Composite PMI reached a 12-month high of 52.2 in May, the manufacturing sector continues to struggle. We should focus on trades that will benefit if economic data weakens more significantly over the next two months, which could prompt the bank to change its stance.

Potential Market Risks

The biggest risk for the euro is a shift in rate expectations, as markets are currently only considering about 26 basis points of cuts this year. Historically, when markets have had to align with a more aggressive easing trend, like that from 2011 to 2014, the currency has weakened significantly. Therefore, we are looking to buy longer-dated put options on the euro to prepare for this possible adjustment in the autumn. Create your live VT Markets account and start trading now.

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The Euro is currently trading in a stable range against the Yen following a recent trade agreement between the US and Japan. The EUR/JPY is holding above 172.00, but the Euro is under pressure as traders look forward to the ECB’s decision and continue trade talks. The Yen gained strength mid-week after the US-Japan trade deal announcement, which includes a 15% tariff and $550 billion in Japanese investments into the US. However, the Yen’s gains were somewhat limited due to rumors about Prime Minister Shigeru Ishiba’s possible resignation, which he later denied.

Euro vs. Yen Faces Challenges

The Euro has not reacted much to the Yen’s movements and remains under pressure from stalled trade talks and the upcoming ECB policy decision. Despite two months of consistent gains, the EUR/JPY could correct itself, as technical indicators suggest it may be overbought. FAQs explain that tariffs are customs duties aimed at supporting local industries by making imports more expensive. Unlike taxes, tariffs have different methods of application and collection. Opinions on tariffs vary; some see them as wearing a protectionist label, while others warn about their potential long-term economic effects. Former US President Donald Trump’s tariff policy aimed to strengthen the US economy by targeting major trade partners like Mexico, China, and Canada, which helped generate revenue for reducing personal income taxes.

Potential Breakout on the Horizon

The EUR/JPY pair is at a crucial point, facing opposing pressures from Europe and Japan. The support level above 172.00 appears fragile, as upcoming economic decisions and political changes might increase market volatility. Derivative traders should be ready for a possible breakout from this trend. The Euro’s momentum is being tested ahead of the European Central Bank’s policy meeting. Recent flash estimates indicate Eurozone inflation held steady at 2.4% in May 2024, which has made officials cautious about planned rate cuts. This uncertainty could cap the Euro’s gains and increase risks for holding long positions. In Japan, political factors could unexpectedly strengthen the Yen, adding pressure to the currency pairing. Prime Minister Fumio Kishida’s approval rating is around a record low of 24%. Any political changes could lead to a flight-to-safety toward the Yen. This political risk, along with the Bank of Japan’s gradual shift away from very loose monetary policies, supports the Yen’s position. Given the signals of potential corrections from overbought conditions, traders might consider buying put options on EUR/JPY. This strategy offers a way to profit from a decline in the pair’s value while limiting potential loss to the premium paid, making it a defined-risk approach to take advantage of a downturn. Historically, when the ECB and the Bank of Japan have divergent monetary policies, significant trends in this currency pair have occurred, similar to the large moves seen between 2012 and 2015. We may be entering another cycle where central bank actions drive strong directional changes. Positioning ahead of this potential shift could be beneficial. Lastly, the possibility of renewed tariff discussions—a strategy previously favored by the former US president—presents a considerable external risk. These protectionist measures could disrupt global trade and push investors towards safe-haven assets like the Yen, negatively impacting risk-sensitive currencies like the Euro. This global risk further suggests a cautious or bearish outlook on the pair. Create your live VT Markets account and start trading now.

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The price of West Texas Intermediate (WTI) oil is around $65.30. The market is keenly watching the upcoming US EIA Crude Oil Stocks Change report. A predicted drop in US stockpiles by 1.4 million barrels may indicate increased consumption, which is generally good for oil prices. Despite a new trade deal between the United States and Japan, oil prices remain unchanged. However, tensions between the US and the European Union are limiting price increases, as potential countermeasures could come if no agreement is reached.

Key Factors Influencing WTI Oil

WTI oil, a light and sweet type of crude, serves as a key benchmark in oil pricing. Its price is influenced by global economic growth, political issues, and the strength of the US Dollar. Weekly inventory data from the EIA and API help shape oil prices by indicating changes in supply and demand. OPEC’s production levels also play a significant role; lower production usually boosts prices, while higher production tends to lower them. These factors illustrate the complexities of oil pricing and the importance of understanding market influences when examining WTI oil trends. Due to the focus on inventory data, we expect the oil price to be volatile in the short term. The latest report from the Energy Information Administration showed an unexpected increase in US crude stockpiles of 1.8 million barrels, contrary to expectations of a decline. This rise indicates that supply is currently outpacing demand, making us cautious about short-term optimistic predictions.

Approach to Market Volatility

We are also monitoring the Organization of the Petroleum Exporting Countries (OPEC) and its allies. They are likely to extend their voluntary production cuts of 2.2 million barrels per day in their June 1st meeting. This move aims to stabilize the market and could counteract negative sentiment from rising US inventories. The interplay between these two major supply factors makes for a tricky trading environment. The impact of the US dollar on commodity prices is significant. Recent inflation figures show a slight decrease, with the annual rate dropping to 3.4%. This suggests a higher chance of a Federal Reserve rate cut later this year. A weaker dollar makes oil cheaper for buyers outside the US, which could boost prices in the coming months. Given these mixed influences, we advise against simply taking long or short positions. Historically, in times of uncertainty like this, strategies that benefit from increased volatility have been more effective. We recommend buying options such as long straddles, which involve purchasing both a call and a put option to take advantage of significant price swings in either direction. For a more strategic approach, we are considering calendar spreads. This means selling a short-term futures contract, which is more affected by the current oversupply, while buying a longer-term contract that would benefit from ongoing production cuts. This strategy allows us to profit from the expectation that current weak prices will eventually give way to stronger long-term prices. Create your live VT Markets account and start trading now.

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The President of the European Council, António Costa, and the President of the European Commission, Ursula von der Leyen, met with Japanese Prime Minister Shigeru Ishiba in Tokyo during the 30th EU-Japan Summit. Their discussion focused on improving cooperation to address unfair trade practices. This meeting is timely as trade relations between Japan and the US continue to be crucial for the Bank of Japan’s policies.

Positive Steps for Japan

While the EU-Japan talks may not significantly impact the markets, they reflect positive strides in Japan’s international relations. Domestic politics could also increase fiscal support in Japan. We see the summit as a small but positive development, highlighting Japan’s steady integration into global trade. Although it’s not a major market driver, it supports a positive outlook for Japanese assets. This sentiment is evident in the Nikkei 225, which recently surpassed 34-year highs, indicating strong investor confidence. Traders are more focused on the Bank of Japan and the yen. Recent data shows Japan’s core inflation has stayed above the central bank’s 2% target for over a year, with the latest figures around 2.3%. This ongoing inflation raises expectations that negative interest rates may soon come to an end.

Market Impact on the Yen

Typically, when a central bank shifts to a tightening policy, the currency appreciates. Therefore, we suggest that traders should prepare for a stronger yen in the upcoming weeks and months. This could mean buying call options on the yen or put options on the USD/JPY currency pair. A key event to monitor will be the “shunto” spring wage negotiations. If wage growth surpasses last year’s 3.8%, the central bank may have strong reason to raise interest rates. A favorable outcome from these negotiations could cause a rapid movement in the currency. Given this outlook, a smart strategy is to protect long Japanese equity positions against a rising yen. One approach could be to remain long on Nikkei 225 futures while purchasing out-of-the-money puts on USD/JPY. This way, you can keep benefiting from the equity rally while hedging against the currency risk associated with the policy shift. Create your live VT Markets account and start trading now.

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