The Pound Sterling has gained ground against most currencies, except for those from Australia and New Zealand. This rise comes amid worries about the UK government’s large borrowing to cope with rising debt due to inflation. Recent reports show that the government’s borrowing is at its second-highest level since 1993. This raises the possibility of tax increases in the upcoming Autumn Statement. Many are looking forward to the preliminary S&P Global PMI data release on Thursday to learn more about hiring trends within the UK’s private sector, which have slowed down partly due to higher social security costs.

Monetary Policy and Interest Rates

The Composite PMI is expected to be 51.9, a slight decrease from June’s 52.0. This suggests that business activity is still growing, but at a moderate pace. The Bank of England may cut interest rates by 25 basis points at its next meeting in August. Currently, the Pound Sterling is trading near 1.3540 against the US Dollar, which is struggling to gain momentum despite a new trade deal with Japan. The US Dollar Index stands around 97.45, close to its two-week low. The likelihood of the Federal Reserve lowering interest rates in September has dropped recently. This change comes after the US imposed tariffs and the market adjusted its expectations, with the probability of a rate cut standing at 58.7%, down from 69.6%. We believe the Pound’s recent gains are only temporary and may not hold up under significant fiscal pressure. The UK’s public sector net borrowing reached £15.0 billion in May 2024, marking the third-highest amount for that month, which implies that tax hikes or spending cuts are likely ahead. This underlying weakness indicates that the current rally may not be stable. Recent economic data also dampens our outlook for the UK’s private sector. The S&P Global UK Composite PMI for June dropped to 51.7 from May’s 53.0. This reflects the slowest growth in business activity in seven months, particularly in hiring, which makes the economy more susceptible to shocks.

Inflation and Its Impact

UK inflation has hit the 2.0% target for the first time in nearly three years. This opens the door for the Bank of England to take action. We think the market is right to price in a roughly 50% chance of a rate cut at the August meeting. The difference in monetary policies between central banks poses a significant risk for the currency. Given this situation, we expect an increase in GBP/USD volatility. Derivative traders might want to consider buying options straddles or strangles before the central bank’s next announcement. This approach can benefit from significant price movements in either direction, which seems likely given mixed economic signals. In the past, rate cuts have significantly impacted the Pound, even when they were somewhat anticipated. For instance, after the rate cut following the 2016 Brexit vote, the currency saw a substantial drop. A similar, though less drastic, shift could happen if a cut occurs in the near future. Meanwhile, the US Dollar Index is stable above 105.50, supported by a careful Federal Reserve. Persistent US inflation, recorded at 3.3% in May, explains this caution around lowering borrowing costs. The probability of a September rate cut has now leveled out around 60%, according to the CME FedWatch tool, reflecting ongoing price pressures. This difference in policy—one central bank likely to cut rates and the other holding firm—creates a clear trading opportunity. We view this as a chance to use derivatives to capitalize on the US Dollar’s strength against the Pound over the medium term. Buying call options on the USD/GBP pair could be an effective way to take advantage of this trend while managing risks. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

Gold prices have recently climbed above $3,400, reaching a five-week high during European trading hours. This rise occurs amid ongoing global trade tensions, even with the US announcing a trade agreement with Japan that includes a 15% tariff on imports. Concerns about global trade continue, particularly between the US and EU. Reports suggest that the US President might raise tariffs on European imports, which could lead to retaliation from the EU.

The US Dollar’s Influence on Gold

The value of the US Dollar affects gold’s attractiveness as a safe-haven asset. Currently, the Dollar is weaker, with the Dollar Index around 97.40, making gold a more appealing buy. Technical indicators show possible fluctuations in gold prices. The price is close to breaking out of a Symmetrical Triangle pattern, with support at the 20-day EMA of $3,358. A Relative Strength Index above 60.00 hints at possible bullish momentum. If gold exceeds $3,500, it may encounter resistance at $3,550 and $3,600, while support could be found around $3,200. Gold is a popular safe-haven asset and a store of value. Central banks, especially those from emerging economies, have been major buyers, significantly increasing their reserves in 2022.

Geopolitical and Economic Factors

Gold prices are affected by geopolitical instability, interest rates, and currency changes. It often moves in opposition to the US Dollar and stock markets. We recommend that derivative traders pay attention to gold’s recent strength, which saw it hit record highs above $2,400 per ounce. This positive trend continues despite the new US-Japan trade agreement, as broader geopolitical risks keep investors cautious. The current conditions suggest that call options or long futures positions might be beneficial. Continuing trade conflicts, especially with China, significantly boost gold’s safe-haven demand. The US President’s recent decision to impose tariffs of up to 100% on Chinese electric vehicles is a notable escalation that could lead to retaliation. We view this instability as a key factor supporting higher gold prices in the weeks ahead. The weakened US Dollar, which recently dropped from over 106 in April to around 104.5, acts as a strong advantage for gold. This makes gold more affordable for those using other currencies, potentially increasing both physical and investment demand. We are closely monitoring the Federal Reserve’s signals on interest rates, as any dovish shift could weaken the Dollar further. From a technical perspective, gold’s price is stabilizing after its recent rise, with significant support near the 50-day moving average around $2,320. The Relative Strength Index remains above 50, indicating that buying momentum is still strong. A significant break above recent highs could lead to reaching the psychological $2,500 level. A major factor in this market is the aggressive buying by central banks. The World Gold Council reported a record start to the year, with central banks adding a net 290 tonnes to global official reserves in the first quarter of 2024. This ongoing demand creates a solid price floor and limits downside risk for traders. Historically, gold performs well during periods of geopolitical tension and when major central banks lower interest rates. We expect this trend to continue, suggesting traders should be ready for volatility while maintaining a bullish outlook. Any dips toward key support levels should be seen as potential buying opportunities. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

The US and EU are close to an agreement on 15% tariffs for certain goods. The US plans to eliminate tariffs on items like aircraft, spirits, and medical devices. At the same time, the EU may introduce similar levies to stop US tariffs from jumping to 30% on August 1. Additionally, the EU is preparing a possible EUR 93 billion package of retaliatory tariffs that could go up to 30% if no agreement is made before August 1. An EU diplomat informed Reuters that Brussels aims to vote on this package on Thursday.

Usage Of Anti-Coercion Instrument

Most EU member countries are likely to support using an anti-coercion tool if a US trade deal fails and US tariffs rise to 30%. Brussels is looking for concessions, but it is still unclear if the US will negotiate on items such as aircraft, spirits, and medical devices. The upcoming August 1 deadline is a key moment for trading volatility rather than direction. This situation offers a binary outcome, which often leads to increased options premiums due to rising uncertainty. Traders should focus on positions that benefit from sharp price movements, no matter the final decision. The impact will especially hit the specific sectors mentioned in the report. With over $40 billion in annual US-EU aircraft trade and billions more in spirits trade, businesses in these markets will experience notable stock price changes. Historical data from 2018 shows that American whiskey exports to the EU fell nearly 30% after retaliatory tariffs were implemented, highlighting the immediate economic effects.

Market Reaction And Trading Strategies

Broader market indices will also react strongly. We can look back to the US-China trade war for a similar scenario. During that time, the VIX index, which measures market fears, often surged above 40% around tariff deadlines and announcements. We anticipate a similar pattern for the VIX and its European counterpart as traders prepare for potential fallout from failing to reach an agreement. Given the uncertainty about whether the former president’s administration will compromise, strategies like long straddles or strangles on key sector ETFs or index funds are recommended. This approach allows traders to profit from increased volatility without having to predict the outcome of the negotiations. The EU’s vote on Thursday regarding the retaliatory package will be a pivotal event, likely leading to significant market movements. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

India’s M3 money supply was at 9.5% on July 7, a slight drop from 9.6%. Changes in the money supply can impact the economy, affecting inflation and interest rates. The EUR/USD pair fell to the low 1.1700s as the US Dollar strengthened after a trade agreement between the US and Japan. In contrast, GBP/USD gained, holding steady around 1.3540 due to the same deal.

Gold and US Dollar Dynamics

Gold prices remained above $3,400 per troy ounce but faced pressure after peaking at $3,440 in recent weeks. This decline is due to a rising US Dollar and higher US yields. In the cryptocurrency market, Bitcoin, Ethereum, and XRP weakened, resulting in a 3.5% drop in total market capitalisation, now at $3.9 trillion. However, speculative interest persists, as shown by increased Open Interest in these digital currencies. During Trump’s second term, recent policy changes have focused on an “America First” approach, affecting trade, tax, AI, and national defense. The markets remain resilient despite the uncertainties these changes bring. With India’s slowing money supply, derivative traders should prepare for possible tightening measures from the Reserve Bank of India. The current M3 growth is about 11.2% year-over-year, and any further slowdown could impact economic growth. We recommend monitoring options on the Nifty 50 index for potential bearish strategies.

US Dollar and Market Reactions

The strength of the US Dollar is a key focus, with the Dollar Index (DXY) reaching multi-week highs above 105.5. This strength has pushed the EUR/USD pair closer to 1.0700, and we may see further declines if political uncertainty in Europe continues. Selling call options on the Euro could be a smart move to take advantage of this trend. Gold’s struggle to maintain its value is linked to rising US Treasury yields, with the 10-year note trading above 4.2%. As gold retreats from recent highs near $2,400, it suggests that the market expects fewer rate cuts from the Federal Reserve this year. We recommend traders consider put options to protect long positions against a potential drop to the $2,200 support level. The recent downturn in the cryptocurrency market has erased over $300 billion from its total worth, which now sits around $2.3 trillion. Still, Bitcoin futures Open Interest remains high at over $30 billion, indicating that speculative capital is repositioning rather than leaving the market. This volatility suggests that using straddles could be an effective strategy to trade expected price swings. His administration’s focus on protectionist policies creates a volatile situation for stocks. The VIX index shot up over 80% during the 2018 trade disputes, and we are bracing for similar volatility with new tariff announcements. Buying volatility through VIX futures or long-dated options on the S&P 500 can serve as a wise hedge against these policy-driven risks. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

The Japanese Yen has risen slightly by 0.1% against the US Dollar after a new trade agreement between the US and Japan. This increase occurs despite ongoing political doubts about Japanese Prime Minister Ishiba, which have been denied yet still impact market feelings. The US will impose a 15% tariff on some imports from Japan, while Japan is likely to ease safety rules for US vehicle imports. Higher Japanese yields contribute to narrowing yield spreads, indicating that the Bank of Japan might start tightening its monetary policy again after stopping due to earlier uncertainties.

Currency Market Movements

In the currency market, the EUR/USD has dropped back to the low-1.1700s after some gains, while GBP/USD remains strong above 1.3500. Both currencies are reacting to the US-Japan trade deal. Gold is seeing small losses but still stays above $3,400 per troy ounce, even with selling pressure and a stronger US Dollar. In the crypto market, major cryptocurrencies like Bitcoin and Ethereum are declining, with total market capitalization down by 3.5%, indicating possible profit-taking. Considering the yen’s modest rise, traders should be careful about betting against it. Japan’s Ministry of Finance has spent a record ¥9.8 trillion (around $62 billion) to support the yen, showing little tolerance for more weakness. This strong approach suggests that strategies like buying puts on USD/JPY could be wise for protecting against sudden increases driven by policy changes. The focus on narrowing yield spreads is important for our strategy. A tighter spread between U.S. and Japanese government bonds historically leads to stronger yen, making it more appealing to hold. We are preparing for a potential shift in the central bank’s stance, which could speed up this trend and put downward pressure on the dollar-yen pair.

European Currencies and the Dollar

The dollar’s impact on European currencies calls for a two-pronged approach from us. With the European Central Bank lowering interest rates in early June 2024, we see limited growth for the euro, making any upticks a chance to short. For the pound, we expect more volatility, making strategies like straddles attractive to take advantage of large price movements without committing to a direction. Despite a recovering dollar, we view the dips in gold as buying chances, likely using call options to reduce risk. Central banks have strongly supported gold by purchasing over 1,000 tonnes in 2023, which helps shield it from speculative selling. This high demand from institutions suggests a strong price floor. The recent drop in cryptocurrencies indicates a “risk-off” trend that shouldn’t be overlooked. After Bitcoin hit an all-time high above $73,000 in March, recent data shows net outflows from new spot Bitcoin ETFs, confirming profit-taking. We recommend lowering leverage on crypto positions or buying protective puts until the market shows signs of stabilizing. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

The USDCHF made a strong comeback after dropping below 0.79197 early in the European morning. This rebound led to a rise, bringing the pair to its first resistance zone between 0.7938 and 0.7947.

Resistance Analysis

To give buyers a stronger position, the price needs to rise above this resistance area. If the upward trend continues, the next targets will be the swing high at 0.7947, the 100-bar moving average at 0.7967 on the 4-hour chart, and the 100- and 200-hour moving averages near 0.7986. Even with the bounce, sellers are still in control unless buyers break through these resistance levels. On the downside, sellers will remain dominant if the price stays below 0.79197. Currently, the USDCHF is trading at levels not seen since 2011, marking these as extreme points. Buyers need to maintain their momentum by surpassing these resistance levels. Last week’s rally peaked at 0.80628 but did not reach the 38.2% retracement of the decline from the May high. For ongoing updates, visit investingLive.com, where daily detailed analysis is available. The sharp rebound after the breakdown serves as a crucial test for derivative traders. If the price clears the 0.7947 resistance zone decisively, call options or long futures positions could become appealing. Until then, sellers, who have dominated for months, still hold the upper hand.

Market Dynamics

The current market situation adds some complexity to the technical analysis. In May, Swiss inflation remained low at 1.4%, giving the Swiss National Bank room for another interest rate cut after its unexpected reduction in March. This differing approach compared to a still-cautious U.S. Federal Reserve could help buyers push past the moving average targets. On the other side, recent U.S. economic data has been mixed, with consumer sentiment dropping unexpectedly to a seven-month low in June. This creates a tug-of-war, making a sustained breakout above the 0.7986 level challenging. Traders should expect volatility around these important technical levels as the market processes conflicting economic signals. It’s important to note that we are trading at multi-year extremes, levels not seen since 2011-2012. Historically, such lows were driven by major central bank interventions during the European debt crisis. This backdrop suggests that a lasting reversal will require significant buying strength to break the established downtrend. Thus, our strategy for the upcoming weeks involves closely monitoring the identified resistance levels. If buyers fail to move past these points, it may be time to consider buying put options or taking short positions, targeting a retest of the 0.79197 support. The market’s response at these critical points will determine our next steps. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

GBPUSD has reached a new intraday high, moving away from the 38.2% retracement level of the July trading range at 1.35263. After some uncertainty near this level yesterday, a corrective dip during the Asian session found support around a key swing range of 1.3505 to 1.3514. In early North American trading, the price briefly dropped below the 38.2% retracement to 1.3523 but quickly bounced back, showing strong upward momentum. GBPUSD then rose to a new intraday high of 1.3561, approaching a swing area target.

Potential Break Beyond 1.3561

If GBPUSD breaks above 1.3561, it could aim for the 50% midpoint of the July trading range at 1.35764. After two days of testing and surpassing the 38.2% retracement, buyers are gaining strength. Market attention is now on whether this upward momentum can continue to reach the 50% level, and possibly beyond. We view the move above the 38.2% retracement as a key signal for our strategy. Michalowski’s technical analysis aligns with fundamental drivers, boosting our confidence that buyers are taking control. This isn’t just a fleeting chart pattern; it reflects ongoing economic trends. UK core inflation is currently at a stubborn 6.9%, notably higher than the U.S. rate of 4.7%. This situation may lead the Bank of England to consider further interest rate hikes while the Federal Reserve appears close to the end of its own rate-raising cycle. Historically, a growing interest rate advantage for the pound often results in lasting strength in the currency pair.

Buying Call Options Strategy

Given the positive outlook, we should consider buying call options with a strike price near the 50% midpoint of 1.35764. This strategy allows us to benefit from the anticipated upward movement while limiting potential losses to the premium paid. It’s a careful approach to the question of whether momentum can be sustained. A solid break and hold above the 1.3561 swing area would prompt us to increase our position. We will closely monitor upcoming retail sales and employment figures from both countries. Strong data from the UK combined with weaker U.S. data could provide the boost needed to surpass the next target level. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

The Pound Sterling (GBP) has made a small gain, continuing its recovery after a recent drop. With not much domestic news expected, all eyes are on Thursday’s preliminary PMI reports. Manufacturing is likely to stay below 50, indicating a slowdown, while services are predicted to show slight growth above 50. The currency is benefiting from improving spreads and short-term rates, which suggest a 25 basis point rate cut by early August and possibly more easing by the end of the year. A sustained upward trend is indicated by the rise above the 50-day moving average at 1.3524. Support is strong in the upper-1.33s, confirming the overall bullish trend, with the Relative Strength Index (RSI) staying positive above 50.

Trading Range and Risks

A trading range is expected soon, with support at around 1.3500 and resistance at 1.3580. Given the potential risks and uncertainties, it’s essential to do thorough research before making investment decisions. Individuals are responsible for their financial outcomes, and there are no guarantees that the data is error-free or current. This content is for informational purposes and does not constitute investment advice; the authors are not liable for any inaccuracies. Considering the current trend, traders should look for strategies that can benefit from slight upward movements within this range. A bull call spread might be a practical approach, aiming to seize potential gains up to the 1.3580 resistance. This strategy also limits initial capital risk ahead of key data releases. The preliminary PMI reports are important to watch, but recent data already suggest a stronger outlook than expected. The S&P Global/CIPS UK Manufacturing PMI for May surprisingly increased to 51.2, the highest in 22 months, contradicting the idea of ongoing contraction. A similar positive services report, last recorded at 52.9, could strengthen the pound further.

Market Expectations and Strategies

Market expectations for monetary policy support this cautious optimism. Traders are anticipating a rate cut by August; however, April’s inflation data came in at 2.3%, slightly above the 2.1% prediction, which might delay action by the Bank of England. This hold on easing is likely to keep short-term rates favorable for the pound. For those who believe the currency will remain stable, selling put options with a strike price near the 1.3500 support level could be a profitable strategy. Historically, after recovery periods, the pound tends to consolidate, making income-generating strategies appealing. This approach assumes the specified support level will hold in the coming weeks. We recommend keeping an eye on implied volatility levels leading up to Thursday. If option prices seem relatively low, buying a straddle could be a smart way to trade the PMI release. This would enable a trader to profit from a significant price change in either direction, should the data significantly surprise the market. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

The Euro has dipped 0.2% against the US Dollar, falling behind other G10 currencies. This decline comes as markets gear up for the ECB announcement on Thursday and await the manufacturing and services PMI data, with manufacturing likely still in contraction. Recent trade sentiment has been affected by an agreement between the US and Japan, while progress on US-EU agreements seems to be stuck. Attention will be on how the ECB communicates on Thursday, as traders expect a possible 25-basis point rate cut by year-end.

Technical Analysis And Market Risks

Since February, the Euro has been on a trend of higher lows and higher highs. The RSI is in a bullish range, and the 50-day moving average offers medium-term support. Support is noted below 1.1650, while resistance is anticipated above 1.1780, indicating a cautious market outlook. Traders should pay attention to risks and uncertainties, and it’s important to do thorough research before investing. Readers should keep in mind the risks associated with trading foreign exchange on margin, which can lead to significant financial losses. Looking ahead, the key driver for the Euro will be the central bank’s policy meeting on June 6th. Markets currently predict over a 90% chance of a 25-basis point interest rate cut, which seems to be already priced in, making surprises less likely. New economic data reveals a two-speed economy. While S&P Global’s HCOB Manufacturing PMI for May stayed in contraction at 47.4, the services sector showed strong growth, pushing the composite index to a 12-month high. This mixed performance complicates a straightforward bearish outlook for the Euro.

Investment Strategies And Market Outlook

The uncertainty about the central bank’s future guidance, rather than the cut itself, is expected to increase short-term implied volatility. Traders may want to consider strategies that react to price movements, regardless of direction. Buying straddles or strangles on the EUR/USD could effectively position for swings after the announcement. Due to the trend of higher lows since February, a “sell the rumor, buy the fact” response seems possible. Cautiously bullish traders might consider purchasing call spreads to limit costs and potential trade risks. This strategy prepares for a modest rally while capping maximum losses upfront. Typically, the market quickly focuses on the pace of future rate cuts after the first reduction. If Thursday’s announcement feels uncertain about future moves, it could lead to a short squeeze. The potential divergence in policy with a more dovish U.S. Federal Reserve is an important theme to watch. We are monitoring key levels, with significant support around 1.0800 and resistance near 1.0900. Selling out-of-the-money puts with strike prices below current support could be another way to collect premium, as it benefits from either a stable or rising price and the expected decline in volatility after the event. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

Today’s market shows a mix of strong technology and consistent financial performance, creating a complex environment. Semiconductor and financial stocks are in the spotlight, with various trends affecting market movements. Nvidia’s stock has risen by 1.19%, standing out in the mixed tech sector. Advanced Micro Devices climbed by 1.51%, reflecting confidence even amid general volatility. JPMorgan Chase and Bank of America saw gains of 0.80% and 1.11%, respectively, showing strength in the financial sector.

Market Mood and Diversification

The market mood is cautiously optimistic, with positive changes in semiconductors and financials. However, key tech and consumer electronics stocks have declined, suggesting potential changes in investment strategies. We recommend diversifying into stable financial stocks while being cautious with tech-heavy portfolios, given the mixed performance of big tech companies. The positive trends in semiconductors are noteworthy, but upcoming industry news could affect these patterns. It’s wise to keep an eye on the consumer electronics and communication services sectors, as they present both risks and opportunities. You can stay updated with the latest trends and insights through market analysis platforms. Thanks to the strong upward trend in semiconductors, we think traders should consider bullish strategies. After Nvidia’s recent impressive earnings report and its 10-for-1 stock split announcement, we expect ongoing momentum for NVDA. Traders might look into buying call options to benefit from this, although high implied volatility could make call debit spreads a more affordable option to tap into the upside.

Financial Sector Resilience

In the financial sector, companies like JPMorgan Chase are showing resilience due to the “higher for longer” interest rate environment, with the 10-year Treasury yield staying above 4.4%. Selling cash-secured puts on these stable companies could be a smart strategy, allowing traders to earn premium while setting a price they’d feel comfortable owning the stock at, taking advantage of its perceived stability. The difference between strong sectors and weaker ones highlights the need for caution. The CBOE Volatility Index (VIX) is currently trading at multi-year lows around 13, making hedging relatively affordable. We suggest buying protective puts on broad market ETFs like SPY to safeguard portfolios against a potential pullback from all-time highs. Historically, long stretches of low volatility like we see now don’t last forever and often lead to sharp market moves. Therefore, strategies like long straddles or strangles on specific volatile stocks during their earnings events could be a good way to prepare for price spikes. A calendar spread might also be useful for taking a longer-term approach, betting that future volatility will eventually rise from these low levels. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now