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The Canadian dollar rises against the US dollar after dovish comments from Fed Governor Waller
The Canadian Dollar (CAD) is gaining strength against the US Dollar (USD) after comments from Federal Reserve Governor Christopher Waller. The USD/CAD pair is currently trading above 1.3720, showing a slight drop of 0.20%.
Waller indicated that the Federal Reserve might consider cutting the policy rate by 25 basis points. Recent employment data from the US private sector shows signs of slowing down, and inflation risks from tariffs may only be temporary.
GBP/USD rises as UK employment figures ease Bank of England concerns
UK payroll numbers were revised upwards, easing pressure on the Bank of England as inflation remains high. In the US, Fed Governor Waller supports a rate cut in July, while President Goolsbee is cautious about inflation due to tariffs. US consumer sentiment improved, with the index increasing to 61.8, and inflation expectations for the next five years dropped to 3.6%.
During the North American session, GBP/USD rose by 0.21%. The pair was trading at 1.3442, up from a low of 1.3406. In the UK, limited economic data showed a better jobs report, revising May’s payroll numbers from -109K to -25K. This alleviates some worries about the labor market and offers the Bank of England some relief as inflation remains above 3%.
Future Outlook For The UK And US Economy
Looking ahead, the UK will release S&P Global Flash PMIs and Retail Sales data next week. In the US, attention will be on housing data, Flash PMIs, and Durable Goods Orders. GBP/USD is currently showing a modest bullish trend. If it surpasses the 50-day Simple Moving Average at 1.3506, more gains could follow. If it drops below 1.3400, the next support will be at 1.3369. We see opportunities in the different paths of central bank policies in the coming weeks. While one colleague is cautious, Mr. Waller’s support for a rate cut fits with the recent US inflation data, which cooled to 3.3% in May. A potential rate cut in the US could weaken the dollar, pushing the currency pair higher. In the UK, the situation is more complicated, leading to possible volatility around key data. Although payrolls improved, recent official data shows that inflation has dropped to the central bank’s 2% target. This, along with a surprising 2.9% rise in May retail sales, sends conflicting signals to policymakers, likely keeping rates on hold.Investment Strategy Using Options
We recommend using options to trade this forecast, as upcoming reports from both regions could cause sharp movements. Buying call options with a strike price above the current 1.3442 level, targeting the 1.3506 resistance, would enable traders to benefit from a price rise while limiting potential losses. This strategy is especially relevant before next week’s purchasing managers’ indexes. Historically, GBP/USD experiences higher volatility around major economic announcements and central bank changes. For example, the pair moved significantly after the unexpected UK election announcement in May. Using derivatives allows for a defined-risk approach to capture potential breakouts without being fully exposed to unexpected news. Create your live VT Markets account and start trading now.The Euro strengthens against the US dollar as the Greenback weakens and Treasury yields ease.
The Euro is rising against the US dollar as the dollar weakens, following lower US Treasury yields and cautious market feelings. The EUR/USD pair has gone up more than 0.50% and is now around 1.1653.
The US Dollar Index (DXY) is under pressure around 98.18, even with a strong report on Michigan Consumer Sentiment. The University of Michigan’s Index for July increased to 61.8 from 60.7 in June, beating expectations and indicating a resilient economy.
Federal Reserve Officials’ Views
Federal Reserve officials are split on interest rate cuts, with different opinions on inflation due to tariffs. Governor Christopher Waller suggests a 25 basis point cut, while John Williams warns that inflation may stay high. Adriana Kugler thinks it’s best to keep rates steady to meet inflation goals. US tariffs on EU imports have put pressure on the Euro, raising concerns about a trade conflict. Despite positive US data, the European Central Bank (ECB) is not expected to change its policies next week. The ECB’s main goal is price stability, and it primarily uses interest rates to achieve this. In extreme situations, the ECB can implement Quantitative Easing (QE), which typically weakens the Euro. On the other hand, Quantitative Tightening (QT), which stops bond purchases and lets matured bonds run out, can support the Euro during economic recovery. Right now, the mixed signals from the US and Europe are causing volatility, which is great for options trading. Easing US yields are countered by worries about potential trade conflicts in Europe. This back-and-forth indicates that the EUR/USD won’t follow a straight path soon.Strategy for Volatile Markets
We need to closely monitor the differences in inflation data, as these will affect central bank actions. By early 2024, Eurozone inflation has dropped to 2.8%, while US inflation is higher at 3.4%. This makes the policy outlook tricky for both central banks. The market, according to the CME FedWatch Tool, expects a high chance of US rate cuts by mid-year, which we should include in our strategies. Given the differing views from officials like Waller and Williams, we expect sharp price movements around future Fed announcements. A smart move is to buy volatility using strategies like long straddles, which can profit from big price swings in either direction. This approach allows us to benefit from uncertainty without guessing the outcome. The ECB’s expected inaction next week, compared to the Federal Reserve’s debates, shows a policy divide. Historically, when the US cuts rates while the ECB stays put, the dollar tends to weaken. We can position ourselves cautiously with EUR/USD call options, especially around key US economic data releases. However, the risk of tariffs may limit the Euro’s rise and supports the cautious outlook from officials like Kugler. This means that the pair might trade within a range if neither economic bloc signals clear weakness or strength. Selling out-of-the-money puts and calls to create an iron condor could be a good strategy if expectations for volatility decrease. Even if Quantitative Easing seems unlikely right now, we should keep an eye on the comments from officials. Any unexpected hints from the ECB about tightening would strengthen the Euro. This would prompt us to shift away from range-bound strategies and take a more bullish stance on the pair. Create your live VT Markets account and start trading now.Charles Schwab Corporation’s quarterly earnings exceeded expectations at $1.14 per share.
The Charles Schwab Corporation has recently announced its quarterly earnings of $1.14 per share. This figure is better than the expected $1.09 per share and shows growth compared to last year’s $0.73 per share. This result means an earnings surprise of +4.59%, following the last quarter’s report of $1.04 per share when $1 was expected.
The company also achieved revenues of $5.85 billion for the quarter, surpassing estimates by 2.64%. This is an increase from $4.69 billion during the same quarter last year. Over the past four quarters, Charles Schwab has consistently outperformed both EPS and revenue estimates.
Stock Performance And Future Projections
Since the beginning of the year, Charles Schwab’s stock has risen by 25.8%, while the S&P 500 has increased by 7.1%. Management’s insights during the earnings call will be crucial for determining how the stock might move next based on past performance and future earnings expectations. The estimated EPS for the next quarter is $1.12, with revenues expected to reach $5.73 billion. For the entire fiscal year, the EPS is forecasted to be $4.43 on revenues of $22.95 billion. Charles Schwab, part of the Financial – Investment Bank industry, ranks in the top 15% of Zacks industries, significantly outperforming other lower-ranked sectors. Due to strong performance and the positive earnings surprise, we see the recent drop in implied volatility as a chance to take action. Derivative traders might consider selling cash-secured puts at strike prices they’re willing to own. This strategy allows them to collect premiums while maintaining a positive or neutral outlook on the company’s strong position. The interest rate environment has greatly contributed to this success, raising the company’s net interest margin to a record 2.94%. With the Federal Reserve hinting at further rate changes, this important revenue source should stay strong. We view this as a reason to adopt long-term bullish strategies, like buying call options with later expiration dates to capture ongoing momentum.Strategic Investment Approaches
The firm has a massive scale, boasting total client assets of $7.58 trillion as of January 2023, providing a solid foundation that shields it from minor market fluctuations. Even with slightly lower future guidance, the earnings forecast remains exceptionally strong. This underlying strength gives us confidence in rolling our existing bullish positions further into the future. Although the stock has already made significant gains this year, some traders may be hesitant to chase the rally. For those wanting to manage risk, we recommend considering bull call spreads. This method allows investors to engage in potential upside while capping maximum risk and reducing initial capital requirements compared to buying calls outright. Create your live VT Markets account and start trading now.In July, the Consumer Sentiment Index in the US increased to 61.8, surpassing expectations.
Consumer confidence in the US improved in July. The University of Michigan’s initial Consumer Sentiment Index rose to 61.8, beating the expected 61.5 and up from 60.7 in June.
The Current Conditions Index climbed to 66.8 from 64.8, while the Consumer Expectations Index went up to 58.6 from 58.1. Additionally, 1-year Consumer Inflation Expectations fell to 4.4% from 5%, and 5-year expectations dropped to 3.6% from 4%.
Impact on the US Dollar
After this report, the US Dollar faced downward pressure. The USD Index fell by nearly 0.5%, reaching 98.15 at the time of reporting. The key takeaway for traders, based on the University of Michigan’s report, is not just the boost in sentiment, but the significant decline in inflation expectations. This indicates that the Federal Reserve’s strategy of raising interest rates is effectively managing price pressures. As a result, the chances of more aggressive rate hikes have greatly decreased. We can see this change reflected in the interest rate futures markets. The CME FedWatch Tool shows that traders have significantly reduced their predictions for several rate hikes this year. This is supported by recent Consumer Price Index (CPI) data, which revealed inflation slowed to 3.0% in June, the lowest in two years. This suggests that the central bank’s work is nearly complete.Effects on Currency and Equity Markets
For currency traders, this news will likely put more pressure on the US Dollar. A less aggressive central bank makes a currency less appealing, which is evident as the Dollar Index (DXY) recently dropped below the crucial 100 level for the first time in over a year. We recommend using options to position for further weakness against currencies like the Euro or the Yen in the upcoming weeks. This situation is generally favorable for equity markets, as fears of rising interest rates ease borrowing costs and enhance corporate valuations. Historically, markets tend to rally when investors believe a rate-hiking cycle is coming to an end, which contrasts sharply with the sell-off experienced throughout 2022. We see potential in buying call options on broad market indices like the S&P 500, expecting a continued relief rally. Lastly, the market’s fear gauge, the VIX index, has been trading near its lowest levels since before the pandemic, recently staying below 14. This indicates less anxiety and smaller expected market fluctuations. Thus, strategies aimed at benefiting from stable or declining volatility may be favorable for traders. Create your live VT Markets account and start trading now.In July, US one-year consumer inflation expectations dropped from 5% to 4.4%
The University of Michigan’s 1-Year Consumer Inflation Expectations dropped to 4.4% in July from 5%. This change in inflation expectations has affected market behavior, particularly with currency pairs like EUR/USD and GBP/USD.
As a result, EUR/USD rose above 1.1650 due to the weaker US Dollar. Similarly, GBP/USD climbed over 1.3450, benefiting from the soft USD. In the commodities market, gold prices continued to rise, surpassing $3,350, thanks to the weaker USD and lower US Treasury bond yields.
Cryptocurrency Movements
Cryptocurrencies experienced significant changes, with Bitcoin trading above $120,000 and approaching its all-time high of $123,218. Ethereum jumped over 20% this week, aiming for the $4,000 level. Ripple reached a new high of $3.66, reflecting growing market optimism. China’s economic activity showed a 5.2% growth in the second quarter, driven by trade and industrial production. However, slower investment and retail sales, along with falling property prices, raised concerns. Trading foreign exchange on margin carries high risks; it may not be suitable for everyone due to the effects of leverage. We view the recent drop in one-year inflation expectations as an important signal for traders. This trend could ease pressure on the Federal Reserve for aggressive rate hikes, which usually weakens the US dollar. Traders should consider strategies that take advantage of the ongoing softness in the USD. We expect major currency pairs to continue rising against the dollar. Recent data from the Commodity Futures Trading Commission shows that speculative net-long positions in the Euro increased by nearly 10,000 contracts last week, indicating bullish sentiment. We suggest buying call options on both the EUR/USD and GBP/USD pairs to leverage this trend.Gold And Commodities Outlook
The gold rally directly relates to the drop in US Treasury bond yields, which have fallen by 15 basis points recently. Historically, gold performs well when real yields decrease, reducing the opportunity cost of holding this non-yielding asset. Buying bull call spreads on gold futures can provide upside exposure with limited risk. The rise in cryptocurrencies suggests a favorable risk-on environment, driven by expectations of looser future monetary policy. With Bitcoin closing in on its all-time high, implied volatility has risen over 25% in the past month, indicating expected sharp movements. While long positions look appealing, we recommend using protective put options to guard against increased volatility and potential swift reversals. We are also paying close attention to mixed economic signals from abroad. The slowdown in China’s investment and retail sales may dampen global growth prospects and could trigger a shift to safer assets, reversing the current weak-dollar trend. Holding positions in broad market volatility instruments like VIX futures can be a wise hedge against this risk. Create your live VT Markets account and start trading now.Nvidia’s stock soars, leading indices and outpacing competitors in an AI-driven transformation
Nvidia’s market value has surged to $4.2 trillion, showing its swift progress in the AI-driven future. After facing challenges earlier this year, Nvidia’s stock price has doubled, with a 29% increase so far this year, significantly outpacing the S&P 500’s 7% rise. With around 36,000 employees, each Nvidia employee is valued at over $110 million, highlighting the company’s growth.
Currently, Nvidia holds the most significant weight in both the S&P 500 and Nasdaq, with about 7.5% and 14.2% respectively. This puts Nvidia ahead of competitors like Microsoft and Apple. In the MSCI All Country World Index, Nvidia tops the list with a 4.73% weight, even exceeding Japan’s total market share, the third-largest in the world.
Nvidia’s Role in Global Indices
U.S. stocks lead in the MSCI ACWI, but Nvidia’s rise during the AI boom is reducing the shares of other countries in the index. Moving forward, Nvidia’s continued growth will depend on how well AI innovations are incorporated into daily life, influencing productivity and the job market. Despite some challenges, Nvidia remains a frontrunner in this tech era. With Nvidia’s substantial weight in major indices, the market’s direction seems closely tied to a single stock for the near future. The recent 10-for-1 stock split has made options more accessible to a broader range of traders, likely increasing speculative trading. This suggests that trading the Nasdaq 100 is now mainly a bet on one company’s growth, with slight diversification. We are witnessing significant speculative interest in the options market, where daily trading for this stock often exceeds 3 million contracts. This indicates a strong belief that the upward trend will persist in the short term. As a result, bullish traders can benefit from call options on Nvidia’s stock or the QQQ ETF to take advantage of further gains.Risks of Market Concentration
However, this concentration also poses a risk; any negative news could lead to a market-wide selloff. A recent report from Bank of America revealed that a record 69% of fund managers now view US tech as the “most crowded trade,” a situation that often suggests a pullback is imminent. It’s wise to hedge against this risk by purchasing put options on semiconductor-focused ETFs, providing a safeguard against downturns in the sector. Nvidia’s quarterly earnings reports have become events that can cause significant market volatility. We expect implied volatility for S&P 500 and Nasdaq index options to rise leading up to these announcements. This offers us opportunities to trade volatility directly, using strategies that benefit from large price movements in either direction. Moreover, we should remember historical examples, like Cisco’s peak during the dot-com bubble, which went through a severe valuation correction. In March 2000, Cisco made up over 4% of the S&P 500, serving as a warning about the dangers of significant market concentration. This history reminds us that while we ride the current trend, maintaining protective positions is a key part of a wise strategy. Create your live VT Markets account and start trading now.The USD rose against major currencies this week due to ongoing trade talks and economic worries.
The USD had a mixed week against major currencies, weakening slightly in some pairs but generally strengthening over the week. The Federal Reserve is now in a quiet phase before their rate decision on July 30. Discussions are ongoing about possible rate cuts due to economic uncertainties.
Fed Rate Decision Impact
Fed member Waller supports a 25 basis point rate cut, pointing to potential risks. Goolsbee has expressed caution due to inflation concerns from tariffs. In the U.S. debt market, movements were mixed, with different yields changing across maturities. Major corporate earnings are on the way, including reports from Tesla and Alphabet. Key economic events next week include the ECB rate decision, which is expected to stay the same, and regional flash PMI indices. With mixed signals on trade and monetary policy, we expect market volatility to increase from its current calm state. It may be wise to buy options to guard against sudden price changes, as the CBOE Volatility Index (VIX) is near 12.5, historically a low level indicating cheaper options for hedging. This environment is likely to experience price swings as August approaches.Strategic Positioning for Market Movements
Ongoing trade tensions with the EU and potential issues with Japan suggest that the US dollar will remain strong against other currencies. We should explore derivative strategies that could benefit from a rising dollar, especially against the euro. Recent data from the Commodity Futures Trading Commission (CFTC) reveals that speculative net-long positions on the U.S. dollar are increasing, indicating a growing consensus to join this trend. The bond market shows interesting trends, with short-term yields decreasing while long-term yields are rising this week. This steepening of the yield curve suggests that the market anticipates near-term rate cuts, alongside concerns about long-term inflation. This pattern often occurs before the Federal Reserve begins easing. We can take advantage of this ongoing trend by using futures to set up a “steepener” trade, going long on 2-year notes and short on 10-year notes. Create your live VT Markets account and start trading now.The NASDAQ reached record levels this week, rising slightly by 0.05% during trading.
The NASDAQ index ended the day on a positive note, with a slight increase of 0.05%, marking a new record. It has set record highs every day this week and hit this milestone 11 times this year. The NASDAQ rose by 11.39 points, closing at 20,895.66.
The S&P index fell slightly by -0.01% after reaching a new record level the day before, marking its ninth record in 2025. The Dow industrial average declined by -0.32%, losing 142.30 points and finishing at 44,342.19.
Mixed Trading Results
Throughout the trading week, the indices showed mixed outcomes, though most were higher. The Dow dropped by -0.07%, while the S&P gained 0.59%. The NASDAQ increased by 1.51%, and the Russell 2000 went up by 0.23%. With technology stocks leading the way, we see a market with narrowing support. When one index hits records but another falls, it suggests the rally isn’t widespread. This situation creates potential risks and opportunities for traders. We believe that this focused strength makes the market more vulnerable. Recent research from Bank of America reveals that the top five stocks in the S&P 500 now make up over 25% of the index, a concentration not seen in decades. Traders might consider buying put options on the NASDAQ 100 ETF (QQQ) as a safeguard against a possible downturn in the overheated tech sector. Currently, the cost of this protection is relatively low, making it an attractive option. The CBOE Volatility Index (VIX) has been below 14 for much of the past month, which is historically cheap for buying options. A small investment in VIX call options or S&P 500 put options could yield significant gains if market uncertainty rises.Relative Value Trades
We also see a chance for relative value trades. One strategy could involve using options to bet on a convergence between the strong-performing NASDAQ and the slower-moving Dow Jones Industrial Average. This could mean selling call spreads on the tech index while buying call spreads on the industrial index, profiting if the performance gap narrows. This market resembles the late 1990s, when the NASDAQ soared while other indices lagged before a major downturn. That time also had extreme concentration in a few tech stocks. Although history might not repeat itself, it serves as a cautionary reminder against chasing a narrow rally without taking precautions. The Federal Reserve’s policy also supports a cautious approach. Recent Consumer Price Index data indicates that inflation remains stubborn. Policymakers have signaled they will likely maintain higher interest rates for longer than anticipated. This economic headwind could eventually impact the high-valuation growth stocks currently boosting the market. Create your live VT Markets account and start trading now.Next week’s trading will include important economic releases from the Fed, ECB, and several countries.
Next week, the Federal Reserve will start a quiet period before the FOMC rate meeting on July 30th. The European Central Bank is expected to keep interest rates steady, considering ongoing tariff issues, although rates are close to neutral.
