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USDCAD retraces after failed breakout, focusing on the 200-hour MA
The USDCAD has come under pressure as traders couldn’t keep the price above the 1.3759 level in recent sessions. Yesterday, the price peaked at 1.3773 but quickly fell back after failing to sustain that breakout.
Support was earlier found around 1.3667, which had previously held strong due to the week’s earlier low points. The price tried to recover but faced resistance at the 200-hour moving average, leading to a failed breakout attempt.
The USDCHF is stuck between moving averages as traders wait for a price breakthrough.
USDCHF is currently moving between the 100-bar and 200-bar moving averages on the 4-hour chart. The pair has a key intraday pivot point between 0.7986 and 0.7994.
Earlier this week, USDCHF rose above the 100-bar moving average and held that level, except for a brief dip on Wednesday that quickly reversed. On Wednesday and Thursday, the price struggled to maintain a position above the swing area of 0.80388 to 0.8055, remaining under the 200-bar moving average.
Current Trading Range
Today, USDCHF is slightly lower, trading in a neutral zone between the 100-bar moving average at 0.7970 and the 200-bar moving average at 0.8067. Traders are watching the pair test the swing area of 0.7986–0.7994 in early U.S. trading. If the price drops below the 0.7986–0.7994 range, it could move lower, targeting the 100-bar MA at 0.7970 and the weekly low at 0.7944. If this support holds, traders may shift their focus back to the swing high at 0.8017, with a chance to revisit the 0.80388–0.8055 zone. Breaking out of the 100–200 MA range could signal the next major move. Traders are looking for this important decision point.Trading Opportunities
Resistance and support levels are crucial, particularly at 0.80388–0.8055 for resistance and 0.7994–0.7986 for support. For derivative traders, this tight range suggests low implied volatility, which creates an opportunity. We see this as a chance to sell options strangles, earning premiums while the market remains steady within this range. The goal is to prepare for a volatility spike when the price breaks out. While the technical outlook is neutral, the fundamental aspect isn’t, which should influence our decisions. U.S. inflation stays high at 3.5%, keeping the Federal Reserve cautious, while Swiss inflation is much lower at 1.4%, leading their central bank to cut rates to 1.50%. The widening interest rate gap favors the U.S. dollar in the long run. Thus, we think the price will likely break out to the upside. The quick reversal after the Fed chair’s headlines shows the market’s sensitivity to policy changes, a likely catalyst for pushing prices past upper resistance. A strong move above 0.8067 would signal us to close short volatility positions and increase long bets. However, we must acknowledge the franc’s historical role as a safe-haven currency. Any unforeseen global risk event could prompt a flight to safety, pushing the pair below the 0.7970 support. To hedge our optimistic view, we can purchase inexpensive out-of-the-money put options for portfolio insurance. With the current market situation, we are selling puts below the 0.7942 swing area to benefit from solid support and low volatility decay. Simultaneously, we are gradually buying call options with strike prices above 0.8055. This allows us to profit from the current sideways market while preparing for the expected upward movement. Create your live VT Markets account and start trading now.Trump criticizes Fed policies, suggesting that rate cuts will eventually raise long-term mortgage rates
Trump is worried about the Federal Reserve keeping interest rates steady while inflation rises due to tariffs. He noted that higher rates are hurting the housing market, making it harder for young people to buy homes.
How Interest Rates are Connected
Mortgage rates are tied to 30-year Treasury rates. These long-term rates are shaped by expected short-term rates and a premium for inflation risk. While the central bank’s short-term rates affect long-term rates, they also reflect how people view inflation. If the Fed cut rates to 1% during a time of fiscal policy expansion, long-term rates and inflation expectations might rise. This could push mortgage rates to new highs, leading the Fed to increase rates sharply, which might cause a recession. Despite all the talk about the Fed’s decisions, market players often view this as background noise. It’s more critical for them to hone in on other indicators and data. We believe derivative traders should overlook Trump’s comments on the central bank. The real focus must be on the economic data that shapes monetary policy. This means bypassing the political chatter and focusing on inflation and employment statistics.Strategy for Derivatives Trading
Recent reports show core inflation is persistent, with the latest Consumer Price Index (CPI) for May at 3.3% year-over-year. Although this is a slight improvement, Fed officials want more than one positive report before feeling confident. Their June projections reveal they expect only one rate cut in 2024, down from earlier forecasts. Given this data-driven approach, a good strategy is using SOFR futures to bet against the market’s expectation of aggressive rate cuts this year. The CME FedWatch Tool shows that traders have lowered their expectations from six or seven cuts to just one or two. We see value in positions that profit from rates staying higher for longer than some hope. Political statements can create uncertainty, leading to a choppy market. We believe buying options on the CBOE Volatility Index (VIX) is a smart way to hedge against unexpected market swings in the upcoming weeks. With the VIX recently trading below its historical average near 13-14, these positions can be viewed as affordable insurance. As our analysis suggests, a hasty shift in policy could lead to a jump in long-term bond yields, worsening the housing situation. Traders might consider using options on treasury bond ETFs to protect themselves against a resurgence of inflation fears. This aligns with the belief that policymakers will need to maintain tight policies to avoid such a scenario. History warns us from the 1970s when the central bank loosened policy during fiscal spending and inflation pressures, only to see inflation spiral out of control. This required much more severe rate hikes later to address the issue. We believe current policymakers want to avoid repeating this mistake. Create your live VT Markets account and start trading now.Housing starts and permits surpass estimates, but completions drop significantly, raising concerns about trends.
US housing starts in June hit 1.321 million, surpassing the estimated 1.300 million. Last month’s figures were updated to 1.263 million from 1.256 million. Building permits also exceeded expectations, reaching 1.397 million instead of the predicted 1.390 million.
For building permits, the total came to 1.397 million SAAR, which is a 0.2% increase from last month but a 4.4% drop from last year. Single-family permits were at 866,000, down 3.7% from the month before, while multi-family unit permits (5+ units) were at 478,000.
Housing Starts And Permits
Housing starts totaled 1.321 million SAAR, showing a 4.6% increase from last month but a 0.5% decline from last year. Single-family starts fell 4.6% to 883,000, and multi-family starts (5+ units) were at 414,000. Total housing completions reached 1.314 million SAAR, which is a decrease of 14.7% from last month and 24.1% from last year. Single-family completions dropped by 12.5% month-over-month to 908,000, with multi-family completions (5+ units) at 383,000. The headline numbers for housing starts and permits look misleadingly positive. The weakness in single-family units, which are down month-over-month, indicates a fragile market. The strength in multi-family units alongside the weakness in single-family units suggests that caution is necessary.Housing Market Challenges
The main issue remains affordability, which is being squeezed by high mortgage rates. As of mid-July, the average 30-year fixed mortgage rate was just below 7%, according to Freddie Mac, which is sidelining potential homebuyers. This is evident in the National Association of Home Builders/Wells Fargo Housing Market Index, which fell two points to 43 in July. This marks the third month of decline in a row, reflecting builder pessimism. The most alarming statistic is the 24.1% year-over-year drop in housing completions. This suggests that builders may not be finishing projects, possibly to avoid adding inventory to a struggling market. This slowdown could harm companies in the building materials sector, especially those focused on appliances and fixtures. Historically, a prolonged decline in single-family construction and completions has often indicated an upcoming economic recession. The current data supports this trend, which stands in contrast to strong employment figures and creates a puzzling situation. This disconnect between a weak housing market and a robust labor market is not likely to last. Given these insights, we recommend buying protective put options on homebuilder ETFs, such as the SPDR S&P Homebuilders ETF (XHB). The ETF saw a notable increase in early July, but these housing figures imply that this momentum may not last. This strategy allows us to prepare for a potential downturn in the sector in the coming weeks with defined risk. Create your live VT Markets account and start trading now.The USD falls against major currencies, while US stock indices see slight gains as earnings reports surpass expectations.
The US dollar has decreased in value against major currencies like the euro, yen, and pound. Today’s important data releases include US building permits, housing starts, and the University of Michigan’s preliminary sentiment index, which is expected to rise to 61.5 from last month’s 60.7.
Fed official Waller supports a 25 basis points rate cut in July because of increasing risks and a weakening labor market. He warns that waiting too long may require stronger actions later. Waller anticipates GDP growth around 1% and believes the policy should aim for a neutral position, with the labor market being “on the edge.”
US Stocks Update
US stocks have shown slight increases, with the S&P and Nasdaq reaching record highs. The Dow is up by 71 points, the S&P has increased by 8.39 points, and the Nasdaq is up by 15.96 points. Despite positive earnings, Netflix shares have fallen by 2.15%. Key earnings reports today: Charles Schwab exceeded expectations with an EPS of $1.14 and revenue of $5.85 billion. American Express reported an EPS of $4.08, surpassing forecasts, while 3M posted an EPS of $2.16 but missed revenue targets. After the market closed, Netflix shared strong Q2 results with an EPS of $7.19, also beating future outlook estimates. US Treasury yields have dropped, with the 30-year yield falling below 5.00%. The current yields are 3.877% for the 2-year, 3.960% for the 5-year, 4.425% for the 10-year, and 4.985% for the 30-year. We see the current USD weakness as a trend that has more room to develop, especially after recent comments from a key Fed figure. The market is now anticipating an over 85% chance of a rate cut in July, according to the CME FedWatch Tool. This situation makes buying call options on pairs like EUR/USD and GBP/USD a promising strategy for the upcoming weeks.Labor Market Outlook
The warning about the labor market being “on the edge” is an important signal. Recent data shows weekly jobless claims rising to 238,000, indicating a potential slowdown. A weaker job market supports the case for a pre-emptive rate cut, which may further pressure the dollar. While stock indices are reaching new heights, this creates a confusing picture that may suggest future volatility. The CBOE Volatility Index (VIX) is currently low at around 13, making options relatively inexpensive. We believe it’s wise to consider buying protective puts on major indices as a safeguard against any unexpected negative data. This “insurance cut” narrative reminds us of the mid-1990s when the central bank successfully managed a soft patch without causing a recession. That historical insight indicates a single rate cut could stabilize the markets for several meetings. This supports a short-term trading outlook rather than a long-term bearish shift. The bond market strongly reflects this outlook, with yields dropping across the board. The 30-year yield falling below 5.00% is a significant psychological and technical milestone. For traders, the movement in rates suggests that betting on continued or stable low yields through interest rate futures aligns with the Fed’s expected direction. Create your live VT Markets account and start trading now.Waller pointed out a weaker private sector, noting cautious views on tariffs and rising inflation expectations.
Federal Reserve Governor Waller highlights that while job market numbers look decent, they could easily become unstable. Business leaders say they are neither hiring nor firing, indicating a sense of stability, but also underlying worries.
Discussions on monetary policy are lively, focusing on economics rather than politics. Waller advises caution when opposing interest rate decisions, suggesting that rate cuts can happen anytime, although there’s no strong reason to wait.
Impact Of Tariffs On Inflation
Tariffs act like a tax, spreading costs among various groups. The short-term effects of tariffs on inflation should be looked at over three to six months. While some costs may reach consumers, they likely won’t cause long-term inflation unless tariffs continue. Waller wants to prevent a sharp economic decline and mentions that long-term inflation expectations are stable. He stresses the need for credibility to keep inflation expectations in check. Recently, Waller, known for being more lenient, indicates possible rate cuts or concerns about risks. However, his influence is less significant than before. He might be the only one against rate decisions at the July meeting, alongside Bowman, due to their softer views.Market Reaction And Economic Slowdown
From the Governor’s comments, we think the market undervalues the risk of a near-term economic slowdown. His worry that the job market could easily “tip” suggests we should prepare for a downturn. We are looking at buying put options on major indices that expire after the upcoming job reports. The focus on the delicate state of the private sector is clear, even with positive headline numbers. Recent JOLTS data shows job openings have dropped to 8.059 million, the lowest since early 2021, supporting his cautious viewpoint. This strengthens our belief that our investments should lean towards potential economic weakening. His comments about rate cuts reflect a strong reliance on data, which creates uncertainty heading into the July meeting. The market currently expects about an 85% chance of a rate cut by September, according to the CME FedWatch Tool. Any unexpectedly weak data may shift those expectations much sooner. As a result, trading in short-term options or straddles on interest rate futures could be a good way to navigate this rising volatility. Internal disagreements within the central bank, especially between a practical member like Waller and a more hawkish member like Bowman, add to the unpredictability. This healthy debate indicates less certainty in policy, and we should avoid being too committed to one outcome. Our approach is to stay adaptable, using derivatives to express our views instead of taking large direct positions. Waller’s view of tariffs as a temporary tax rather than a cause of ongoing inflation is crucial for our inflation expectations. With the latest annual core PCE inflation rate down to 2.6%, the central bank has more flexibility to respond to growth concerns than the market realizes. Therefore, we are cautious about betting on rising inflation and are instead positioning ourselves for falling yields if growth data weakens. Create your live VT Markets account and start trading now.US and Japan negotiations ongoing, with elections playing a key role in potential trade agreements
US Treasury Secretary Scott Bessent highlighted that a successful trade deal with Japan is still possible. He stressed the need for a careful agreement instead of rushing into one.
Right now, negotiations show that no final deal has been reached. The results of the upcoming Japanese election are seen as crucial for any potential agreement.
Focus on USD/JPY and Nikkei 225
Bessent’s comments suggest that the timeline for a trade deal is uncertain and may take longer than expected. In this situation, it’s wise to prepare for ongoing volatility rather than betting on a specific outcome. Derivative traders should concentrate on the USD/JPY currency pair and the Nikkei 225 index in the coming weeks. With no rush for a deal, we expect the USD/JPY to react dramatically to any news, whether good or bad. We recommend buying straddles or strangles on this currency pair since one-month implied volatility has risen to 8.7%, indicating market anxiety. This strategy will benefit from significant price changes in either direction, taking advantage of the risks that Bessent mentioned. The Japanese election’s significance is essential for our timing. Prime Minister Fumio Kishida’s approval ratings recently dropped to a record low of 21% in a Jiji Press poll, making the political situation unstable. We think this instability may lead to stalled negotiations, which could strengthen the yen as investors seek safer options.Opportunities in Derivatives
Historically, the Nikkei 225 has shown large movements during crucial trade talks, like the TPP negotiations, where daily changes of 2-3% happened based on rumors alone. Therefore, we should consider using options to protect long-term Japanese equity investments from a sharp decline if talks seem to fall apart. This approach safeguards capital while we await a clear direction. In addition to the main indices, there are opportunities in sector-specific derivatives. Japan’s Ministry of Finance data confirms that automobiles are a top export. We could buy put options on major Japanese car manufacturers as protection against potential tariffs. On the other hand, if negotiations go well, call options on US agricultural companies could be appealing, as Japan is the third-largest export market for American farm products, valued at over $13 billion last year. Create your live VT Markets account and start trading now.The dollar weakens after Waller’s comments, while European markets show mixed performance amid changing yields.
The dollar is facing challenges in trading, mainly due to comments from Fed Governor Waller about a possible rate cut in July. The Euro is up 0.4% against the US Dollar, now at 1.1646. The US Dollar is stable against the Japanese Yen, around 148.40-50. The British Pound has risen 0.3% to 1.3450, moving above its 100-hour moving average. Commodity currencies are also making gains, with the US Dollar down 0.2% to 1.3720 against the Canadian Dollar, and the Australian Dollar up 0.5% to 0.6520 against the US Dollar.
Although there’s no immediate expectation for a rate cut, Waller’s comments indicate there may be discussions on this topic. Bond yields are lower, with 10-year yields at 4.43% and 30-year yields below 5%. European stocks started the day active but have since calmed, with the DAX and UK FTSE moving back from record highs. US futures remain flat after earlier increases.
Precious Metals and Cryptocurrencies Update
Gold has risen 0.5% to $3,355.82, staying within a broader range. Bitcoin is slightly down by 0.3% to $119,062 but remains near record highs. Other cryptocurrencies are showing some momentum. Changes are happening at ForexLive, as team members shift to InvestingLive. Following Waller’s comments, we can expect increased volatility in dollar-related currency pairs. Considering this uncertainty, buying options on the EUR/USD or GBP/USD may be a smart trading strategy. This approach reminds us of late 2023, when the market anticipated the Federal Reserve’s dovish turn, causing a sharp dollar decline before any official rate cut. The drop in US 10-year yields indicates that the bond market is seriously considering the possibility of rate cuts. We can use derivatives on Treasury futures to bet on falling yields. For instance, call options on ZN futures would profit if bond prices keep rising. The MOVE index, which measures bond market volatility, is recently hovering near 100, a historically high level, making options premiums a controlled way to navigate this uncertainty.Equity Market Tensions
Despite flat equity futures, underlying tensions create opportunities. The CBOE Volatility Index (VIX) is near a historically low level of 14, which often indicates upcoming sharp market moves as complacency is disrupted. Setting up a long straddle on the SPX before the next Fed meeting could capture potential breakouts, no matter the direction. Political pressure on Powell and ongoing trade talks with Japan add layers of complexity that could weaken the dollar further. News about Beijing and Nvidia presents targeted opportunities, suggesting that call options on semiconductor ETFs could do well even if the broader market hesitates. The rise in gold prices reflects falling real yields, reinforcing our cautious view on the greenback. Create your live VT Markets account and start trading now.Trump criticizes Powell and the Fed for harming the housing market, blaming all policymakers
Trump is criticizing Powell and the Federal Reserve for high interest rates that are hurting the housing market. He believes these rates make it tough, especially for young people, to buy homes.
He views Powell as one of his worst choices and claims the Federal Reserve isn’t taking action. Trump argues that the US economy is doing well with low inflation and recommends a 1% interest rate to save one trillion dollars each year.
Market Response and Strategies
Despite Trump’s comments, other policymakers have not shown interest in changing their approach. The financial markets are stable, with no signs of a possible rate cut in July, apart from Waller’s remarks. We should consider the political talk as just that: talk. The market’s stability, shown by the VIX index staying below 15 for most of June, indicates that experienced traders are focusing on data rather than drama. Our strategy should stay rooted in economic facts and Federal Reserve signals, rather than political statements. The claim of “VERY LOW INFLATION” isn’t backed by the central bank’s data, so we shouldn’t base our trading on it. Although the May Consumer Price Index dropped to 3.3%, it’s still much higher than the 2% target that policymakers aim for. Therefore, we should not expect any major rate cuts until the data shows a consistent downward trend towards that target. High interest rates are indeed straining the housing market, creating pressure that could lead to changes in policy. With 30-year mortgage rates near 7% and existing home sales declining, we see clear signs of weakness. This makes options on homebuilder ETFs a smart way to respond to potential changes in sentiment or unexpected economic data in the coming weeks.Focus on Federal Reserve Actions
Traditionally, the Federal Reserve has resisted political influence to maintain its credibility, and we expect this to continue. In June, their meeting showed that the median forecast now suggests just one rate cut this year, down from three in March. We need to base our trades on the committee’s actions, not on what politicians want. Given the current situation, our derivatives strategy should concentrate on volatility and the nuances from Fed speakers. Since implied volatility is relatively low, purchasing options to guard against a hawkish surprise or to position for a potential dovish shift from influential speakers could be wise. We will closely monitor Fed Funds futures for any changes in expectations following key board members’ speeches. Create your live VT Markets account and start trading now.Akazawa is arranging a trip to the US to focus on tariff discussions.
Japan’s trade negotiator, Akazawa, is planning another trip to the United States next week. This visit will focus on discussions about tariffs, as the deadline is approaching on August 1.
This will be Akazawa’s tenth visit for these ongoing talks, with only two weeks left to reach an agreement.
