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Raphael Bostic, president of the Atlanta Fed, expresses concerns about the uncertain US economic outlook.
Federal Reserve Bank of Atlanta President Raphael Bostic expressed concerns about the current state of the US economy and how tariffs might affect inflation. Changes to tariffs could take months to have an effect, making it hard to lower interest rates soon.
Currently, economic forecasts are uncertain, and markets face significant risks. It is crucial to do thorough research before making any investment choices, as market conditions could lead to major financial losses.
The euro fell against the dollar as US data lowered expectations for a Federal Reserve rate cut.
The EUR/USD exchange rate fell by 0.38% during the North American session. This drop was due to U.S. economic data affecting expectations for interest rate cuts by the Federal Reserve. The pair traded at 1.1598, after reaching a high of 1.1642 earlier.
Market sentiment improved after U.S. President Trump dismissed rumors about firing Federal Reserve Chair Jerome Powell. Strong U.S. economic data, including a solid labor market and rising Retail Sales, supports the current Federal Reserve policies, with CPI data showing inflation approaching 3%.
Initial Jobless Claims for the previous week were lower than expected, and Retail Sales exceeded forecasts for June. However, there are worries that rising prices for goods and services are affecting these figures. Inflation in the Eurozone remains closer to the 2% target.
Economic Indicators Focus
This week, the Euro will pay close attention to Germany’s Producer Price Index. Meanwhile, the U.S. will focus on the University of Michigan Consumer Sentiment report and several Fed speeches. The EUR/USD has struggled to move strongly in either direction, with technical indicators showing that sellers are gaining strength. The European Central Bank (ECB), which manages monetary policy in the Eurozone, primarily aims to keep prices stable. The ECB may use Quantitative Easing to influence the Euro’s value during economic changes, targeting stable inflation around 2%. The growing difference between U.S. and Eurozone monetary policies suggests a clear trend. With the U.S. economy still strong, the Federal Reserve is likely to keep interest rates high for longer. This contrasts with the Eurozone situation and creates opportunities for the EUR/USD pair.Recent Monetary Policy Movements
Recent data supports this perspective. The U.S. added an impressive 272,000 jobs in May, well above expectations, indicating a tight labor market. U.S. inflation, measured by the Consumer Price Index, is currently at 3.3% annually, significantly above the central bank’s target. The Fed chairman recently emphasized a cautious, data-driven approach, indicating there is no immediate plan to cut rates. In Europe, the European Central Bank has started its easing cycle, cutting its key interest rate by 25 basis points this month for the first time since 2019. Eurozone inflation has recently risen to 2.6%, but the ECB’s willingness to cut rates first increases the interest rate gap in favor of the dollar. This highlights a different economic situation and policy outlook compared to the U.S. Given these factors, we believe it’s wise to prepare for further weakness in the EUR/USD in the coming weeks. We plan to buy put options on the EUR/USD to profit from a decline while limiting our potential loss to the premium paid. This strategy takes advantage of the increasing pressure from sellers noted in the technical indicators. This situation is similar to the 2014-2016 period when differing policies led to a prolonged downtrend in the currency pair. Back then, the ECB’s easing measures against a tightening Fed caused the EUR/USD to drop by over 20%. History shows that when these central banks move in opposite directions, the resulting trend can be strong and lasting. Create your live VT Markets account and start trading now.Some FX option expiries could impact dollar movement, though expectations for rate cuts are still low.
The US dollar rose initially but then dipped slightly after comments from Fed governor Waller suggested a possible rate cut in July. However, futures for Fed funds show a 97% chance that there won’t be a rate cut this month. This stability indicates that any decline in the dollar may be limited.
In terms of EUR/USD, option expirations might reduce market volatility. The 100-hour moving average at 1.1634 is a key technical point to watch, while expirations at 1.1650 may also impact market behavior.
GBP/USD Expirations and Effects
For GBP/USD, expirations are around the 1.3400 level, close to recent daily lows. While these levels aren’t critical technically, they could reduce immediate downside risk before they expire later today. If you’re looking for more information on option contracts and their effects, detailed guidance is available. We are also providing ongoing visual updates for better clarity. Your feedback is welcome. We think the market’s reaction to one official’s dovish comments is an overreaction that will likely fade quickly. According to the CME FedWatch Tool, there’s an 88.5% chance that the Federal Reserve will keep rates steady at its next meeting, suggesting that most believe a rate cut is not on the horizon. Thus, any dollar weakness from these comments should be seen as a temporary dip rather than a new trend. For EUR/USD, this means price movements will likely remain limited in the short term due to significant options interest. Large expirations are clustered around the 1.0750 level, which may exert influence on the spot price. We’re also monitoring the 50-day moving average now at 1.0790, as breaking through that level is essential for any sustained price movement.GBP/USD Option Levels
In GBP/USD, a significant block of options is set to expire around the 1.2700 mark. This level is psychologically important and is near last month’s highs, suggesting it may cap any rallies soon. We view these options as likely to reduce upward volatility before they expire. Historically, times of uncertainty before a potential Fed policy shift, like late 2018, see a spike in implied volatility. The MOVE Index, which measures bond market volatility, has recently risen over 15% from its yearly lows, indicating that the market is preparing for larger price fluctuations. This suggests the current calm in currency markets might not last. Given this situation, we believe selling options to earn premiums is risky right now. Traders should consider buying option structures like straddles or strangles on major dollar pairs. This strategy positions a portfolio to benefit from the expected increase in volatility in the coming weeks, regardless of the price direction. Create your live VT Markets account and start trading now.Goldman Sachs expects the BOE to gradually reduce rates starting in November, reaching 3% by March.
Goldman Sachs has updated its expectations for the Bank of England. They now predict rate cuts will begin in November and continue until March next year. Previously, a 25 basis point cut was anticipated at the end of September.
The new forecast indicates that the bank rate will eventually settle at 3%. This follows their expectations of a rate drop for the upcoming month.
Revised Forecast And Trade Implications
Given the latest predictions from Sachs, we think traders should adjust their strategies for a longer and more gradual rate-cutting cycle in the UK than once thought. This new view suggests that derivative prices reflecting a sudden, major cut may not be accurate. We should change our positions to account for a series of smaller cuts starting later this year. The credibility of this shift is supported by recent data showing that UK inflation hit the central bank’s 2.0% target in May for the first time in nearly three years. This allows the Monetary Policy Committee to concentrate on boosting a weak economy. This important data makes bearish positions, like receiving fixed rates on swaps maturing next year, seem more favorable. Internal discussions at the bank reinforce this view, as the June policy vote was split 7-2, with members like Dhingra and Ramsden already advocating for a cut. This division shows that the agreement to maintain rates is weakening. Therefore, we see value in using options on SONIA futures to prepare for lower rates into early 2025.Monetary Easing And Economic Implications
The overall economic situation, with UK GDP showing no growth in April 2024, creates a strong case for monetary easing. This stagnation makes it more likely the committee will act to encourage growth once it is sure inflation is sustainably at target. This strengthens the argument for strategies that benefit from lower borrowing costs. Historically, ongoing rate cuts have led to a weaker British Pound. For instance, during the aggressive easing from 2008 to 2009, the pound fell over 25% against the US dollar. We should consider strategies that expect sterling to weaken, such as buying put options on the GBP/USD currency pair. On the other hand, lower interest rates typically boost equities by reducing corporate borrowing costs. This outlook could benefit UK stocks, which have already seen the FTSE 100 hit record highs this year. We can take advantage of this by purchasing call options on the UK’s main stock index. Create your live VT Markets account and start trading now.In May, the United States’ net long-term TIC flows increased to $259.4 billion
The United States saw a significant increase in net long-term Treasury International Capital (TIC) flows, reaching $259.4 billion in May, up from a deficit of $7.8 billion. This shift highlights strong foreign interest in long-term U.S. securities.
In currency news, the Australian Dollar gained strength after earlier losses tied to the Federal Reserve’s soft comments on the U.S. Dollar. The Japanese Yen steadied against the dollar but remains close to multi-month lows as traders stay cautious ahead of political developments in Japan.
Gold and Cryptocurrency Update
Gold prices held steady, staying above a one-week low due to positive market conditions influencing demand. In the cryptocurrency world, Hedera, Flare, and Ripple showed strong growth, benefiting from Bitcoin’s recovery above $120,000. China’s economy grew by 5.2% in the second quarter, driven by solid industrial performance. Nonetheless, challenges like slowing investments and dropping property prices could hinder future growth. Given the strong influx of foreign investment in U.S. securities, we expect continued demand for the dollar. This positive investment trend shows confidence in the U.S. economy. As a result, we are exploring strategies to profit from a rising dollar compared to other major currencies. One strategy could involve buying call options on dollar index futures.Impacts on Currencies and Potential Strategies
The differing movements of the Australian and Japanese currencies reflect sensitivity to central bank policies. With the Yen trading near 160 per dollar, a level not seen in over 30 years, we anticipate high volatility and potential government intervention. Therefore, we recommend options strategies that can benefit from significant price shifts, regardless of the direction, for currency pairs like USD/JPY. Gold’s stability suggests it may serve as a hedge against risks other than stock market volatility, perhaps related to currency shifts or geopolitical events. The World Gold Council’s recent data shows that central banks continue to purchase gold this year, creating strong support for the metal. We believe that selling out-of-the-money put options on gold ETFs is a good strategy to collect premiums while betting that prices won’t drop significantly. The cryptocurrency market is currently very speculative, especially with the lead digital asset’s price actions. The new spot Bitcoin ETFs have attracted more institutional capital, likely driving this rally past previous highs. We see potential in trading perpetual futures for the mentioned altcoins to capitalize on their growth. China’s economic indicators present a mixed picture for traders and open up opportunities for pairs trades. The country’s official manufacturing PMI recently reported 49.5, indicating contraction, while strong industrial output figures tell a different story. We suggest a strategy of going long on industrial commodity futures while shorting an ETF focused on Chinese real estate to navigate this complex environment. Create your live VT Markets account and start trading now.The total net TIC flows in the United States rose from -$14.2 billion to $311.1 billion.
In May, Total Net TIC Flows in the United States jumped from -$14.2 billion to $311.1 billion. This change shows how international capital flows are shifting and may affect the economy.
The Australian Dollar has risen against the US Dollar, gaining over 0.5% after earlier losses. This increase comes as the US Dollar remains weak due to cautious remarks from Federal Reserve officials.
Japanese Yen Stability
The Japanese Yen has remained stable against the US Dollar, especially after recent inflation data. However, it is still near a multi-month low. This steadiness happens as the market is cautious ahead of Japan’s upper house election. In the precious metals market, gold prices have shown limited movement, staying above last week’s low. The current global market conditions have lowered the demand for safe assets like gold. In the cryptocurrency market, Hedera, Flare, and Ripple are leading with impressive double-digit gains. This rise correlates with positive trends in Bitcoin and an overall improvement in market sentiment. China’s economy is growing at a strong rate of 5.2% in the second quarter, but it’s facing challenges like slow retail sales and falling property prices. These indicators create a mixed outlook for China’s economic future.Capitalizing On US Asset Demand
With the surge in international capital, we are gearing up for continued demand for U.S. assets. Recent Treasury data shows that foreign investments in U.S. securities have reached a record high. This suggests that the dollar remains strong despite cautious comments from central banks. We are planning to sell out-of-the-money put options on major U.S. stock indices to take advantage of this expected stability. The recovery of the Australian Dollar is an opportunity due to differing monetary policies. While the Federal Reserve appears cautious, the Reserve Bank of Australia is focused on controlling inflation, which is currently at 3.6%. We are looking into long call spreads on AUD/USD to gain from potential upward movement, keeping in mind its sensitivity to Chinese economic data. The Japanese Yen’s stability close to multi-year lows creates an attractive setup for carry trades. Japan’s recent core inflation rate of 2.5% has not prompted a shift away from its loose monetary policy, leading to a significant interest rate gap with the United States. We are maintaining long USD/JPY futures positions to capture this yield advantage while watching for changes linked to the country’s political calendar. Gold’s limited price movement aligns with a risk-on market atmosphere, as seen with the CBOE Volatility Index (VIX) trading below 15. In this low-risk environment, we believe selling strangles on gold futures is a smart way to collect premiums. This strategy benefits from price stability as long as interest in safe assets remains low. Recent gains in specific digital assets highlight renewed, though selective, interest in the cryptocurrency sector. The Crypto Fear & Greed Index has moved from “Fear” to “Neutral” recently, signaling improved overall sentiment. We are seizing this moment to buy call options on Bitcoin, which provides leverage while setting a clear maximum risk. China’s economic data reveals a complex situation, potentially creating challenges for global growth and demand for commodities. Although overall growth seems strong, China’s official manufacturing PMI unexpectedly fell to 49.5, pointing to underlying weaknesses. To protect against this risk, we are buying put options on industrial commodity ETFs sensitive to this country’s economic changes. Create your live VT Markets account and start trading now.US House approves $9 billion spending cuts bill backed by Trump, awaiting signature
The US House has approved a bill to cut spending by $9 billion, with support from President Trump. This follows a vote in the Senate just a day earlier.
These cuts are the first successful rescission request from a US president in a long time. The administration indicates that more requests may come in the current term. Most of these cuts will affect public broadcasting and foreign aid.
Next Steps for the Bill
The next step is for President Trump to sign the bill into law. We view this new legislation as more symbolic than economically important. The proposed cuts are a small part of the federal budget, which the Congressional Budget Office estimates will exceed $6.5 trillion this year. Therefore, the market’s reaction will likely focus more on the message this sends rather than the exact dollar amount. Traders should note the possibility of future rescission requests from the administration. This introduces uncertainty about fiscal policy, which could lead to increased market volatility, currently at low levels. We are observing the VIX, which has remained between 12 and 15 for months, for changes in sentiment.Impact on Markets
We think that ongoing efforts to cut government borrowing could lead to lower long-term bond yields. A historical example is the post-2010 European austerity period, where countries that showed fiscal responsibility saw their borrowing costs decrease. Traders may want to consider positions that would benefit from lower yields if this trend continues. A perception of greater fiscal discipline in the US could also boost the value of the dollar. The U.S. Dollar Index (DXY) has already performed well this year, and this policy change would likely enhance its strength against other currencies. This could create opportunities in currency futures and options. Derivative traders should shift their focus from broad indexes to specific sectors that rely heavily on federal funding. Options on ETFs in sectors like defense and infrastructure will be crucial to watch. We will be monitoring these areas for increased implied volatility as a safeguard against major announcements in the future. Create your live VT Markets account and start trading now.Waller supports a 25bps Fed rate cut amid fluctuations in currencies and markets
In the latest news, Federal Reserve Board Governor Christopher Waller has suggested a 25 basis points interest rate cut at the July meeting. He highlighted concerns about rising economic risks and a flat labour market. He noted that core inflation is stable and GDP growth is at around 1%. Waller believes a rate cut could help stabilize future policies as the economy slows.
In China, the People’s Bank of China has injected 1.3 trillion yuan into the banking system to ease tight funding conditions. This week’s injection is the largest since January and has helped lower reverse repo rates for three days in a row. This action supports China’s goal of retail sales exceeding 50 trillion yuan by 2025.
Japan’s Inflation Woes
In Japan, June’s Consumer Price Index (CPI) is still above the Bank of Japan’s 2% target. The headline, core, and core-core CPI figures came in at 3.3%, 3.3%, and 3.4%, respectively. Although the U.S. dollar gained broadly, this helped support the yen. In political news, The Wall Street Journal reported links between Trump and Jeffrey Epstein, adding to legal tensions. However, reports about Trump’s health are minimal, mentioning only minor issues. The cryptocurrency market is buzzing with activity. Three major crypto bills have been passed in the U.S., including the GENIUS Act and the CLARITY Act. Overall, the market is positive, with Asia-Pacific stocks benefiting from strong performances in U.S. markets. We think the market has overreacted to Waller’s call for a rate cut. The CME’s FedWatch Tool shows an 85% chance of a 25 basis point reduction, but expectations may be too high given limited support. This presents a chance to prepare for a potential rebound in the dollar by using options on USD futures after the meeting if the Fed does not follow through. Political headlines from the White House are creating significant uncertainty, which is not fully reflected in market volatility yet. Historically, intense political scandals have led to spikes in the VIX index. We see value in buying long-dated call options on volatility indices or using straddles on the S&P 500 to guard against sudden market movements.Crypto Market Developments
Legislative progress and the potential opening of retirement funds to digital assets are positive for the cryptocurrency market. Open interest in Ethereum derivatives has increased by over 30% this week, indicating new capital is flowing in, much like during the Bitcoin ETF approvals in 2024. We recommend buying call spreads on ETH and BTC to capitalize on this upward trend while managing entry costs. A clear difference in policy is emerging between the United States and Japan. One central bank governor is advocating for easing, while Japan’s CPI data remains stubbornly high, putting pressure on its central bank. This situation strengthens the case for a lower USD/JPY, and we are considering buying put options targeting a drop below the 150 level in the coming weeks. China’s central bank’s large liquidity injection signals its commitment to stability and financial health. This, along with a stronger-than-expected currency fixing, should help limit volatility in the offshore yuan. For short-term traders, this presents an opportunity to sell near-term premium in CNH options, anticipating that officials will keep the currency stable. Create your live VT Markets account and start trading now.A battle for GBP/USD highlights decreasing bullish strength and rising bearish influence.
GBP/USD is at a crucial point where weakening bullish strength meets rising bearish pressure. A Doji candle on the daily chart indicates uncertainty. Buyers are trying to hold the 1.3390–1.3370 range, even after some downward movement.
GBP/USD has dropped below its upward channel, currently sitting just above 1.3400. Major support can be found at the 23.6% Fibonacci retracement level from the January–July rally. The price remains under the 50-day and 20-day Simple Moving Averages, showing a decline in short-term bullish momentum.
Momentum Indicators and Technical Analysis
Momentum indicators are shifting away from bullish signs. The Relative Strength Index is close to the oversold level around 39, while the Average True Range, at 0.00927, indicates lower daily volatility, hinting at a potential breakout. If GBP/USD drops below 1.3390, the next targets will be the 100-day SMA at 1.3281 and the 38.2% Fibonacci level at 1.3144. The short-term trend shows selling pressure is still strong, and bulls need to reclaim the 50-day SMA to regain control. The Pound Sterling is the oldest currency in the world and the fourth most-traded, with the Bank of England’s policies impacting its value directly. Key economic indicators like GDP, PMIs, and trade balance play a crucial role in setting its direction. Given the indecisive technical situation, now seems like a good time to prepare for a downward move by buying put options. The Doji candle along with the failure to stay within the upward channel indicates that bullish strength is fading. Buying puts allows for profit from a potential decline while limiting risk to the premium paid.Fundamental Pressures and Market Dynamics
This bearish outlook is supported by fundamental pressures on the Pound Sterling. UK inflation hit the 2% target in May 2024 for the first time in nearly three years, yet stubbornly high services inflation at 5.7% is pushing the Bank of England towards possible interest rate cuts in August or September. This diverging policy with a more aggressive U.S. Federal Reserve strengthens the case for a weaker British currency. Conversely, the dollar remains strong due to a solid labor market and a steady central bank. The recent Non-Farm Payrolls report revealed the addition of 272,000 jobs in the U.S., surpassing expectations and reinforcing the “higher for longer” interest rate outlook. This fundamental contrast makes shorting GBP/USD appealing. The reduced daily volatility indicated by the Average True Range presents an opportunity. Lower volatility usually means cheaper option premiums, making it a good time to buy our puts before any potential breakout. We can secure downside protection at a lower cost ahead of an expected increase in price movement. Historically, significant monetary policy differences, like those seen in 2022, have led to notable drops in this currency pair. If the price breaks below the critical 1.3390 support level, we see a clear pathway towards the 100-day moving average and then the next Fibonacci target. This past behavior suggests a swift decline is likely if key supports are breached. Our strategy will be invalid if bulls reclaim the 50-day Simple Moving Average. A close above this level will signal us to reassess or abandon our bearish positions. For now, all signs suggest gearing up for a downturn towards the 1.3281 level. Create your live VT Markets account and start trading now.Dow Jones Industrial Average recovers as investors relax concerns about inflation and tariffs
The Dow Jones Industrial Average bounced back this week as economic data and earnings reports improved. U.S. Retail Sales for June increased by 0.6% compared to the previous month, exceeding expectations and boosting confidence.
President Donald Trump criticized Fed Chair Jerome Powell, suggesting leadership changes may be on the horizon. Labor data also surpassed estimates, with Initial Jobless Claims falling to 221,000, while analysts had predicted 235,000.
