President Donald Trump has announced a 35% tariff on Canadian imports, set to begin on August 1, 2025. This decision comes in response to concerns about fentanyl trafficking and ongoing trade issues with Canada. After the announcement, the U.S. dollar strengthened slightly, while the Canadian dollar weakened. The currency markets had largely expected this trade move, which limited their reactions. Still, there is ongoing volatility related to tariff news. The USD/CAD exchange rate jumped after the announcement but eventually settled around 1.37, where it is likely to remain unstable as negotiations unfold.

Impact On Interest Rates

Tariffs are likely to raise inflation by approximately 1.8 percentage points in the short term. As a result, the Federal Reserve might choose to keep interest rates steady or even raise them, offering temporary support for the dollar. However, the markets anticipate rate cuts later in 2025, which could weaken the dollar. Futures markets expect about 50 basis points in Fed rate cuts by the end of 2025, starting in September. Trump’s pressure on the Fed raises concerns about fiscal dominance, which could damage trust in the dollar. Rising U.S. deficits have led Moody’s to downgrade the country’s credit rating from Aaa to Aa1, increasing volatility in the bond market and prompting some investors to diversify away from U.S. Treasuries. Analysts expect ongoing downward pressure on the dollar as the year ends, counterbalancing short-term safe-haven demand. Investors should brace for volatility, diversify their assets beyond the dollar, keep an eye on the Fed for policy updates, and consider hedging strategies against the dollar. Markets have largely factored in Trump’s tariff-related policies, leaving limited room for the dollar to gain.

Market Strategies And Hedging

In light of Trump’s announcement, the market has absorbed much of the initial shock, as shown by the stabilization of the USD/CAD pair following its brief spike. Our focus should shift towards navigating expected volatility rather than pursuing a consistent directional move. The tariff’s potential to boost inflation by 1.8 percentage points is critical. With core PCE inflation already at 2.8%, this policy may prompt the Fed to adopt a more aggressive short-term approach, temporarily supporting the dollar. We must be cautious of this misleading trend before the expected easing cycle starts. The markets already expect at least two rate cuts by the end of 2025, as indicated by the CME FedWatch tool, which shows over a 70% chance of cuts beginning in September. This indicates a broader weakness for the dollar later in the year. We can capitalize on this by focusing on longer-term options that bet on a weaker dollar, particularly against the euro. Concerns about fiscal dominance and the credit downgrade from Moody’s are significant and changing foreign investor sentiment. The U.S. national debt has exceeded $34 trillion, leading clients to gradually hedge their exposure to Treasuries. We believe diversifying into assets like gold, which has reached new highs, or the Swiss franc is a wise strategy. For the USD/CAD pair, we are not taking a strong directional stance within the existing ranges. Instead, we are considering buying options straddles ahead of key negotiation dates to benefit from sharp price fluctuations in either direction. One-month implied volatility for the pair has surged nearly 2%, suggesting the market is bracing for instability. Our primary takeaway is to hedge existing dollar exposure and prepare for sudden, headline-driven price changes. The U.S. is Canada’s largest trading partner, with over $70 billion in goods exchanged in the first two months of this year, making the stakes extraordinarily high. We will use forward contracts and increase investments in non-U.S. assets to manage risk. Create your live VT Markets account and start trading now.

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The Japanese market is closed today for a holiday after an election that didn’t favor the ruling party. This puts pressure on Prime Minister Ishiba. Economic updates are limited, with the key focus on New Zealand’s Consumer Price Index (CPI). It is expected to drop quarter-on-quarter but rise year-on-year. The lower quarterly CPI might hurt the New Zealand dollar but could boost local stocks.

China’s Monetary Policy Update

The People’s Bank of China will release its monthly Loan Prime Rate (LPR) today. In May, the LPRs fell by 10 basis points for both 1- and 5-year loans, resulting in rates of 3.0% and 3.5%. No changes are expected in today’s announcement. The main policy rate, known as the 7-day reverse repo rate, is at 1.4%. Due to the political uncertainty around Mr. Ishiba, there may be opportunities in Japanese market volatility. Historical data shows that when Japan’s leadership is questioned, like during the 2021 transition, the Nikkei Volatility Index jumped more than 20% in the weeks that followed. Traders might want to consider buying Nikkei put options or selling futures to protect against a possible downturn.

New Zealand’s Economic Outlook

The inflation report from New Zealand gives a clearer view of the kiwi dollar’s future. A decrease in CPI will match the Reserve Bank of New Zealand’s predictions for 2024, which suggest inflation will return to target by late 2025. This could strengthen expectations for interest rate cuts, making it a good time to buy put options on the NZD/USD pair. In China, the central bank’s expected inaction might be seen negatively by the markets. With youth unemployment still high and the property market struggling after a 20% price drop since 2021, keeping rates steady signals a lack of support. This situation presents a strong case for purchasing puts on Chinese equity ETFs, like the FXI, in anticipation of negative market sentiment. Create your live VT Markets account and start trading now.

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Today marks Marine Day in Japan, which means that the stock and bond markets are closed. However, yen trading continues in New Zealand, Australia, Singapore, and Hong Kong, although activity is less than usual. In the early morning, trading is very thin from Sydney to Hong Kong, with most activity concentrated in New Zealand. Recent events, especially Japan’s election results, have influenced trading, resulting in a stronger yen. The USD/JPY exchange rate is about 147.85, and the EUR/JPY rate is near 172.10. The ruling LDP coalition had a disappointing showing, winning only 41 seats. This could pose challenges for Prime Minister Ishiba, who may need support from the DPP to form a coalition.

Short Term Reaction In Thin Market

The yen’s initial strength appears to be a typical short-term response to political events in a thin market. The poor performance of the ruling coalition creates uncertainty about Japan’s political leadership and economic policies, leading to potential volatility rather than a new trend for the currency. To navigate these increased price fluctuations, we should consider buying options volatility. One-month implied volatility for USD/JPY has already surged over 20% in early trading, reminiscent of the political chaos in the late 2000s. We anticipate more volatility as serious political negotiations begin this week. Historically, extended political instability in Tokyo has weakened the yen by hindering decisive economic policies. This was evident between 2006 and 2012 when frequent changes in leadership negatively impacted the currency. Therefore, we should be cautious about buying into this initial yen rally and instead look for opportunities to profit from a potential reversal.

Attractive Strategies For Price Moves

In addition to the prime minister, a key figure to watch is the Governor of the Bank of Japan. The central bank will strive to maintain stability, but any suggestion that a new, unstable government might push for policy changes could trigger significant market moves. A recent survey by the Japan Center for Economic Research revealed that over 60% of institutional investors view political instability as the biggest risk to their Japan-related investments for the rest of the year. Given this climate, strategies like long straddles or strangles on yen pairs could be quite appealing, as they benefit from significant price movements in either direction. Potential triggers for sharp price action could include a leadership challenge to the current prime minister or difficult negotiations to form a government with the DPP. We should brace for a turbulent, headline-driven market in the coming weeks. Create your live VT Markets account and start trading now.

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The Japanese yen started the week strong, with USD/JPY around 147.85 and EUR/JPY at 172.10. This strength follows Japan’s weekend election, where Prime Minister Shigeru Ishiba’s ruling coalition lost its majority in the upper house. The Liberal Democratic Party and its partner Komeito did not reach the 50-seat threshold needed for a majority in the 248-seat chamber. Opposition parties, which promised tax cuts, gained more seats, along with an anti-immigration party.

Government Challenges and Yen Volatility

While the election outcome does not immediately threaten the government, it puts pressure on Ishiba ahead of an August 1 deadline for U.S.-imposed tariffs. Calls for leadership change within the LDP are expected to grow. Even though the yen is strengthening, we anticipate volatility. The loss of control may lead to uncertainty in policy. Typically, this uncertainty supports the yen as a safe haven, but possible pressure for tax cuts and increased spending may weaken the yen in the medium term. We think the initial strength of the yen is a short-term reaction to political uncertainty. The loss of majority in the upper house creates gridlock, which traders see as a safe-haven signal. However, we expect volatility to create opportunities as the underlying conditions become clear again. The main issue is the large interest rate gap between Japan and other major economies. The Bank of Japan’s policy rate is close to 0.1%, while the U.S. Federal Reserve’s rate is between 5.25% and 5.50%. This gap has been the main cause of yen weakness for over two years and is unlikely to change because of this election outcome.

Implications for Fiscal Policy and the Yen

The setback for Ishiba’s coalition makes it harder for the central bank to adjust its policy. Political pressure will increase for populist measures like tax cuts or more spending, which need low borrowing costs to work. This reinforces the idea that the currency will weaken in the medium term. In the past, times of political weakness in Japan often led to more fiscal stimulus instead of austerity. We saw this during Japan’s ‘Lost Decades,’ where extra budgets were used to support a struggling economy. This suggests that the government’s response to its weakened position will likely hurt the yen. Given this outlook, we see opportunities in derivative contracts that position for a reversal in the yen’s recent strength. For example, buying call options on USD/JPY allows traders to profit if the currency moves back toward 150 or higher, while limiting downside risk. This strategy benefits from both expected yen weakness and high volatility. The upcoming August 1st deadline for potential U.S. tariffs introduces more event risk. A weakened government may find it difficult in trade negotiations, adding uncertainty that could impact the currency. Therefore, we should consider options strategies that can handle sharp price fluctuations around that date. Create your live VT Markets account and start trading now.

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Monday mornings usually have low market activity until more Asian markets open, which can lead to price swings. Right now, the USD has gained slightly after the U.S. strikes on Iran. The EUR/USD is at 1.1632, and USD/JPY is at 148.03, showing some strength in the yen. Following the weekend election, Japan’s ruling coalition has lost its majority in the Upper House. The GBP/USD is at 1.3406. Other currency pairs include USD/CHF at 0.8018, USD/CAD at 1.3715, AUD/USD at 0.6510, and NZD/USD at 0.5963. ForexLive traders are ready for the new FX week.

Market Reactions and Implications

The market is reacting to the U.S. strikes on Iran, leading to low liquidity and the risk of sharp price movements. This uncertainty can cause implied volatility to increase, similar to the spike over 30% in the CBOE Volatility Index (VIX) after the Ukraine invasion in February 2022. Derivative traders might consider buying call options on the VIX or straddles on major currency pairs to prepare for a likely rise in market volatility. The yen is strengthening, reflecting a classic move to safety that is overshadowing local political news. Global risk aversion is driving investors toward traditional safe havens like the yen. We suggest traders look into buying JPY call options or taking bearish positions on USD/JPY, as historical trends show the yen tends to gain during geopolitical tensions. The U.S. dollar is also increasing, but not significantly, suggesting its safe-haven status is being offset by other concerns. Fed fund futures indicate there is over a 60% chance that the Federal Reserve will keep interest rates unchanged at its next meeting, which may limit the dollar’s upward movement. This suggests writing out-of-the-money call options on the U.S. Dollar Index (DXY) to take advantage of a potential halt in its rally.

Australian and New Zealand Dollar Outlook

Typically, the Australian and New Zealand dollars weaken during risk-off events, as these currencies reflect global growth sentiment. Their value closely follows commodity prices and China’s economic health, which recently showed a disappointing Caixin Manufacturing PMI that struggled to stay positive. We see an opportunity to buy put options on the AUD/USD, speculating on further declines if global tensions affect economic forecasts. Create your live VT Markets account and start trading now.

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Crypto market sentiment is measured by looking at long and short positions, which have recently shown some interesting changes. Long volume has risen by 3.33% to about $19.46 billion, while short volume has dropped by 5.77% to around $18.61 billion. This could be seen as a positive sign since long volumes now exceed short ones, but we need to look deeper. Long positions reflect optimism, as traders expect prices to go up. In contrast, short positions suggest that traders anticipate price drops. Data from different exchanges shows mixed signals. For Binance BTC/USDT, the Long/Short ratio is 0.89. Binance Top Traders have a neutral account ratio of 0.99, but their position ratio is bullish at 1.75. On OKX BTC/USDT, top traders have a long/short ratio of 1.82. Meanwhile, Bitfinex shows more shorts, with 111.26K BTC shorted against 45.67K BTC long. These numbers illustrate trader sentiment, but retail and institutional trading behavior can affect predictions. Extreme sentiment can indicate possible reversals, but current data suggests a steady shift toward bullishness without extreme views. Long vs. short ratios give insights but are not guarantees, as market conditions can shift for various reasons. Aggregated data is often more reliable than data from individual exchanges, so traders should watch for changes in positions, especially from top traders, which might signal broader market movements. If the trends continue without extreme sentiment shifts, we might see a short squeeze. Given the positioning data from the weekend, traders should brace for potential volatility. Recent activity in U.S. Spot Bitcoin ETFs saw net inflows surpassing $111 million on Friday, after five days of outflows. This indicates that major players view the recent dip as a buying chance, matching the newfound bullish sentiment among top traders. We see significant short interest on some exchanges, creating a classic setup for a squeeze. Historically, when there have been high, concentrated short positions—like in the summer of 2021—prices have surged upward sharply as bears are forced to buy to cover their positions. With Bitcoin futures open interest on the CME recently exceeding $8 billion, even a small price rise could initiate a wave of liquidations. The options market also suggests a bias for upward movement in the upcoming weeks. The 25-delta skew, an important sentiment gauge, shows higher premiums for call options compared to put options for most future expiry dates. This indicates that traders are willing to pay more for bullish bets, expecting price growth. In the coming days, we need to pay close attention to major economic data releases, especially the upcoming U.S. Consumer Price Index (CPI) report. If inflation figures come in lower than expected, it could spark a “risk-on” sentiment across markets and serve as a catalyst for the squeeze scenario. Conversely, a high inflation report might undermine the bullish outlook and strengthen bearish sentiment. Thus, we advise derivative traders to explore strategies that capture potential upside while managing risk. Buying near-term call spreads could be an effective way to prepare for a rally at a defined cost. Traders should also monitor perpetual swap funding rates; a sudden increase could suggest that the market is overly leveraged on the long side, signaling a need for caution.

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Ethereum futures are currently trading at $3,557, with bullish traders aiming for $4,000. The analysis shows that Ethereum remains strong despite the ups and downs of the broader market. The Point of Control (POC) stands at around $1,550, indicating solid technical support. A bullish breakout in April 2025 led to a 15% price increase, reinforcing the upward trend. A megaphone pattern suggests there could be more volatility and possible bear traps ahead. The current bullish trend is evident in an upward-sloping regression trend channel. Traders should be careful when considering short positions, and only experienced scalpers should think about them. Immediate price targets are $3,765 and $3,840-$3,850, with a key psychological target at $4,000. Traders who entered long positions near $1,800 might consider taking profits at $3,750-$3,850. Ethereum futures are aiming for a breakthrough over $4,000, potentially challenging previous all-time highs. It’s important to keep an eye on the resistance levels and manage positions wisely. Stay updated with thorough market analysis for safer trading. According to our analysis, shorting Ethereum futures is a risky move. The market’s strength, despite negative news in traditional equity markets, indicates a solid underlying demand. Derivative traders should follow this clear bullish trend instead of opposing it. We are witnessing a notable rise in call option buying on platforms like Deribit, with the call-to-put ratio recently reaching a six-month high. This shows that savvy traders are gearing up for a move toward the $4,000 strike price, making long call positions or bull call spreads appealing. These strategies provide a defined risk while aiming to capture potential gains. Selling cash-secured puts with strike prices well below the current market, possibly near the lower end of the regression channel, could also be a smart strategy. This allows traders to collect premiums while maintaining a bullish-to-neutral stance. The data indicates that implied volatility is high because of the megaphone pattern, making premiums for selling puts more attractive than usual. Additionally, open interest in CME ETH futures has increased by over 20% in the last quarter, showing more institutional involvement. This isn’t just retail enthusiasm; major players are building positions, providing better liquidity and support for the trend. Historically, such growth in institutional interest often leads to sustained price increases, similar to late 2020. The fundamental on-chain data backs this view, as the amount of ETH staked has now surpassed 30% of the total supply, a new record. This significantly limits the liquid supply on exchanges, which could lead to a supply shock. Thus, any rise in demand is likely to have a major impact on prices. Given the identified megaphone pattern, traders should prepare for increased volatility and the possibility of sharp, brief declines. Using leveraged positions requires caution, and it may be wise to hedge long futures with long-dated put options to shield against a sudden trend breakdown. This strategy allows for participation in potential gains while managing the risk of a quick price reversal.

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NVIDIA’s stock jumped on July 15th, rising about 4% after it renewed sales of its H20 AI chips to China. This increase came as the market reassessed NVIDIA’s revenue potential, following reassurances from the U.S. government that eased previous uncertainties. On July 14th, NVIDIA’s stock approached important resistance levels, causing some traders to expect a downturn. However, the positive news on July 15th shifted this expectation. The stock’s price rose, surprising bearish traders and supporting a bullish trend, backed by a strong positive delta of +41 million.

Institutional Buying in Mid July

In mid-July, there was significant institutional buying, peaking on July 15th, with a trading volume of 189 million shares and aggressive buying activity. This was supported by a positive Delta, showing that buyers were in control. While the outlook remains bullish, traders should exercise moderate caution regarding profit-taking. Even though NVIDIA appears strong, the buying momentum has slowed in recent sessions (July 16–18). Decreasing trading volume and lower Delta readings indicate a possible consolidation period ahead. Our proprietary AI analysis gives a +5 bullish score, suggesting caution while allowing for mild profit-taking. Key price levels to watch include an anchored VWAP at $170.44 and breakout support at $170. Holding above these levels will support the bullish sentiment. However, falling below these could lead to a drop to $166. While the broader market shows some cooling, NVIDIA remains strong, so careful analysis is vital rather than quick selling. Traders should use smart analytic tools for informed trading decisions, recognizing that no single method is foolproof. A solid analysis of technical patterns and fundamental events will help guide market actions.

Opportunities for Derivative Traders

Our analysis indicates that the sustained bullish sentiment, tempered with caution, offers specific chances for derivative traders. The slowing buying momentum suggests that strategies like call debit spreads could be beneficial. This strategy allows participation in potential upside from resumed sales in China while limiting maximum risk, which is wise given the overall cooling in the tech sector. Current options data supports this balanced strategy, as the put-to-call ratio for the stock remains low, meaning more traders expect a rise rather than a fall. However, since the spike on July 15th, implied volatility has decreased, making it appealing to sell premium. This approach aligns with disciplined risk management principles. It might involve selling covered calls against existing stock positions to generate income during potential consolidation. We see the critical support level around $170 as a strategic point for options trades. Selling cash-secured puts just below this level allows you to collect premiums while the stock holds steady. A confirmed break below this price, especially with increasing negative delta, would be a signal to consider buying protective puts for hedging long positions. The market’s response to other high-performing stocks reminds us that positive news doesn’t always lead to continued rallies. Historically, after sharp increases, NVIDIA’s stock often moves sideways for a while before its next rise, a trend noted in late 2023. This range-bound environment would be ideal for time decay strategies, like iron condors, should a clear trading channel form. Create your live VT Markets account and start trading now.

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The dollar has recently bounced back, partly due to new threats of tariffs from Trump. These threats come ahead of the expected tariffs on August 1, which have not yet impacted US inflation. Still, higher tariffs in the future could complicate how we interpret inflation data. In the last two weeks, the dollar has strengthened, supported by a short squeeze. This situation might have improved further if Trump hadn’t put pressure on the Federal Reserve, alongside the dovish views from Waller and Bowman that affected discussions about potential rate cuts.

Euro US Dollar Pair Reflects This Trend

The EUR/USD pair shows the dollar’s strength, as its main hourly moving averages remain stable. This indicates that dollar buyers are staying strong amid concerns about tariffs. Without Trump’s influence and the dovish outlook, the dollar might have risen more sharply, and conversations about a September rate cut could have been less significant. Even though the dollar has recently gained ground, market sentiment is still shaky. Any shifts in the views of Fed policymakers could lead to changes. The ongoing short squeeze isn’t necessarily a trend reversal; it’s crucial to watch market charts while keeping an eye on tariff developments before the August 1 deadline. The stock market is performing well, hinting that currency and bond markets might follow suit. We think the recent strength of the dollar is mainly due to a short squeeze, supported by recent data from the Commodity Futures Trading Commission. Speculators had held a large net short position against the dollar for months, setting the stage for this rally as traders scramble to cover their bearish positions. For now, opposing the dollar’s upward trend is a risky bet. Trump’s tariff threats before the August 1 deadline are the key focus right now. In the past, during the trade disputes of 2018-2019, the Dollar Index (DXY) climbed as uncertainty made it a safe haven. With the one-month implied volatility for major currencies still low, buying options for sudden market moves could be a smart strategy.

The Federal Reserve’s Influence on the Market

However, a strong opposing force is the Federal Reserve’s policy. The dovish remarks from officials like Mr. Waller and Ms. Bowman have strengthened market expectations for easing, with futures markets indicating a high chance of a rate cut by September. This pressure from the central bank limits how much the dollar can rise. With this tug-of-war, we’re using technical analysis to inform our short-term trades. The Dollar Index hitting resistance suggests we’re seeing a corrective bounce rather than a new bull market. This makes strategies like selling call options or setting up bear call spreads above key resistance levels appealing to earn premiums while managing our risk. We also need to pay attention to the significant divergence with equities, which are telling a different economic story. The stock market’s rise to new highs reflects a “risk-on” mood, typically unfriendly to the dollar. This disconnect suggests that either the currency market will need to adjust by selling off the dollar, or the stock market could be due for a correction. Create your live VT Markets account and start trading now.

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EUR/USD increased by over 0.26% as the US Dollar weakened following dovish comments from Fed Governor Christopher Waller, who hinted at a possible rate cut in July. However, better Consumer Sentiment in the US limited the Euro’s rise, with the trading rate at 1.1626. Waller’s remarks boosted optimism on Wall Street, but Chicago Fed President Ausetan Goolsbee warned about inflation concerns based on recent Consumer Price Index (CPI) reports. Notably, the University of Michigan’s survey indicated improved consumer sentiment in July, suggesting a reduction in inflation expectations.

European Economic Activities

The European Central Bank (ECB) and various EU policymakers have differing views on monetary policy; some favor a pause, while others support easing measures. Recent US data showed a mixed inflation outlook, with CPI near 3% and easing Producer Price Index (PPI) numbers, despite strong Retail Sales influenced by tariffs. Next week, key European economic events will include Consumer Confidence, Flash PMIs for July, and the ECB’s monetary policy decision. In the US, housing data, S&P Global Flash PMIs, Initial Jobless Claims, and Durable Goods Orders will be released. EUR/USD is moving sideways, trending slightly upward. If it breaks above 1.1650, we may see additional gains. Conversely, if it drops below 1.1600, traders should watch for support levels around 1.1550 and lower. The market is facing mixed signals, providing opportunities for derivative traders. Waller’s dovish tone about a potential rate cut is being tested against actual economic performance. The core question is whether the Federal Reserve will follow through on its guidance or wait for more data.

Impact Of Recent Data Releases

To strengthen this perspective, the recent Consumer Price Index for May was recorded at 3.3%, remaining above the Fed’s target and supporting Goolsbee’s cautious stance. Additionally, US retail sales in May unexpectedly slowed, showing only a 0.1% increase. This adds complexity to the inflation narrative and creates uncertainty in the market. The combination of softer growth and ongoing inflation presents a challenging situation for policymakers. Meanwhile, the ECB already cut rates in early June but indicated uncertainty about future adjustments, highlighting the different opinions within the bank. This divergence in policy, with the ECB acting ahead of the Fed, may limit the Euro’s momentum in the short term. The upcoming flash PMIs and ECB policy decision will significantly influence the currency’s next moves. With significant economic data releases expected next week, adopting a long volatility strategy seems wise. Traders might consider a long straddle or strangle, which involves buying both a call and a put option. This strategy benefits from large price swings in either direction, potentially sparked by surprises in the PMI data or ECB announcements. Alternatively, if we anticipate the sideways movement to persist despite upcoming news, an iron condor might be effective. This strategy involves selling both an out-of-the-money call spread and a similar put spread, outlining a range where the trader expects EUR/USD to stay. It profits from low volatility and time decay, taking advantage of the pair’s recent tendency to move within a limited channel. Historically, implied volatility tends to rise before major central bank meetings and key data releases, making options pricier. We recommend checking the current implied volatility levels before engaging in any strategies. If premiums are already high, a range-bound strategy like an iron condor may seem more appealing than investing in a high-priced volatility play. Create your live VT Markets account and start trading now.

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