France’s February HCOB composite PMI reached 49.9, beating forecasts of 49.6, reports say
France’s HCOB Composite PMI for February printed at 49.9, above the 49.6 forecast.
Even so, a reading below 50 still signals an overall fall in business activity. The latest figure suggests conditions are closer to stabilising than expected.
France’s HCOB February manufacturing PMI slipped to 49.9, below the 51.4 forecast
France’s HCOB Manufacturing PMI came in at 49.9 in February. This was below the forecast of 51.4.
A reading below 50 indicates a contraction in manufacturing activity. A reading above 50 indicates expansion.
French Manufacturing Slips Into Contraction
France’s manufacturing sector unexpectedly moved back into contraction in February. The PMI fell to 49.9, below expectations for a return to growth. This weaker reading suggests the wider European economy may be more fragile than recent sentiment implied. We see this as a signal to stay more defensive in the weeks ahead. Based on this data, we should consider buying put options on the CAC 40 as a hedge against a possible pullback in French equities. Industrial stocks look especially exposed, and this PMI result clouds the earnings outlook for major manufacturers. In the 2024 slowdown, similar PMI misses often came before a 2–3% decline in the index over the following month. This report, along with Germany’s manufacturing PMI recently slipping to 49.7, also adds pressure to the Euro. We expect EUR/USD to test lower levels and potentially break below the 1.0700 support seen last quarter. Traders could express this view by shorting EUR futures or buying options designed to benefit from a weaker Euro. Soft growth complicates the European Central Bank’s policy outlook, especially with January inflation still firm at 2.4%. Even so, markets may read weaker activity as a reason for the ECB to pause and delay any further tightening. In that context, long positions in interest rate futures—such as German Bund futures—may look more appealing. Rising uncertainty often pushes market volatility higher. We expect the VSTOXX index, which tracks Eurozone equity volatility, to rebound from recent lows near 14. Buying VSTOXX call options or futures is a direct way to position for higher volatility in the coming weeks.Positioning For Volatility And Rate Shifts
Create your live VT Markets account and start trading now.In February, France’s HCOB services PMI rose to 49.6, beating forecasts of 49.
France’s HCOB Services PMI rose to 49.6 in February, beating expectations of 49.
A reading below 50 signals a contraction in activity, and February remained under that level.
Services Slowdown Shows Resilience
France’s services sector is still shrinking, but the downturn is easing more than expected. This upside surprise points to some resilience in the Eurozone’s second-largest economy. In the near term, it could provide modest support for the CAC 40 and the Euro. Most of 2025 was marked by ongoing weakness in services, with the PMI often below 48. Today’s 49.6 reading is still below the 50 level that signals growth, but it is a clear improvement from those lows. The direction is improving, even if the sector has not returned to expansion. This also complicates the outlook for the European Central Bank. Eurozone core inflation was last reported at 2.4% in January, and signs of stabilization reduce the pressure for an immediate rate cut. As a result, traders may trim expectations for a second-quarter cut, which could push short-term yields slightly higher. For equity-derivatives traders, the takeaway is mixed. A steadier economy helps sentiment, but ongoing contraction in services can still limit earnings expectations. This gap between better-than-feared data and continued weakness may keep implied volatility in CAC 40 options elevated in the weeks ahead.Euro Support And Policy Divergence
France’s relative strength could support the Euro, especially versus currencies tied to weakening growth. Recent US retail sales for January 2026 were weaker than expected, raising speculation that the Federal Reserve could move before the ECB. If policy paths diverge further, EUR/USD call options may become a more attractive way to express a bullish Euro view. Create your live VT Markets account and start trading now.Pesole at ING says oil price surges may weaken EUR/USD toward 1.160, despite risk-off support for the dollar
ING says the euro often weakens when oil prices rise, even though risk-off moves in equities can sometimes support it. The note adds that the euro has recently acted as a safe-haven alternative to the dollar.
Using a model based on 12-month rolling betas, the note estimates that another $5 rise in Brent could lead to about a 1% fall in EUR/USD. It also says the link between oil and EUR/USD can get stronger during oil shocks, which raises downside risk.
Oil Impact On Eurusd
The note says EUR/USD is trading about 1% above its short-term fair value estimate. That estimate excludes oil and uses only rates and equities. It argues that, if tensions with Iran escalate sharply, EUR/USD could fall toward 1.160. On the macro calendar, eurozone PMI releases are due after a weaker ZEW index earlier in the week. The note expects the eurozone composite PMI to remain well above 50.0 (the line between expansion and contraction) and says any effect on the euro may be limited. We think the euro is in a weak position when oil prices rise. Europe is a major energy importer, so higher oil prices can hurt growth. The latest flare-up in the Strait of Hormuz has pushed Brent above $92 a barrel, creating a direct headwind for the currency. This should keep pressure on EUR/USD in the coming weeks. Our models, based on 12-month rolling data, suggest that another $5 jump in Brent could mean close to a 1% drop in EUR/USD. This correlation often strengthens during energy shocks, so the risk may be for an even bigger move lower. Options traders should watch for higher implied volatility. Euro put options are one possible way to position for this risk.Positioning For Further Downside
This matters even more because EUR/USD, now near 1.0750, appears to be above its short-term fair value when measured only by interest rates and equity performance. That suggests markets have been slow to fully price in the geopolitical risk. This creates a clearer case for downside exposure. In 2025, EUR/USD’s sensitivity to oil became less pronounced. But current tensions are bringing back the traditional negative relationship. Traders who got used to the weaker link last year could be caught off guard. Recent data also supports a more cautious view on the euro. The flash Eurozone Composite PMI for February was a weak 50.8, showing the economy has little room to absorb an energy price shock. That fragile growth backdrop makes higher oil prices more damaging for the euro. If the Middle East situation escalates significantly, EUR/USD could break key support levels. A move toward 1.0500 is a realistic risk in that scenario. Traders may want positions that could benefit from a decline over the next month. Create your live VT Markets account and start trading now.Gold stays above $5,000 as cautious buyers await US data amid mixed fundamentals
Gold (XAU/USD) stayed positive for a third straight day on Friday. It traded above $5,000, but gains were limited. Traders waited for the US Advance Q4 GDP report and the Personal Consumption Expenditures (PCE) Price Index. These reports were expected to shape views on the Federal Reserve’s next moves and the US Dollar.
Geopolitical tension also lifted demand for gold. Donald Trump gave Iran 10 to 15 days to reach a nuclear deal and warned of consequences. Iran told UN Secretary-General Antonio Guterres it does not want war. However, it said it would target regional bases and assets of any hostile force if attacked.
Federal Reserve Outlook And Dollar Impact
Federal Reserve meeting minutes showed no rush to cut rates. Officials also discussed the chance of raising rates if inflation stays high. A strong US labour market and hawkish Fed comments pushed the US Dollar to its highest level since 23 January, which capped gold’s upside. On the technical side, gold bounced from the 100-hour SMA at $4,965.41, but price action stayed range-bound. MACD remained below the signal line and below zero, though the negative histogram was shrinking. RSI was 53. Core PCE, the Fed’s preferred inflation measure, tracks year-over-year price changes excluding food and energy. Higher readings often support the US Dollar. The Bureau of Economic Analysis releases PCE along with Personal Spending and Personal Income after the GDP report. In early 2025, gold struggled around the $5,000 level. Traders were unsure about the Fed’s direction, and geopolitics added to the volatility. Now, on February 20, 2026, that uncertainty has faded. The outlook for precious metals is clearer and more bullish. A wait-and-see approach is no longer the best strategy.Strategy Considerations For Gold Derivatives
The main reason for the change is inflation. This was a big concern a year ago. The latest Core PCE reading for January 2026 was 2.1% year-over-year. That is a sharp drop from the 3.5% levels seen in early 2025, and it is now within the Fed’s target range. This has shifted expectations for interest rates. As a result, the hawkish tone seen in the January 2025 FOMC minutes—including talk of possible rate hikes—has flipped. The most recent minutes show officials planning for at least two rate cuts before the end of 2026. This shift makes gold more appealing, because gold does not pay interest. Geopolitical risks have also eased since 2025. The specific US-Iran threats cooled later that year, which removed some safe-haven demand from the market. While that reduced one source of support, it has been replaced by a stronger driver: expectations for easier monetary policy. With this setup, derivatives traders may want to position for higher gold prices, rather than keep last year’s cautious stance. One direct approach is buying call options that expire after the next few FOMC meetings, aiming to benefit from rate cuts that could push gold higher. Implied volatility in gold options often rises around major data releases and Fed events, which can make options more expensive. Because of that, bull call spreads can help reduce upfront cost and define risk. This approach offers upside exposure while limiting the premium paid, especially when the direction looks clearer than the timing. Create your live VT Markets account and start trading now.Danske analysts say softer Japanese inflation could delay Bank of Japan rate hikes, despite strong demand signaled by PMIs and fiscal policy
Japan’s CPI inflation fell in January. Headline CPI slowed to 1.5% year-on-year, down from 2.1% in December. Core CPI eased to 2.0% year-on-year, down from 2.4%, marking the lowest core reading in two years.
The decline in headline inflation was mainly driven by utility subsidies and base effects from last year’s price increases. Core inflation also edged lower over the month.
BoJ Policy Implications
Lower core inflation could influence how soon the Bank of Japan (BoJ) raises interest rates. At the same time, demand indicators stayed firm, with February flash PMIs showing resilience and fiscal policy turning more supportive. January’s inflation report has made the BoJ outlook less straightforward. Headline inflation dropped to 1.5%, and core inflation slowed to 2.0%—its weakest pace in two years. With inflation cooling, it becomes harder for the BoJ to justify a near-term rate hike. It’s also important to note that much of the drop was expected. Government utility subsidies and base effects from the price surges in early 2025 were always likely to pull inflation lower. Even so, core inflation now sitting on the BoJ’s 2% target may give more dovish policymakers a reason to wait. As a result, market confidence in a March or April hike appears to be fading. However, the demand side of the economy still looks solid, which sends a mixed signal. The February Jibun Bank Flash Composite PMI rose to 52.5, pointing to faster business activity. The other major focus is the early read from Shunto spring wage talks, where large unions are seeking pay increases above 4% for a third straight year.Options And FX Positioning
This uncertainty on timing may create an opening in the options market. Implied volatility in USD/JPY options has been relatively low. But the push and pull between softer inflation and strong wage pressure could still trigger a sharp move in the weeks ahead. Buying volatility using structures such as straddles may be a sensible way to position for a potential policy surprise. For traders with a directional view, USD/JPY remains difficult to call. A delayed BoJ hike could let the pair drift higher. But the Ministry of Finance has previously used verbal warnings and direct intervention when the yen weakened beyond 152 in 2024 and 2025. That level likely remains an important line of defense and could limit near-term upside. Create your live VT Markets account and start trading now.After strong UK retail sales in January, sterling erased earlier losses, leaving GBP/USD near 1.3460 in Europe
GBP/USD erased its earlier losses in the Asian session and traded near 1.3460 in Europe on Friday after the UK released January Retail Sales data. Sales rose 1.8% month over month, beating forecasts of 0.2% and December’s 0.4%.
Year over year, Retail Sales climbed 4.5%. That was above estimates of 2.8% and the previous 1.9% reading, which was revised down from 2.5%. Markets now await the UK flash S&P Global PMI at 09:30 GMT. The Composite PMI is expected at 53.4, down from 53.7 in January.
Dollar Data In Focus
The US Dollar stayed firm ahead of the US flash S&P Global PMI and the preliminary US Q4 GDP release, both due at 13:30 GMT. The Dollar Index traded near 98.00, close to the almost four-week high it set on Thursday. On the technical side, GBP/USD remained below the 20-day EMA at 1.3575. The February 6 low at 1.3508 acted as resistance. The 14-day RSI was 41. The pound is the UK’s currency and dates back to 886 AD. It accounts for about 12% of FX transactions, or roughly $630 billion per day (2022). Major pairs include GBP/USD (11%), GBP/JPY (3%), and EUR/GBP (2%). A year ago today, a stronger-than-expected January 2025 retail sales report lifted the Pound Sterling. After early losses, it recovered to trade around 1.3460 against the US Dollar. This move was short-lived and happened even though the technical outlook was broadly negative.Strategy Considerations
Today shows some similarities, but also key differences. The Pound is much lower, trading near 1.2650. Still, January 2026 retail sales were also strong, rising 3.4%. This strength in consumer spending is notable because the Bank of England has kept its base rate at a multi-year high of 5.25%. Inflation remains the main driver. The latest CPI is 4.0%, well above the Bank of England’s 2% target. That keeps pressure on the BoE to hold rates higher for longer. In the US, inflation was 3.1%, which slightly reduces pressure on the Federal Reserve. This gap could support the Pound in the near term. With that in mind, it may make sense to look at strategies that benefit from Pound strength or stability versus the Dollar. A bullish call spread on GBP/USD could be a sensible way to position for a gradual rise. It limits downside risk while allowing upside participation if UK data continues to beat US data. Next, the flash PMI releases for both the UK and the US will matter. Watch whether UK services remain strong, since a solid reading could support the case for the BoE to delay rate cuts. At the same time, weaker US GDP numbers could add pressure on the Dollar. Create your live VT Markets account and start trading now.UK public sector net borrowing in January was lower than forecast at £-30.366B, versus an expected £-23.1B
UK public sector net borrowing in January was lower than expected. The forecast was £-23.1bn.
The actual figure was £-30.366bn. This means borrowing was £7.266bn lower than the forecast.
Implications For Fiscal Headroom
The UK’s January public finances delivered a much larger surplus than expected: £30.366bn versus a forecast of £23.1bn. This stronger result increases the government’s fiscal headroom. For traders, it also suggests less near-term pressure for the government to issue new debt. This is a good reason to revisit UK interest-rate expectations. If the government needs to borrow less, Gilt supply may be lower, which can put downward pressure on Gilt yields and support a rise in UK government bond prices. Traders may want to review positions in short-sterling or Gilt futures that benefit if yields fall faster than the market currently expects. This result may also support the British pound. A stronger fiscal backdrop can improve confidence in the currency, especially after the volatility seen during 2025, when debt concerns were a key driver. GBP/USD call options may be worth considering if Sterling gains further support from domestic fundamentals. The data also improves the backdrop for UK-focused equities, particularly companies in the FTSE 250. Lower borrowing reduces a key risk to the domestic economy and can make UK stocks more attractive. This is a shift from the weaker growth outlook that dominated the second half of 2025. January is usually a strong month for tax receipts, but this surplus is still unusually large. For comparison, January 2024 saw a surplus of only £16.7bn, highlighting how big this upside surprise is. Even so, it is important to watch whether this strength continues, as inflation remains the main challenge for the Bank of England. Inflation was last reported at 3.4% for January.Key Risks And Watch Points
Create your live VT Markets account and start trading now.Sweden’s fourth-quarter capacity utilisation fell to -0.6%, down from -0.2% in the previous quarter
Sweden’s capacity utilisation fell in the fourth quarter.
It moved from -0.2% in the previous period to -0.6% in 4Q.
Sweden’s capacity utilisation fell to -0.6% in the fourth quarter of 2025. This points to a sharper industrial slowdown. It also supports the cooling trend seen at the end of last year. In simple terms, factories and production sites ran at lower activity levels than before.
This weaker backdrop increases pressure on the Riksbank to consider rate cuts in the coming months to support growth. Inflation data for January 2026 also showed further easing. That gives the central bank more room to focus less on inflation and more on activity. As a result, policymakers may adopt a more dovish tone.
For currency traders, this supports a bearish view on the Swedish krona (SEK). The SEK may weaken against major currencies such as the euro and the US dollar. Options strategies, like buying SEK puts or buying calls on EUR/SEK, can be ways to position for this move.
The Swedish stock market, tracked by the OMXS30 index, looks more balanced. Weak activity can hurt earnings, but lower interest rates often support equities. Volatility could rise, so strategies like straddles or strangles may appeal to traders who want to focus on the size of a move rather than the direction.
In fixed income, expectations for rate cuts are supportive for Swedish government bonds. If yields fall, bond prices should rise. This makes bond futures positioning a potential trade idea in the weeks ahead.
Germany’s annual producer prices fell 3% in January, below the expected 2.1% decline
Germany’s producer price index fell 3% year on year in January. That was a bigger drop than the expected 2.1%.
This data shows producer prices fell more than forecasts. It compares prices in January with the same month a year earlier.
