The Baker Hughes weekly rig count reports a drop of two oil rigs, bringing the total to 422. Meanwhile, gas rigs increased by nine, totaling 117. In total, the rig count rose by seven, reaching 544 rigs.

Oil Rig Decline

The slight dip in oil rigs suggests that producers remain cautious and disciplined with their capital. This small reduction in future supply supports a positive outlook for crude prices. It seems that U.S. shale producers are not aggressively pursuing new drilling even as prices rise. This decrease in drilling is occurring while the oil rig count is close to its lowest level since early 2022. Recent data from the U.S. Energy Information Administration shows a reduction of 2.5 million barrels in crude inventory, along with OPEC+ maintaining its production cuts. Traders might want to consider strategies to benefit from rising oil prices, such as buying call options on WTI futures. In contrast, the significant increase in natural gas rigs indicates that producers are seizing opportunities from recent price gains driven by forecasts of a summer heatwave. This boost in future supply could lead to lower prices in the medium-term, especially for contracts later in the year. This is the largest weekly rise in gas rigs in over a year.

Natural Gas Rigs Surge

This increase in drilling comes as natural gas in underground storage is more than 20% above the five-year average, according to the latest government data. The mix of rising drilling activity and already high inventories may limit prices after the short-term demand decreases. Traders could consider buying put options on Henry Hub futures for the winter to prepare for a possible price drop. The clear difference between oil and gas drilling activity offers a relative value opportunity. Historically, such disparities suggest a strategic shift by energy companies based on their views of the commodity market. We believe the market might be underestimating the potential for continued tightness in the oil sector compared to the well-supplied natural gas market. Create your live VT Markets account and start trading now.

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US stocks fell after news about possible new tariffs. The Dow Jones dropped by 0.55%, the S&P 500 by 0.18%, and the Russell 2000 by 0.64%. In contrast, the NASDAQ index rose by 0.16%. For the trading week, the Dow decreased by 0.30%, while the S&P gained 0.43%. The NASDAQ rose by 1.30%, and the Russell 2000 increased by 0.19%. Despite recent declines, the S&P and NASDAQ achieved record highs.

US Debt Market

In the US debt market, yields have declined today. The two-year yield is at 3.862%, down by 5.44 basis points. The five-year yield is at 3.946%, down by 5.9 basis points. The 10-year yield sits at 4.419%, dropping 4.3 basis points, while the 30-year yield is at 4.990%, down by 2.3 basis points. Over the trading week, most yields decreased. The two-year yield fell by 3.0 basis points, and the five-year yield decreased by 3.2 basis points. The 10-year yield remained unchanged, while the 30-year yield went up by 3.5 basis points. The Fed funds interest rate expects cuts of less than 50 basis points by the end of the year. We think the report about possible tariffs from the former president indicates increased market uncertainty, which plays a big role in derivative strategies. The CBOE Volatility Index (VIX), known as the market’s “fear gauge,” recently surged over 7% due to trade-related news, suggesting we should prepare for greater price fluctuations. Historically, trade disputes in 2018-2019 caused ongoing volatility, and we expect a similar situation could arise again. Given the market’s initial negative response, investing in protective put options on broad market indices like the SPDR S&P 500 ETF (SPY) appears valuable. This strategy provides a direct hedge against potential downturns caused by rising trade tensions. The significant drop in the Russell 2000 indicates that even smaller, domestically focused companies are not safe from these concerns.

Sector Vulnerability

The mention of a 25% tariff on automobiles makes that sector especially vulnerable, prompting us to consider bearish positions. We could buy put options on automakers with strong European supply chains or on an ETF like the First Trust Nasdaq Transportation ETF (FTXR). According to the European Automobile Manufacturers’ Association, the EU exported over 1.2 million cars to the U.S. in 2023, highlighting the potential impact of this policy. On the other hand, the strength of the tech-heavy NASDAQ suggests it might be relatively insulated from direct European trade conflicts. We could create pairs trades, like buying call options on the Invesco QQQ Trust while simultaneously buying puts on the industrials-focused SPDR ETF (XLI). This approach isolates the potential outperformance of tech compared to sectors more affected by the tariffs. We see the sharp decline in bond yields, particularly on the two-year note, as a move towards safety and a sign that the Federal Reserve may need to respond to a slowing economy. If trade tensions rise, the market is likely to price in more significant rate cuts than the expected cuts of less than 50 basis points. Therefore, we consider long positions in Treasury futures or call options on bond ETFs like the iShares 20+ Year Treasury Bond ETF (TLT) to be a sound strategy in light of this possibility. Create your live VT Markets account and start trading now.

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President Trump is suggesting a minimum tariff of 15-20% on all goods from the European Union (EU). This is a change from the previously discussed 30% tariff mentioned in “the letter.” Trump is not planning to lower the 25% tariff on EU cars and is even considering higher reciprocal tariffs above 10%, regardless of any potential agreements. The EU trade commissioner reported pessimism about recent talks in Washington to EU ambassadors. Trump opposes 0% tariffs and wants a tax on EU access to the U.S., ranging from 10% to 20%. There will be no tariffs on U.S. exports, with national security being offered as the reason for these measures. EU companies will not face tariffs on goods produced and sold in the U.S. In financial markets, the EUR/USD exchange rate has fallen, testing the 100-hour moving average. The drop in the currency pair follows a failed rally between 1.1663 and 1.1691, seen at the 200-hour moving average. If it falls below the 100-hour moving average, it could reach another low at 1.1614 and 1.1563-1.1578, which would be a 38.2% retracement to 1.15372 from the May low. Given the President’s clear intentions, we believe this is more than just a short-term negotiating tactic; it signals a real policy change. The push for a minimum 15-20% tariff, even after a possible deal, indicates a long period of trade tension. Traders should prepare for ongoing uncertainty and a weaker European economic outlook. The immediate response in the EUR/USD exchange rate is crucial. We should view any rises towards the 200-hour moving average as chances to put on short positions. A drop below the 100-hour moving average would confirm this downward trend. We will initially target the swing low at 1.1614, using put options or direct futures shorts on the Euro. This situation is serious, as U.S.-EU trade in goods and services topped $1.3 trillion in 2022. A widespread tariff would greatly affect this trade flow, which supports a bearish view on the Euro. The negative assessment from the Commissioner in Washington suggests that a diplomatic solution is not close. Beyond currency, we see a clear opportunity in equity derivatives, especially by buying put options on European indices, like Germany’s DAX. The administration’s refusal to lower the 25% tariff on cars puts German automakers in a vulnerable position. This sector is essential to the German economy and a major exporter to the U.S. Historically, companies like BMW and Mercedes-Benz rely on the U.S. for a significant share of their sales, often between 15% and 20% of their global total. The national security justification gives the White House the power to impose these tariffs quickly, making put options on these specific auto stocks a strong strategy. We also expect increased market volatility. During the 2018-2019 U.S.-China trade dispute, the VIX index, which measures expected volatility, shot up over 40% several times after tariff announcements. Therefore, we should consider buying call options on volatility indices to benefit from the expected market swings. Our strategy will be to build positions as technical evidence backs up our fundamental view. We will add to our EUR/USD shorts upon a confirmed break of the 100-hour moving average. Our focus remains on the downside targets, including the 38.2% retracement level near 1.1537.

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European indices had mixed results at the end of the week. Germany’s DAX dropped by 0.35%, while France’s CAC barely budged with a slight increase of 0.01%. The UK’s FTSE 100 saw a small rise of 0.22%, Spain’s Ibex fell by 0.04%, and Italy’s FTSE MIB rose by 0.46%. During the week, Germany’s DAX edged up by 0.14%, whereas France’s CAC slipped by 0.08%. The UK’s FTSE 100 increased by 0.57%, Spain’s Ibex decreased by 0.14%, and Italy’s FTSE MIB saw an increase of 0.58%.

Anticipation for Tariff Changes

Looking ahead, there’s growing anticipation for the August 1 deadline concerning tariff changes. The possibility of tariffs rising to 30% is significant. Speculation suggests that even with some agreements, the lowest tariffs could fall to around 10% if the EU imposes none. There is a chance that tariff levels could remain higher than expected. The U.S. administration seems to favor increasing tariff revenues, thinking that pressures from inflation might ease. The varied performance across European markets points to uncertainty ahead of a major event. Markets are essentially stagnant, with indices like the DAX and Ibex barely changing throughout the week. This uncertainty often precedes a big move.

Concern Over U.S. Tariffs

Our main concern is the potential for increased U.S. tariffs, which could wake up the markets from their current lull. European market volatility, measured by the VSTOXX index, recently spiked above 18 due to political news in France, reflecting how fragile the market is to uncertainty. An escalation in trade disputes could push this measure much higher, much like during the 2018-2019 trade conflicts when the U.S. VIX soared over 40% due to tariff updates. Former President Trump’s perspective indicates that tariff revenues are beneficial and that inflation pressures will ease. Recent U.S. inflation data for May, showing a decline to an annual rate of 3.3%, might encourage a more assertive trade policy. This increases the likelihood of higher tariffs, more than some traders might realize. In light of this situation, we suggest that traders consider buying protection for their equity portfolios. Purchasing put options on major indices like the Euro Stoxx 50 or the DAX can help shield against a sharp market downturn. This strategy creates a safety net for potential losses if trade talks go sour. For those looking to profit from the expected volatility, we are exploring strategies like straddles or strangles. These positions aim to benefit from significant price movements in either direction, which seem very likely. The idea is not to predict a market direction, but to prepare for the sharp movements that are expected. Create your live VT Markets account and start trading now.

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The GBPUSD pair increased today after stabilizing earlier this week within a range of 1.3360 to 1.3378. Buying interest grew when the pair rose above its 100-hour moving average at 1.3416, gaining strength in the early U.S. session. This rise pushed the pair into a higher range between 1.3448 and 1.3475, which aligns with the 50% midpoint of the range since May’s low at 1.3464. The day’s peak was 1.34745, close to the top of this range, but it couldn’t break through. As a result, the pair moved lower and is now trading below the swing area low of 1.3448.

Key Support And Resistance Levels

Earlier, buyers regained the 100-hour moving average and briefly rose above the 50% midpoint but couldn’t hold that ground or reach the 200-hour moving average. The failed attempt above 1.3464 acts as a risk point for sellers and a target for buyers aiming to regain control. On the downside, the key support is at the 100-hour moving average of 1.3416. From the current level around 1.3435, a move back to this average is possible. If it breaks below, sellers may gain momentum, potentially leading back to the support zone between 1.3378 and 1.3360. We believe the recent failure at the 1.3475 resistance level presents a good opportunity for derivative traders. The inability to maintain gains above the key midpoint suggests weakness, making strategies that take advantage of a decline or consolidation appealing. Thus, we are considering buying put options or setting up bear put spreads to profit from a potential move back toward lower support levels. This cautious outlook is supported by recent economic data, as UK inflation remains high. The latest figures from the Office for National Statistics show the Consumer Prices Index (CPI) at 3.9%. Although this is down, it is still nearly double the Bank of England’s target, complicating future rate policies. This uncertainty from Governor Bailey’s team is likely to limit the pound’s strength in the near term.

Economic Outlook And Trading Strategy

In contrast, the U.S. economy shows more strength, with the latest Non-Farm Payrolls report showing an impressive addition of 216,000 jobs, far surpassing forecasts. This robust labor market gives the Federal Reserve more room to maintain a hawkish approach to ensure inflation is managed. Such a policy divergence typically strengthens the U.S. dollar, putting further downward pressure on this currency pair. For a straightforward bearish play, buying put options with a strike price just below the critical 100-hour moving average at 1.3416 seems wise. A strong break below this support would indicate a change in momentum, likely accelerating a decline toward the 1.3360 swing area. Historical patterns suggest that rejection at a major 50% retracement level often leads to a retest of the previous low. However, if the market reverses and buyers reclaim the 1.3475 level strongly, we may need to adjust quickly. A sustained movement above this zone would invalidate our bearish outlook and could be targeted by purchasing call options. This would indicate that initial selling pressure has been absorbed, signaling a new upward movement. Create your live VT Markets account and start trading now.

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Chicago Fed President Austin Goolsbee has expressed his thoughts just before the quiet period leading up to the FOMC rate decision on July 30. He noted that recent Consumer Price Index (CPI) data shows tariffs are driving up goods inflation. Goolsbee also raised concerns about the independence of central banks. While he suggested that interest rates could drop significantly over the next year, he did not indicate any immediate plans for rate cuts.

Market Interpretations and Outlook

We see Goolsbee’s comments as a sign of a cautious long-term strategy, but also a warning for the short term. His worries about tariffs affecting goods inflation introduce some near-term risks. This comes even as the latest June CPI showed a decline in the annual rate to 3.0%. The contrast between his cautious outlook and the recent data creates uncertainty, which can lead to trading opportunities. With the Federal Reserve’s quiet period lasting until the July 30 decision, we see potential in the options market. The CBOE Volatility Index (VIX) is currently near multi-year lows, around the 12-13 range, making options relatively inexpensive. Thus, strategies like buying straddles or strangles on major indices could be profitable, as they react positively to significant price shifts in either direction after the announcement. The derivatives market is leaning toward eventual easing, aligning with Goolsbee’s comments on rates decreasing. Data from the CME FedWatch Tool indicates traders see over a 60% chance of a rate cut by the September meeting, although the likelihood of a cut in July remains low. Therefore, it’s crucial to closely monitor the upcoming Personal Consumption Expenditures (PCE) inflation data; a weak result could quickly boost September expectations.

Historical Parallels and Future Expectations

This situation resembles the Fed’s pivot in mid-2019 when officials hinted at future cuts but awaited several months of data before taking action. At that time, markets experienced increased volatility with each major economic report. We anticipate a similar trend now and will be ready to respond to the market’s reaction to upcoming jobs and inflation data in the next few weeks. Create your live VT Markets account and start trading now.

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Today, the technology sector is facing challenges. Microsoft is down 0.17%, Oracle has dropped 0.72%, and Nvidia has decreased 0.38%. Higher interest rates and supply chain issues are creating a cautious atmosphere. On a positive note, Tesla has risen by 2.43%. This indicates a strong automotive sector and growing interest in electric vehicles, suggesting effective strategies in this market.

Financial Sector Performance

The financial sector shows mixed results. JP Morgan Chase has gained 0.05%, while American Express has fallen by 3.95%. This reflects stability but also some volatility. In the entertainment sector, Netflix has dipped sharply by 5.12%. Concerns over subscriber growth and competition may be behind this decline, highlighting ongoing difficulties in the streaming market. Overall, the stock market today reveals a balance of caution and opportunity. The tech sector’s downturn is offset by gains in automotive and some financial stocks. Investors should consider diversifying into stable sectors like energy and healthcare, where companies like Eli Lilly and Abbott Laboratories are showing strength. Given the tech sector’s unpredictability, it’s wise to keep an eye on emerging news and potential disruptions. Given the challenges in technology, we suggest buying protective put options on broad tech ETFs. Major companies are seeing only slight declines, but the semiconductor industry may face an inventory surplus later this year, potentially leading to sharper corrections. This strategy helps traders protect against unexpected downturns in a cautious market.

Automotive Sector Insight

The rising automotive stocks signal strong momentum, making bullish strategies appealing. We are looking at bull call spreads to leverage further growth while managing risk, especially since implied volatility is historically high. Data shows this stock gained market share in the EV sector last quarter, despite more competition. The significant drop in the credit card company presents a targeted opportunity. Recent consumer credit data reveals a nationwide spike in delinquencies, suggesting a bearish outlook for lenders dependent on consumer health. We consider buying puts on this stock, expecting concerns over its latest earnings and future guidance to drive the price down. In the entertainment segment, Netflix’s notable decline signals investor worry. Despite adding 13.1 million subscribers last quarter, fierce competition and high content costs pose challenges. A bear put spread could be a smart way to trade the likelihood of further declines or stable performance in the coming weeks. Market sentiment indicates volatility will be concentrated within specific sectors rather than affecting the entire market. The CBOE Volatility Index (VIX) remains under 15, indicating calmness. We recognize potential in the stronger sectors, especially by considering long call options on healthcare companies. For example, the pharmaceutical firm mentioned has risen over 30% this year due to successful drug trials, providing growth opportunities outside the volatile tech space. Create your live VT Markets account and start trading now.

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The top Republican on the House China committee has written to US Commerce Secretary Howard Lutnick, opposing the restart of Nvidia H20 chip shipments to China. Nvidia’s stock has had ups and downs this week, hitting a record high of $174.25 but currently sits at $172.37. This week, Nvidia’s shares rose 4.54%, bringing their annual increase to 28.29%. Since April, Nvidia’s price has been on the rise, staying above its 50-hour moving average of $167.69. The 100-hour moving average, at $162.56, is providing support.

Nvidia Moving Averages

In June, Nvidia’s price fell below the 50-hour moving average but found support at the 100-hour moving average. These moving averages play a crucial role in setting support levels, which can signal possible shifts in the stock’s direction. Traders are closely monitoring these support levels for signs of future market changes. The strong investment in AI supports Nvidia’s growth, yet traders are wary of potential price corrections. If prices drop below these key support levels, focus will shift to other correction targets. There’s a clear tension between Washington’s views on chip sales and the market’s optimism for AI demand. The objection from Representative Michael McCaul introduces some risk that could lead to quick price changes. This makes options pricing, or implied volatility, more sensitive to news about chip exports.

Trading Strategies

Given the solid upward trend, we think buying call options or selling put credit spreads during dips toward support is a smart move. As long as the price stays above the 50-hour moving average, the easiest path seems to be upward. Recent information shows that major cloud providers like Microsoft and Google expect their capital spending to exceed $200 billion in 2024, a large part of which will go towards AI hardware. On the other hand, the stock’s near-record high and the congressman’s letter present a chance for more bearish strategies. We would consider buying put options if the price decisively falls below the 100-hour moving average at $162.56, which has been a critical support area in the past. With 30-day implied volatility currently near 48%, even a small decline could lead to significant profits from put options. For those unsure of the immediate price direction but anticipating a big move, long volatility strategies could be beneficial. A long straddle—buying both a call and a put option with the same strike price and expiration—might work well. This approach profits from large price swings in either direction, benefiting from the strong fundamental trends and uncertain geopolitical risks. We’ve seen this before, like in October 2023 when restrictions on advanced chip sales led to a temporary sell-off before the uptrend resumed. Historically, while political events can cause short-term dips, the market has consistently focused on the strong long-term demand for AI infrastructure. Therefore, we view any politically-driven drops toward key moving averages as potential buying opportunities until the technical indicators suggest otherwise. Create your live VT Markets account and start trading now.

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The IMF has highlighted challenges in the global economy due to trade tensions, which affect different sectors. This situation has led to increased activity ahead of tariff hikes, changing trade patterns and causing trade diversions.

Economic Indicators And Trade Conflicts

Since April, economic indicators tell a complex story shaped by ongoing trade conflicts. Inflation has decreased due to lower demand and falling energy prices. Global financial conditions have improved somewhat, as new trade deals lower average tariffs and relieve some financial stress. While the global economic forecast will be updated at the end of July, it still faces significant risks. There is a high level of uncertainty, raising concerns about the stability of the global economy. The report indicates this high uncertainty suggests a strategy for volatility trading. The CBOE Volatility Index (VIX) has been below 15, which seems low given the current geopolitical situation. This might make buying VIX call options or long straddles on major indices a smart way to hedge against these risks. The US plans to impose tariffs on Chinese goods in August, directly affecting sectors like electric vehicles and semiconductors. We should think about using options on sector-specific ETFs to take advantage of this focused trade friction. During the 2018-2019 trade disputes, the industrial and technology sectors experienced significant price changes linked to tariff news.

Impact On Shipping And Logistics

The evidence of increased frontloading suggests a sharp decline in shipping and logistics volumes might occur soon. The Drewry World Container Index has recovered from its lows but remains sensitive to new orders, which are expected to drop after tariffs are put in place. Buying puts on major transport companies could benefit from this anticipated downturn. Declining demand and lower energy prices have contributed to a recent US Consumer Price Index reading of 3.3%, which is weaker than expected. This scenario raises the chances of the Federal Reserve cutting interest rates later this year, with the CME Group’s FedWatch Tool now showing over a 60% likelihood of a rate cut by September. We’ll monitor interest rate futures closely for any shifts in the central bank’s stance. Although some deals have improved financial conditions, we see this as fragile and vulnerable to any new trade tensions. The relatively strong economic performance and interest rate differences between the US and Europe are likely to keep the US dollar strong. We can express this outlook through options on currency ETFs, like the Invesco DB US Dollar Index Bullish Fund (UUP). Create your live VT Markets account and start trading now.

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The EUR/USD pair has reached the 200-hour moving average at 1.1667. It is also at the lower boundary of a swing area that runs from 1.1663 to 1.1691. This swing area was important as support from late June to July and was a key level from April to November in 2021.

Key Inflection Point

We are at a crucial inflection point for the pair, where current support coincides with significant historical price activity. How the market behaves in this area is crucial. If the level fails to hold, it could signal a continuation of the larger downtrend. A strong rebound might indicate the formation of a near-term bottom. The fundamentals currently favor a stronger dollar, which poses challenges for this pair. Recent data pointed to Eurozone inflation hitting a record 9.1% in August. However, the European Central Bank is cautious due to recession worries, as noted by Lagarde. In contrast, the latest US jobs report revealed 315,000 new jobs added, giving Powell the ability to push for aggressive rate hikes. Given this difference, we suggest traders consider buying put options to prepare for a drop below 1.1663. This strategy allows for a defined risk while potentially profiting from a decline, especially since this same level failed as support in late 2021, leading to a sharp fall. A break here could push the pair down toward the lows of around 1.1200 from that period.

Positioning Through Volatility Strategies

For those expecting a significant price change but unsure of its direction, long volatility strategies like straddles are advisable. With important inflation and growth data coming from both regions, we anticipate increased price movement. This approach enables traders to benefit from any breakout, whether the news turns out to be unexpectedly positive or negative for the euro. Create your live VT Markets account and start trading now.

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