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Traders watch FOMC and BoJ meetings as USDJPY stays in a steady trading range
The USDJPY pair is currently under pressure due to US CPI reports and jobless claims data. Initial claims have hit highs not seen since 2021, indicating a weaker labor market. Nevertheless, the US dollar is staying in a trading range, likely due to excessive bearish positions. If economic activity picks up, the possibility of rate cuts may be reevaluated, which could support the dollar. However, stronger economic data might be needed to change current trends.
For the Japanese yen, there have been no major changes in fundamentals. Its recent gains are driven by expectations of a less aggressive Federal Reserve. The yen’s strength relies on weak US data or rising inflation in Japan, which might lead to more rate hikes. The Bank of Japan is expected to keep interest rates steady in its upcoming policy meeting, focusing on future guidance and possible rate increases.
European morning trade starts slowly as caution prevails before central bank decisions.
As the new week starts, everyone is watching central bank decisions closely, especially the upcoming Federal Reserve meeting. This anticipation is making traders act carefully until the FOMC meeting reveals its decisions.
Currently, the market is quiet, with most major currencies showing little change. The EUR/USD pair is trading in a small range of under 20 pips, indicating this calm market sentiment.
Looking Ahead to the Federal Reserve
This careful mood is likely to continue for a few more days until the Fed makes its plans clear. Traders are particularly interested in whether the Fed will remain cautious or become more aggressive. In the stock market, things are steady, with European futures slightly up and US futures rising by just 0.1%. The bond market is still waiting for the Fed’s decisions before making any major movements. Gold is also stable, holding steady around recent highs above $3,600, all eyes are on the Fed’s announcement later this week. With the market so calm, we’re seeing lower implied volatility ahead of the Fed’s decision. The Volatility Index (VIX) is around 14, indicating a relaxed mood among traders. This low volatility provides a chance for traders dealing in options, as contracts are currently cheaper. At present, the market expects a dovish outcome, with Fed funds futures showing an 85% chance of a 25 basis point rate cut. This expectation is already reflected in asset prices. Hence, the real trading opportunity lies in being prepared for a surprise, as any unexpected move could lead to sharp market changes.Economic Data and Trading Tactics
Recent economic data has led to some uncertainty, creating an environment ready to spring. The last jobs report for August 2025 showed a slow down in the labor market with just 160,000 new jobs, while the latest Consumer Price Index (CPI) was a bit stubborn at 2.8%. This makes the Fed’s statements, not just its actions, the key factor for the market’s next significant move. With options being low-cost, buying straddles or strangles on major indices like the S&P 500 or currency pairs like EUR/USD is a smart strategy. This allows traders to profit from a significant price change in either direction, taking advantage of the post-announcement volatility spike. Now is the time to build such positions before volatility increases as the event approaches. We’ve seen this behavior before, especially during the rate hike period of 2022 and 2023. Markets often stayed flat for days leading up to an FOMC meeting, only to shift sharply once the Fed’s tone was understood. History shows that what occurs in the hour after the announcement is often less significant than the trends that follow in the days ahead. If you expect a hawkish surprise where the Fed signals that rates will stay high longer, buying puts on equity indices or calls on the U.S. Dollar Index is a direct way to act. A hawkish tone would likely strengthen the dollar and put pressure on stocks, serving as a hedge against the common dovish expectation. The gold market, currently close to its all-time high of $3,600 per ounce, is very sensitive to this week’s outcomes. A dovish Fed could drive gold prices even higher as interest rates drop, but a hint of hawkishness might prompt a sharp sell-off from these high levels. Using options on gold futures or ETFs can help control risk for trades in either direction. Create your live VT Markets account and start trading now.Bitcoin futures may gain bullish momentum if certain thresholds are reached, but bearish targets are also in place.
Bitcoin futures are currently priced at 116,995, having reached a high of 117,240. A positive outlook may arise if prices dip to 115,590 and then bounce back above 116,150. Targets for this move are 116,400, 116,700, 116,995, 119,470, and 121,450. On the downside, if prices drop below 115,355, it signals a bearish trend, with targets of 115,120, 114,070, 113,770, 113,555, 112,910, and 111,100.
Today’s analysis indicates that Bitcoin is retreating from the resistance level at 117,240, hinting at a possible dip before continuing upward. A bullish scenario kicks in if prices first hit 115,590 and then rise back above 116,150. In the wider crypto market, traditional finance is showing more interest in Bitcoin, as evidenced by Capital Group’s major investment.
For a bullish trade plan on Bitcoin futures, consider taking profits starting at 116,400 and holding for higher targets if conditions are favorable. In contrast, the bearish plan begins if prices fall below 115,355, with specific points highlighted for potential profit-taking. TradeCompass recommends being cautious and taking profits at logical levels, focusing on protecting gains through strategic management.
Traders should manage risks carefully by setting stop-loss levels near activation points and adjusting them as targets are achieved, all while recognizing market volatility.
Bitcoin futures are currently just below the 117,240 resistance level, indicating a likely pullback ahead. Over the next few weeks, we’re looking for a bullish setup that needs a dip to 115,590 followed by a strong recovery above 116,150. If prices fail to stay above 115,355, it may indicate that sellers are gaining control in the short term.
The overall economic climate seems to support this buying dip scenario since last week’s August 2025 CPI data came in slightly lower than expected at 3.1%. This reduces expectations for more Federal Reserve rate hikes, creating a favorable environment for risk assets. Therefore, any weakness in Bitcoin could attract buyers instead of signaling a major downturn.
However, we should be cautious due to historical trends, as September has often been tough for Bitcoin, evident from the volatility seen in 2023 and 2024. If prices fall below 115,355, traders should get ready for a rapid move toward liquidity zones near 114,000. It’s essential to stick to predefined stop-loss levels during this period.
In the derivatives market, open interest in Bitcoin futures on the CME has surged to over $25 billion, a level not seen since the second quarter of 2025. This increase in leverage indicates that significant capital is in place for a big movement, making the points at 116,150 and 115,355 very critical. Positive funding rates suggest a dominance of long positions, but this could lead to a liquidation cascade if support levels break.
This short-term uncertainty is tempered by strong institutional support, highlighted by Capital Group’s recent multi-billion-dollar investment. Market data shows spot Bitcoin ETFs have recorded over $500 million in net inflows this month. This suggests that while we manage daily levels, larger players are likely accumulating for a longer-term strategy.
Credit Agricole expects a hawkish rate reduction from the Fed, which will impact future dollar stability and policy.
Credit Agricole expects the Federal Reserve to cut interest rates by 25 basis points this week, but with a cautious tone. The Fed will likely focus on ongoing concerns about inflation and a strong job market, which may limit future rate cuts in the near term.
This approach could change the recent expectations about the Fed’s policies and might keep it from aligning closely with other major central banks. As a result, the US dollar could receive temporary support.
Dollar Stability Forecast
The US dollar has weakened lately due to worries about its status as the reserve currency, but Credit Agricole sees these concerns easing. The firm predicts the dollar will stabilize soon and expects a broad recovery by 2026 as interest rate differences and economic fundamentals improve. The Federal Reserve is likely to cut its key interest rate this week, but it will stress the importance of persistent inflation and a strong job market. The August 2025 inflation report showed core CPI is steady at 3.4%, and the latest jobs report added a solid 210,000 payrolls, giving the Fed reason to consider a pause on further cuts. This view challenges market expectations for more aggressive cuts, suggesting traders might use options to bet that interest rates won’t drop as quickly as now anticipated. This stance should provide immediate support for the US dollar, which has been struggling for months. The Dollar Index (DXY) has fallen from 105 to nearly 102 in the last quarter, but it may be set for a rebound as the Fed takes a different path compared to other more dovish central banks. In the upcoming weeks, traders might think about buying short-term call options on the dollar or puts on the Euro to take advantage of this potential change.Market Implications
For equity markets, the combination of a rate cut and hawkish commentary could bring significant uncertainty and volatility. With the VIX volatility index currently low at around 14, the market appears complacent and may not be ready for a less dovish Fed. As a result, buying volatility through VIX futures or using index option strategies like straddles may be a smart way to prepare for a potential market shift. This situation is reminiscent of events in 2019, when the Fed cut rates but indicated it wasn’t the start of a long easing cycle, leading to temporary market turbulence. As these factors unfold, the dollar should stabilize before gaining strength into 2026. Ultimately, we expect interest rate differences and economic fundamentals to align in favor of the dollar. Create your live VT Markets account and start trading now.Schnabel’s speech during the European session is likely to offer little new insight for markets.
Today, a few ECB speakers will be in the spotlight. ECB’s Schnabel will share her views during the European session. She has a neutral to hawkish stance and noted that current rates are slightly accommodative. She also warned that inflation risks might increase, and rate hikes could happen sooner than expected.
In the American session, we will see data on Canadian manufacturing sales and the NY Empire Manufacturing PMI. These reports are considered less important and can be volatile, so they likely won’t have a big impact on the markets. ECB President Lagarde will speak later in the evening, but she’s not expected to reveal new information since she covered key points in last week’s monetary policy press conference.
Spotlight on Timiraos
Keep an eye on Timiraos from the WSJ, who might release an article about the Federal Reserve before Wednesday’s decision. If the article mentions the FOMC considering a 50 basis points cut, it could raise expectations for a significant policy change. Today appears to be a quiet session, with the market focused on the Federal Reserve’s decision this Wednesday. The CBOE Volatility Index (VIX) has risen to around 19, indicating rising uncertainty before the meeting, suggesting that traders are buying protection and options premiums are increasing. We are closely monitoring any indications of a 50 basis point rate cut, which would be bolder than many anticipate. This idea is gaining support because the August 2025 jobs report showed hiring slowed to 150,000, and the latest CPI inflation figure fell to 2.8%. According to the CME FedWatch Tool, there’s currently about a 30% chance of this bigger cut.Fed and ECB Divergence
While we expect a potentially dovish Fed, the European Central Bank is following a different direction. ECB speakers like Schnabel continue to indicate that rate hikes could happen sooner than expected, highlighting a clear policy divergence. This difference could support the EUR/USD pair in the coming weeks. We’ve seen similar situations before, such as during the 2019 policy shifts when the Fed began easing while other central banks stayed firm. Purchasing short-dated call options on equity indices might be a good strategy for positioning against a dovish surprise from the Fed. However, since implied volatility is rising, these positions should be sized with care. Create your live VT Markets account and start trading now.S&P 500 futures analysis shows caution, highlighting key thresholds for market direction
The S&P 500 futures analysis highlights important price levels as Fed Week begins. For bullish momentum, we need confirmation above 6,605.5. A bearish move requires prices to stay below 6,595. Bears have partial targets at 6,592.5, 6,590, and 6,587.5, while bulls target 6,610.75 and 6,627. Currently, futures are trading at 6,595.75, with a daily range of 6,585.25 to 6,596.50 and a yearly range of 4,832.00 to 6,606.00.
The market shows mixed signals, focusing on upcoming insights related to growth, inflation, and interest rates. Gold prices remain stable as traders anticipate possible policy changes. In the crypto world, selective risk-taking continues despite global uncertainties, particularly from China. Key S&P 500 futures levels include important points at 6,600 and 6,606.
Trade Management Strategy
When trading S&P 500 futures, limit yourself to one trade per direction to avoid overtrading. After hitting your first profit target (TP1), move your stop to the entry price to lock in gains. Set your stop slightly beyond the activation threshold for a small buffer. This analysis aims to help you make informed trading decisions while focusing on risk management. As we start this Fed week, the S&P 500 is at a crucial point around the 6,595 level. Patience is key; we should wait for the market to confirm its move. A consistent drop below 6,595 indicates bearish control, while a strong hold above 6,605.5 favors bulls. The market’s uncertainty is understandable after the August 2025 inflation data, showing the Consumer Price Index (CPI) rose to 3.4%, slightly above the expected 3.3%. This puts great emphasis on the Federal Reserve’s upcoming statement, as we look for indications of their commitment to battling inflation. We’ll see if they continue a hawkish approach or if they suggest rates have peaked. Adding to this, the labor market shows strength but is not overheating. The last non-farm payroll report indicated 195,000 jobs were added, exceeding predictions, while wage growth appears to be slowing. This mixed landscape creates a challenging situation for the Fed, and as traders, we need to prepare for potential volatility after their announcement. Market sentiment reflects caution, with the Cboe Volatility Index (VIX) around 15, up from its summer lows. Additionally, the CME FedWatch tool suggests a 90% chance the Fed will keep rates steady this week. However, expectations for a rate cut by the end of 2025 have dropped from over 60% to 45%, hinting at a more hawkish outlook.Global Economic Considerations
On a global scale, headwinds from China arise as its recent industrial production figures fell short of expectations, raising fears of a broader slowdown. This cautious environment restricts excessive risk-taking until we receive clearer guidance from the Fed. For now, adhere to key levels and wait for confirmation before making directional trades. Once a clear direction is set below 6,595 or above 6,605.5, we should act promptly. If a short position is initiated, aim for the quick scalp zone at 6,592.5, and if we reach 6,590, adjust your stop to the entry price. This discipline is crucial for managing risk in a market that may experience sharp movements following the Fed’s commentary. Create your live VT Markets account and start trading now.In early European trading, Eurostoxx and German DAX futures increased, while the UK FTSE stayed the same.
European stock markets are holding onto last week’s gains. German DAX futures are up by 0.3%, while UK FTSE futures remain steady.
European Equities Looking for Momentum
European equities are expecting continued momentum. This largely hinges on the Federal Reserve’s actions in the coming days. US futures are stable, with S&P 500 futures rising slightly by 0.1% as European markets begin. We see a small increase in European and US futures, but the market remains cautious. The minor gains in the Eurostoxx and S&P 500 futures indicate uncertainty rather than strong conviction. Attention is focused on the Federal Reserve’s interest rate decision later this week, which could guide market trends for weeks to come. This nervousness is based on recent data; late August showed US core inflation at 3.4%, higher than the 3.2% forecast. This has sparked debate on whether the Fed will signal one more rate hike this year or maintain a pause. For traders, this means a higher risk of sudden market shifts in either direction. In response, the VIX, a measure of expected market volatility, has risen to 18 from a low of 14 a few weeks ago. This suggests traders should consider strategies that benefit from large price movements, regardless of direction. Buying options that expire after the Fed’s announcement could be a smart way to prepare for the expected volatility.ECB Decision Adds More Pressure
The European Central Bank’s choice to keep rates unchanged last week adds another layer, as they often follow the Fed’s lead. If the Fed stays aggressive, it puts pressure on the ECB and could impact European equities like the DAX, which has had trouble breaking through key resistance levels. Thus, the Fed’s stance is just as crucial for European derivatives as it is for US ones. Looking back, we noticed similar trends throughout 2023, where markets often drifted before an FOMC meeting. These periods were usually followed by significant price movements once the central bank’s statement was released. The key is to avoid getting caught in pre-announcement fluctuations and to be ready for the following volatility. Create your live VT Markets account and start trading now.Germany’s wholesale prices dropped 0.6% in August compared to the previous month, but rose 0.7% over the year because of higher food prices.
In August, Germany’s wholesale price index dropped by 0.6% from the month before, following a smaller decrease of 0.1% in July. However, compared to last year, the index increased by 0.7%, up from a 0.5% rise during the same time last year.
The current wholesale price index is at 116.9, which is higher than last year’s figure for the same month and also above last year’s average of 116.4. Destatis has identified rising prices in food, beverages, and tobacco as a key reason for this increase, with a notable 4.2% rise since August 2024.
German Wholesale Price Data
The latest data on German wholesale prices tells a mixed story. While prices fell compared to last month, the yearly inflation rate went up, mainly due to rising food costs. This contradiction indicates that price pressures are still present, making it difficult for the European Central Bank (ECB) to navigate the situation. Germany’s economy has faced challenges this year. The GDP for the second quarter of 2025 showed only a slight growth of 0.1%, following a weak start to the year. This situation puts the ECB in a tough spot, as ongoing inflation may hinder their ability to cut rates and stimulate the economy. Consequently, futures markets for the EURIBOR may see more activity as traders speculate on whether the ECB will maintain current rates for the rest of the year.Market Volatility And Trading Strategies
Economic uncertainty often leads to heightened market volatility. This trend is reflected in the VDAX-NEW index, which has risen over 15% in the last month, nearing 18. This indicates that traders anticipate larger price movements in German stocks. To capitalize on these expected shifts, options strategies such as buying straddles on the DAX index might be worthwhile. For those trading the Euro, this economic data fosters a bearish outlook, as fears of stagflation typically weaken a currency. The Euro has already decreased by about 2% against the US dollar in the past quarter, and this report doesn’t suggest any reversal. As a result, interest in EUR/USD put options may increase as a way to hedge against or speculate on further declines towards the 1.05 level seen earlier this year. Create your live VT Markets account and start trading now.Gold’s future depends on the Fed’s decision, affecting market sentiment and buying activity.
Gold prices have increased over the past month due to expectations around a potential decision from the Federal Reserve. Traders are eagerly waiting to see how this decision will shape market sentiment.
Recently, gold prices broke out of a consolidation range that lasted since May, now exceeding $3,500. However, momentum decreased last week as traders prepared for the Fed’s decision, causing prices to stay near the upper limits of the range.
Factors Supporting Gold
Several factors are currently supporting gold’s position in the market. There is speculation that the Fed might ease monetary policy sooner than anticipated. If the Fed takes a dovish stance, the dollar may weaken, which could benefit gold, even though demand is usually lower in September. Although the Fed’s future plans are unclear, the long-term outlook for gold remains strong. Weak economic data from the US and the dollar’s challenges amid policy uncertainties bolster the case for holding gold. Additionally, central banks around the world are increasing their gold reserves, further enhancing gold’s attractiveness. With gold prices staying above $3,500, market momentum has slowed ahead of the Federal Reserve’s decision this week. This uncertainty has made buying call options a popular strategy. Traders hope for a dovish surprise that could drive prices higher while limiting their risk. This way, they can take advantage of a potential price rally without being overly exposed to losses.Case for Dovish Fed Pivot
Recent economic data supports the argument for a dovish Fed pivot. The August 2025 CPI report revealed that inflation has eased to 2.8%, and the latest jobs report fell short of expectations, adding just 95,000 jobs. A softer approach from the Fed would likely further weaken the dollar, providing additional support for gold. Regardless of the Fed’s upcoming decision, solid support for gold persists. According to the World Gold Council, central banks added another 250 tonnes to their reserves in the second quarter of 2025, demonstrating their ongoing commitment. This sustained interest in long-term buying indicates that any drop in price will likely attract strong demand. For traders considering a “buy the dip” strategy, any price pullback should be seen as a potential opportunity. If the Fed issues a hawkish statement, it could temporarily lower gold prices, allowing traders to sell cash-secured puts at lower strike prices, like $3,450. This strategy enables them to earn premiums if prices remain stable or to establish a long position at a more desirable price. Historically, gold has faced challenges in September, but the current situation is different. Slowing US growth and persistent demand from official sectors could defy this seasonal trend. A dovish outcome from the Fed this week could be the key factor signaling a departure from past patterns. Create your live VT Markets account and start trading now.Key FX option expiry for EUR/USD at 1.1690 may limit downside movements.
**A Large Option Expiry Influences EUR/USD**
The impact of the recent expiry is likely minor, as the dollar has shown weak performance since last week. No other expiry seems to notably affect immediate market activities.
A large option expiry at 1.1690 is keeping EUR/USD near the 1.1700 support level for today. This is creating a pull on the price, likely preventing significant drops before the 10 AM New York cut. For now, this indicates that price movement will stay limited.
The dollar has been weak lately, especially after last week’s US CPI report for August 2025, which came in slightly lower than expected at 2.8%. This, along with the steady but unimpressive 175,000 jobs added in the latest payrolls report, keeps the Federal Reserve cautious. The lack of a strong direction from the US supports a range-bound view for major currency pairs.
**A Viable Strategy for Low Volatility**
In this situation, selling volatility seems like a good strategy for the next few weeks. We could look at short strangles or iron condors on EUR/USD, aiming to collect premiums while the pair moves sideways. The key is to set these trades outside a likely trading range, perhaps between 1.1550 and 1.1850.
We recall how the 1.1600-1.1900 zone was a significant area of congestion for the pair in late 2020 and early 2021. History shows that long periods of low volatility, like what we are currently experiencing, can lead to sharp breakouts. Therefore, any short-volatility positions should be managed with strict risk parameters.
On the European side, the recent comments from the ECB have also been cautious, with officials noting slowing German manufacturing PMI data. This dual caution from both the Fed and the ECB diminishes the outlook for a strong trend. It suggests that the market is waiting for a more significant economic signal before making its next major move.
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