The US dollar is decreasing as we approach Fed week, and the euro is getting stronger against it. The EUR/USD rate has moved from 1.1712 to 1.1737. Treasury yields have increased by 3-6 basis points; however, the dollar’s strength has lessened due to weaker UMich consumer sentiment data. **Expectations for Monetary Policy** Expectations for monetary policy are changing. The chance of a 50 basis point Fed rate cut is now just 4.8%. The lack of information about further rate cuts after the CPI report may be impacting market sentiment. Traders should stay alert for any Fed preview before the rate decision. The EUR/USD pair’s performance suggests bullish consolidation after rising from 1.03 to 1.17. The pattern of pullbacks followed by gains points to an upward trend, especially as the ECB pauses rate cuts. Meanwhile, the Fed is expected to maintain a prolonged rate-cutting period with an anticipated 125 basis point cut over the next year. Given these factors, breaching recent highs in EUR/USD could encourage traders to target a return to 1.20. This level serves as a psychological benchmark, reflecting general economic conditions and the outlook for monetary policy. As we near the Fed meeting, the US dollar shows signs of weakness, influenced by a cooling economy. The latest jobs report for August 2025 indicated only 150,000 new jobs, falling short of expectations, and the unemployment rate rose to 4.2%. Coupled with a decline in the University of Michigan consumer sentiment index to 65.5, the lowest in over a year, the dollar’s downward trend is reinforced. **Path for Monetary Easing** The market is now pricing in a less than 5% chance of a significant 50 basis point rate cut, but the path to easing is clear. The August 2025 CPI inflation data showed a mild 2.5%, giving the Federal Reserve plenty of reasons to start a cutting cycle. We should keep an eye out for the usual Fed preview, which typically appears on the Monday before the decision, for any final clues. On the other hand, the European economy is showing more strength, supporting the euro’s rise. The Eurozone GDP for the second quarter of 2025 showed 0.4% growth, while inflation stubbornly remains at 3.1%, allowing the European Central Bank to keep rates steady. This divergence in policy is a key factor in the euro’s rise from 1.03 to around 1.17. For derivative traders, this situation suggests they position themselves for further euro strength against the dollar. A simple strategy is to buy call options on the EUR/USD pair. This provides upside potential if the pair breaks recent highs while limiting risk to the premium paid. This allows traders to take advantage of the expected upward trend with a clear risk profile. The 1.20 target is an important psychological level with historical significance. Looking back to 2020-2021, this level served as a key area of support and resistance. A move towards this zone seems likely if the Fed confirms a dovish stance and the euro continues to gain economic ground. Create your live VT Markets account and start trading now.

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Microsoft’s shares are climbing due to several positive developments. The company is boosting its AI efforts with a new partnership with OpenAI, focusing on ChatGPT and Azure. Microsoft has also resolved some regulatory issues with the European Commission regarding Teams. They decided to offer Office 365 without Teams, which reduces antitrust pressure. Additionally, a Memorandum of Understanding (MoU) was signed with OpenAI, expecting both companies to have about 30% stakes as OpenAI moves to a for-profit model. These actions are boosting investor confidence. Shares rose by $11.06, or 2.21%, reaching $512.03. The stock price has gone past the 100-hour moving average of $503.49 and is currently testing the 200-hour moving average at $512.27. Today’s high of $512.45 is slightly above this important point. If the price stays above this moving average, it could gain more momentum, aiming for a target of $518.29. This level had stopped rallies on July 25 and 29 but was surpassed after strong earnings news. Microsoft hit a record high of $555.23 on earnings day before dropping 11.2% to $492.37 last Friday. Recent market behavior shows increased buying interest at $518.29, highlighting its significance. As Microsoft tests the critical 200-hour moving average at $512.27, this is an important moment. The good news about OpenAI and the settlement with the EU gives a strong push for a potential price increase. We should think about buying call options expiring in October 2025 with strike prices above the next resistance of $518.29. This positive outlook aligns with the broader market’s performance. The Nasdaq 100 has gained over 1.5% today, making a comeback from last week’s downturns. We also see a surge in bullish options activity, with call volume for the October $525 strike running at nearly three times its daily average. This suggests that big investors are betting on further gains soon. That said, we need to recognize that the recent 11.2% price swing has raised implied volatility to around 28%, which is at the higher end for the year. This means selling premium can be an appealing strategy. One option is to use a bull put spread with a short strike comfortably below the recent low of $492.37. This strategy can profit from both a rising stock price and decreasing volatility as the stock stabilizes. We recall a similar situation in late 2024 when a post-earnings drop was quickly reversed after positive news about the company’s AI division. A strong close above the 200-hour moving average would confirm that the same pattern may be happening again. However, if the price fails to hold this level, it could drop back to the 100-hour moving average around $503. Next week’s Federal Reserve interest rate decision adds more uncertainty that could affect the tech sector. If the Fed takes a hawkish stance, it may hinder this current rally, despite Microsoft’s solid fundamentals. Therefore, we should keep our initial position sizes small until we see a confirmed breakout and more clarity from the Fed.

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The European Central Bank’s Nagel has warned that further rate cuts could threaten price stability. The ECB decided to keep rates steady, marking the second month in a row that they have made this choice.

ECB Officials Perspectives

After the meeting, ECB officials had different views. Rehn raised concerns about inflation risks tied to cheaper energy and a stronger euro, pointing out that the ECB’s inflation forecast for 2026 is 1.7% y/y, below the target of 2%. Kocher noted that Austria’s inflation is higher than the eurozone average and emphasized that decisions will be made on a case-by-case basis. Muller expressed satisfaction with current interest rates, suggesting he is comfortable with the ECB’s strategy. Kazaks agreed with a meeting-by-meeting approach, given the existing risks, and mentioned important discussions are expected in December. Villeroy hinted at the possibility of rate cuts in the future, as he is more concerned about inflation risks falling below target than about rising inflation. Simkus observed that inflation is now stable at targeted levels, coupled with a strong job market and improved economic activity. However, he warned that inflation risks are still quite high, indicating a need for ongoing caution. The European Central Bank is clearly divided after holding interest rates steady for the second straight month. This split between those focused on inflation risks and those fearing weak growth creates significant uncertainty. We must closely monitor upcoming economic data, as it could heavily influence future policy choices.

Outlook and Strategies for Traders

We must pay attention to hawks like Nagel, especially as the latest August 2025 inflation data shows the Harmonised Index of Consumer Prices (HICP) at 2.1%. This figure is slightly above the ECB’s 2% target, strengthening arguments against further rate cuts. This explains the bank’s choice to pause after lowering rates in June and July. However, doves have valid arguments too. They point to modest GDP growth of only 0.4% in Q2 2025 and potential risks from energy prices, as Brent crude recently dropped below $75 a barrel. This supports Villeroy’s argument for keeping the option for another rate cut open. This fundamental disagreement could lead to increased volatility in interest rate markets. For traders, this division suggests that implied volatility on EUR interest rate options might be underestimated. A possible strategy could be buying straddles on short-term EURIBOR futures, which would profit from a significant rate change in either direction. Any unexpected inflation or growth news could lead to major market adjustments before the crucial December meeting. With futures markets currently estimating only about a 30% chance of a rate cut by December, there may be an opportunity to prepare for a dovish surprise. We could consider purchasing inexpensive, out-of-the-money put options on the EUR/USD exchange rate. This offers a low-cost way to profit if disappointing economic data pushes the ECB to cut rates sooner than anticipated. Create your live VT Markets account and start trading now.

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The Congressional Budget Office predicts that GDP growth will slow to 1.4% in 2025, down from 1.9%. This decline is attributed to tariffs and reduced immigration. However, growth is expected to rise to 2.2% in 2026 due to supportive fiscal policies. By 2027 and 2028, growth will stabilize at around 1.8%, leading to a slight overall GDP increase by the end of 2028. Inflation is anticipated to reach 3.1% in 2025 because of tariffs. It should drop to 2.4% in 2026 as these tariffs take less effect and hit the Federal Reserve’s target of 2.0% by 2027. This level of inflation is expected to remain steady through 2028. The unemployment rate is likely to increase to 4.5% in 2025, but then decrease to 4.2% in 2026 due to fiscal stimulus, remaining close to 4.4% in 2027 and beyond.

Interest Rate Projections

Interest rates are set to be 4.5% in August 2025, with the Federal Reserve likely lowering them to between 3.5% and 3.6% in 2026. Rates are expected to stabilize at 3.3% by 2027 and 2028. Additionally, the 10-year Treasury is projected to fall from 4.3% in late 2025 to 3.9% by Q4 2028. Looking ahead in 2025, we can expect more market fluctuations. Slower economic growth combined with stubborn inflation creates uncertainty for investors. This scenario suggests preparing for increased volatility, possibly using VIX derivatives, especially since the August Consumer Price Index (CPI) report shows inflation still high at 3.5%.

Economic and Market Outlook

We should rethink expectations for quick Federal Reserve rate cuts. With inflation projected to end the year at 3.1%, the Fed’s ability to ease policies could be limited, potentially keeping short-term rates higher for longer than we thought. Any derivative strategies involving the yield curve, particularly with SOFR futures, should consider a slower rate cut schedule. A GDP growth forecast of 1.4% and an unemployment rate of 4.5% indicate tough times for corporate profits through the end of the year. This weak demand may warrant a more cautious or even bearish stance on major equity indices like the S&P 500. The latest job report showed a cooling labor market with an unemployment rate rising to 4.2%, which reinforces this cautious outlook. This situation feels reminiscent of previous cycles where stubborn inflation made the Fed maintain tighter policies despite a weakening economy. While we expect a rebound in 2026 due to fiscal stimulus, our immediate focus should be on the stagflation pressures looming in the next few months. We should also be careful not to position ourselves for that 2026 recovery too soon. Create your live VT Markets account and start trading now.

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The USDJPY pair is currently hitting resistance in the range of 147.95 to 148.166. The highest point today was 148.06, indicating that the market is testing this important barrier. The broader trading range for USDJPY is from 146.803 to 148.547. Earlier this week, the pair fell below this range but quickly bounced back. Even though it is higher now, the resistance at 148.166 is still preventing further gains. For the USDJPY to rise, it must break above and maintain levels over 148.166.

Downside Support Level

On the downside, the 100-hour moving average at 147.392 is a key support level. If the price drops below this average, market sentiment could turn bearish. This could increase the chances of testing the lower boundary of the range at 146.547. As of September 12, 2025, the USD/JPY pair is pressing against significant resistance between 147.95 and 148.166. This barrier has repeatedly limited gains, making it an essential point for traders. Caution is advised when considering new long positions while the price remains under this zone. This pressure is driven by recent U.S. economic data. The August 2025 CPI report showed inflation steady at 3.4%, which suggests that the Federal Reserve may not cut rates anytime soon. This difference in interest rates between the U.S. and Japan continues to support the dollar, but the resistance is strong for a reason.

Market Concerns Amidst Economic Tensions

We’ve also heard renewed warnings from Japanese finance officials about the yen’s weakness, similar to the interventions seen in late 2022 and 2023. This possible official intervention is creating a barrier around the 148.00 level. The market finds itself caught between a firm Fed and a cautious Ministry of Finance. For derivative traders, this situation hints at potential increased volatility. Buying straddles or strangles might be a way to prepare for a significant breakout, which could occur following next week’s U.S. retail sales figures. This strategy profits from a large price move, whether it breaks above resistance or drops below support. Given the strong rejection at the highs, purchasing put options with a strike price just below the 100-hour moving average at 147.39 provides a way to manage risk while anticipating a downturn. A breach of that moving average could lead to increased selling. This bearish strategy benefits from consistent failures at the resistance level above. Alternatively, for those who believe the current stalemate will persist, selling an iron condor with strikes outside the 146.50-148.50 range can help collect premium. This neutral, range-bound strategy gains from low volatility. However, the risk of a sudden breakout requires careful management. Create your live VT Markets account and start trading now.

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European markets wrapped up the week on a steady note. On September 12, 2025, major indexes like the Stoxx 600, German DAX, France’s CAC, the UK’s FTSE 100, Spain’s IBEX, and Italy’s FTSE MIB all saw slight declines of 0.1%. Despite these small drops, European markets were resilient overall this week. The Stoxx 600 gained 1.0%, Germany’s DAX rose by 0.4%, France’s CAC climbed 1.9%, and the UK’s FTSE 100 increased by 0.9%. Spain’s IBEX stood out with a 2.2% rise.

Early Month Overview

At the beginning of the month, there were some minor sell-offs, but stock markets quickly bounced back. France’s market remained strong despite recent political and bond-market challenges. As European markets ended the week positively but with some hesitation, this may indicate potential complacency. The solid weekly performances, especially in France and Spain, are promising, but the flat closing on September 12 shows that confidence may be fading ahead of next week’s economic data. This pause allows us to evaluate possible risks that the market might be overlooking. The rally in French stocks is especially noteworthy, especially considering the stress in the bond market during the summer of 2025. Although the gap between French and German 10-year government bonds has decreased from a peak of nearly 80 basis points, it remains high, hinting that political risks persist. Selling out-of-the-money call options on the CAC 40 could be a wise strategy to take advantage of this tension. Upcoming inflation data will play a key role in shaping central bank policy and market direction. The latest August 2025 figures show Eurozone inflation steady at 2.5%, which is still above the European Central Bank’s 2% target. This ongoing persistence complicates the market’s expectation of two more ECB rate cuts by early 2026, creating uncertainty for derivative traders.

Market Strategy and Opportunities

Given the market’s recent rise, implied volatility has likely dropped, making protective measures more affordable. The VSTOXX index, Europe’s main fear gauge, is probably close to its yearly lows, similar to the levels seen in early 2024 before geopolitical tensions increased. We see value in purchasing put options on the Euro Stoxx 50 as a low-cost protection against possible market pullbacks in the near future. Spain’s IBEX, gaining 2.2% this week, has seen strong influence from its banking sector. This sector benefits from the current interest rate environment but is also quite sensitive to any changes in ECB guidance. We are considering collar strategies on major Spanish banks, which involve buying a put and selling a call, to safeguard recent gains while allowing for some limited upside potential. Create your live VT Markets account and start trading now.

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Gold prices increased by $15, reaching $3649, in response to weaker consumer sentiment data from the University of Michigan. After peaking at $3675 earlier in the week, gold is finding stability. Market attention now turns to the upcoming Federal Open Market Committee (FOMC) decision. Comments from the Fed chair suggesting less worry about inflation and more concern for employment could boost gold prices further.

Technical Factors and Resistance Levels

Certain technical factors, including Tuesday’s highs and the current overbought conditions, may limit short-term gains. Expect resistance levels at $3750 and $4000. Geopolitical events also play a significant role. US attempts to push Russia toward peace talks over Ukraine could impact gold prices. Sanctions may support gold, while a peace agreement could decrease its attractiveness. With gold testing its upper range around $3649, today’s weak consumer data is driving this movement. The preliminary University of Michigan sentiment for September dropped to 65.2, missing estimates and indicating economic weakness. Next Wednesday’s FOMC decision will be crucial for the upcoming weeks. We’re watching to see if the Fed shifts focus towards job concerns, especially after last week’s report showed only 95,000 new jobs in August. However, with August’s Consumer Price Index (CPI) steady at 3.4%, any soft comments from Powell could signal a green light for gold bulls. This uncertainty is prompting many traders to hold back on significant positions until they hear from the Fed chair.

Potential Strategies for Traders

If Powell indicates a dovish shift, traders might consider buying call options to take advantage of a possible price increase. A breakthrough above the recent high of $3675 would lead to the next major psychological level. Strike prices near $3750 for October expirations could balance risk and reward well, similar to previous setups before late 2023 rallies. Conversely, if the Fed maintains a hawkish stance focused on inflation, the overbought conditions might lead to a sharp decline. In this case, buying put options with strike prices under $3600 would be a logical strategy to protect against a failed breakout at the $3675 resistance level. The ongoing geopolitical situation continues to support gold prices. Any escalation in US pressure on Russia regarding Ukraine could enhance gold’s safe-haven demand, possibly boosting any rally triggered by the Fed. For now, we view this as a bullish factor, as a peace deal seems unlikely. Create your live VT Markets account and start trading now.

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The USDCHF is currently testing its 100-hour moving average at 0.7963. If it stays above this level, buyers are favored, but if it drops below, sellers gain an advantage. A disappointing Michigan consumer sentiment report has weakened the dollar, causing USDCHF to decline. The price briefly dropped to the 100-hour moving average before bouncing back, making it a key point for traders. This level is crucial for the upcoming week.

Swing Area and Moving Averages

Staying above the 100-hour moving average will keep focus on the swing area between 0.7986 and 0.7994. This area lines up with the 50% midpoint from September and the downward-moving 200-hour average. Previous breaks above the 200-hour average were short-lived, pulled back by weak jobless claims. Yesterday’s dip found support in the 0.7938-0.7947 range, halting the decline. Today’s trading has hovered around 0.7963 before climbing to face resistance at 0.7986, establishing clear short-term trading levels. Resistance is at 0.7986–0.7994, while a drop below 0.7963 would target support at 0.7938–0.7947. If it falls below this, the next support level is found between 0.7910 and 0.79209. The 100-hour moving average at 0.7963 is our key point right now. A sustained break below this level would indicate sellers are taking control, leading to opportunities for bearish trades. We are closely monitoring this level, as it will likely influence short-term momentum next week.

Fundamental Factors at Play

Recent weak Michigan consumer sentiment data is further pressuring the dollar. This matches this week’s U.S. inflation report for August 2025, showing a slight cooling in the headline CPI to 2.8%, which eases pressure on the Federal Reserve to tighten policy further. These factors suggest a weaker outlook for the dollar in the near term. For derivative traders, we should prepare for potential volatility if the 0.7963 support fails. Buying weekly put options with a strike near 0.7950 could be a smart move to position for a quick drop to the 0.7938 support zone. This strategy offers a way to profit from expected downside momentum with defined risk. Meanwhile, the Swiss Franc is gaining strength as a safe-haven asset amid rising geopolitical tensions in the South China Sea. The Swiss National Bank has maintained a steady policy rate of 1.5% for several months, with Swiss inflation now controlled at 1.4%. This stable environment makes the Franc an attractive option compared to a weakening dollar. We recall the aggressive rate hikes of 2022 and 2023, which makes the current economic softness in the U.S. feel more significant. Back then, any sign of strength led to Fed hikes, while now, signs of weakness encourage bets on a dovish shift. This change in market sentiment is a major factor impacting the USD/CHF pair today. If the pair fails to maintain above 0.7963, we may consider bear put spreads targeting a move toward the 0.7910 area. This strategy allows us to profit from a decline while capping initial costs. The crucial trigger is a confirmed break of that important moving average. On the flip side, if support at 0.7963 holds firm and the price rises above 0.7994, we should adjust our outlook. A rise above that level would negate immediate bearish sentiment, suggesting a look at short-term call options to capitalize on a potential bounce near the monthly highs. Create your live VT Markets account and start trading now.

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In September, the University of Michigan’s preliminary consumer sentiment index was 55.4. This is below the expected 58.0 and down from the previous 58.2. Current conditions showed little change, standing at 61.2, just shy of the expected 61.3, and down from 61.7 before. Expectations fell to 51.8, missing the forecast of 54.9 and lower than the prior 55.9. Inflation expectations for the next year stayed at 4.8%, unchanged from earlier data. However, the five-year forecast increased to 3.9%, up from 3.5% previously.

Survey and Inflation

This survey was once highly respected but has faced criticism over perceived political bias. The Federal Reserve watches it closely, especially due to shifts in inflation expectations. A previous rise in inflation forecasts led to a rate hike, but later adjustments lessened its significance. After this report, the US dollar weakened, although it still shows some resistance despite the report’s implications. The drop in consumer sentiment to 55.4 is a concerning alert, but the details signal more trouble for the Federal Reserve. While current conditions remain steady, the fall in expectations to 51.8 suggests consumers are preparing for challenges ahead. The rise in five-year inflation expectations to 3.9% complicates things for policymakers trying to support a weakening economy while controlling inflation. We’ve seen similar situations before, and they often end poorly for markets. In mid-2022, a spike in this survey’s inflation component spooked the Fed into an unexpected 75-basis-point rate hike, even though later data revisions showed the impact wasn’t as severe. Although this survey may seem like more noise than valuable information, the Fed has reacted intensely to it before, making its next decision highly uncertain.

Market Reactions

This report adds to an already confusing economic outlook, especially after the August 2025 jobs report showed an uptick in the unemployment rate to 4.1%. At the same time, core inflation remains high at 3.2%. The combination of slowing growth and persistent inflation raises concerns about potential policy mistakes. The risk is that the Fed either tightens too much during a recession or allows inflation expectations to spiral out of control. For traders, the increasing uncertainty suggests that buying volatility may be the best strategy for the next few weeks. Options on major indices, like puts on the S&P 500, could serve as an effective hedge against a surprise in federal policy or further economic slowdowns. The VIX, hovering around 19, indicates a strong case for preparing for volatility as the market processes this mixed information. The Fed funds futures market is likely to see notable activity as traders reassess the chances of a rate hike at the next meeting. While a pause is still the main expectation, this report introduces enough doubt to make short-term interest rate derivatives especially volatile. Keep an eye on shifts in probabilities for the November FOMC meeting, as any hawkish comments from Fed officials soon could lead to rapid adjustments. The initial weakness of the US dollar due to poor sentiment data could be temporary. If the market begins to focus more on rising inflation expectations, worries about a more aggressive Fed could quickly bring buyers back to the dollar. This suggests that betting against the dollar is risky and that equity markets may struggle until there is more clarity from the Fed. Create your live VT Markets account and start trading now.

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The US stock markets are holding steady in early trading after achieving record highs for the Dow, S&P, and NASDAQ. Eleven minutes after opening, the Dow is down 64 points (0.14%) to 46,044. The S&P has dropped 2.09 points (0.03%) to 6,585.44, while the NASDAQ has risen 10 points (0.05%) to 22,053.25. Among today’s top gainers, Paramount Skydance rose by 6.01% as a bid for Warner Bros. Discovery is anticipated. Micron increased by 3.18% thanks to a positive outlook for memory chips used in AI and data centers. Super Micro Computer’s stocks went up by 2.89%, driven by strong server demand that keeps it above its 100-day moving average.

Shares See Increases

Corning’s shares climbed 2.82%, supported by a strong demand forecast for display glass. Tesla’s stocks rose 2.55%, boosted by production targets and high demand for electric vehicles. Nebius NV and Roblox improved by 2.11% and 1.97%, respectively, due to trends in cloud and AI infrastructure and product engagement. General Motors, SoFi Technologies, Western Digital, and Microsoft also reported gains, benefiting from electric vehicle strategies, consumer lending, AI advancements, and cloud growth. With major indices at record highs, this pause signals a chance to protect recent gains. The CBOE Volatility Index (VIX) remains low at around 13, well below its long-term average of about 19. This makes buying protective put options on the S&P 500 (SPY) or Nasdaq 100 (QQQ) a cost-effective way to insure portfolios over the coming weeks.

Future Expectations

AI-related hardware is clearly driving the market, a trend that has developed over the years. The sustained demand for data center infrastructure has resulted in exceptional earnings for key suppliers throughout 2024. Therefore, it makes sense to keep investments in leaders like Micron and Super Micro, possibly using bull call spreads to capture more gains while managing risk. Tesla’s breakthrough above the $367 resistance level is a strong technical sign, bringing the stock closer to its all-time highs from 2021. This movement indicates strong momentum that may continue soon. Purchasing near-term call options is a simple way to take advantage of this stock’s strength, independent of the broader market. This optimistic environment is supported by a more stable macroeconomic landscape compared to previous years. After tackling inflation problems in 2023 and 2024, the Consumer Price Index (CPI) has stabilized at a manageable annual rate of 2.5%. This has allowed the Federal Reserve to maintain interest rates, boosting investor confidence in tech and consumer sectors. Create your live VT Markets account and start trading now.

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