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USDCAD shows buyer support at key moving averages, as central bank decisions impact momentum
The USDCAD currency pair recently found support near a key swing area and the 100-bar moving average, leading to a small bounce. This week, resistance has been noted between 1.38917 and 1.3804, with buyers stepping in at 1.38176 against the 100-bar moving average on the 4-hour chart.
Last week’s weak job reports from Canada and the U.S. raised expectations for possible rate cuts by both the Fed and the Bank of Canada. Important announcements are scheduled for Wednesday: the BoC at 9:45 AM ET and the FOMC at 2 PM ET.
US equity futures stabilize after a pre-market drop of 17 points, ahead of the market open
The S&P 500 has hit a new record high due to strong buying activity. Right now, S&P 500 futures are stable, with no clear signs of a decline.
US equity futures have bounced back, recovering from a pre-market dip of up to 17 points to a steady position. There are no signals pointing to a drop from these new high levels.
S&P 500 Sets New Record Highs
The S&P 500 is at all-time highs, but the recent recovery from a pre-market dip suggests a pause in its rise. The VIX, which measures expected market volatility, is low at 13, indicating that the market doesn’t anticipate much risk in the near term. This makes buying options more affordable for protection or speculation. The latest Consumer Price Index report for August shows a slight rise in inflation to 3.4%, which raises some concerns. All eyes are now on the Federal Reserve’s important meeting on September 24th. Traders may want to consider using options to hedge against any stronger talk about interest rates than expected. It’s also important to note that September has historically been a tough month for stocks, as we’ve seen in the volatility of 2022 and 2023. This seasonal trend indicates the market might face challenges even without a particular negative event. This makes a case for adding protective strategies to our portfolios.Considering Protective Strategies
With options being relatively inexpensive, buying puts to safeguard long equity positions is more budget-friendly than it has been for most of the year. We might also explore strategies like selling call credit spreads well above the current market price. This would generate income while betting that these new record highs will act as a resistance point in the upcoming weeks. Create your live VT Markets account and start trading now.Oil prices rise by $1.19 to $63.57 due to US sanctions proposals against India and China
Oil prices are going up as the United States tries to get the Group of Seven (G7) countries to impose tariffs up to 100% on India and China for buying Russian oil. This plan may face challenges because of rising tensions between the US and its trading partners.
Countries in the European Union, like Hungary, are opposing the US proposal. Hungary has previously blocked stricter sanctions on Russia’s energy sector.
Oil Prices Surge
After the news about the tariff proposal, oil prices jumped by $1.19 to $63.57. This increase shows how these tariffs could affect the global oil market. Oil is currently priced at $63.57, responding to the proposed US tariffs on Russian crude buyers. The uncertainty over whether the G7 will support this plan is adding volatility to the market. Traders should brace for larger price swings in the next few weeks as diplomatic discussions continue. This price is still relatively low compared to the highs seen in 2022 and 2023, when crude often exceeded $80 per barrel. The earlier G7 strategy involved a price cap, which had mixed results, but this new 100% tariff proposal is much more aggressive. The market is now assessing whether this threat is genuine or just political maneuvering.Traders Adjust Strategies
For those anticipating the tariffs will happen, it may be a good time to buy call options. Recent data from August 2025 showed that Russian oil exports to India and China remained strong, averaging 2.2 million barrels per day. Removing that supply from the market would likely push prices closer to $70. However, we must also consider the strong opposition from countries grappling with inflation, which averaged 2.9% in the G7 last quarter. The memory of the 2022 energy crisis in Europe is still fresh, and nations like Hungary could easily block this move to avoid rising energy costs again. Traders who think the proposal will fail may see this as a chance to buy put options, betting that prices will drop once diplomatic challenges become too great. Create your live VT Markets account and start trading now.Trump claims the Fed is falling behind on interest rates despite stock market highs and lower inflation
The US President has shared his thoughts on interest rates, saying the Federal Reserve is often slow to make changes. He highlighted the stock market’s current success, calling it the best ever.
He pointed out that inflation has dropped, while the stock market has grown. He supports further reductions in interest rates to boost economic growth.
Impact of Rate Cuts
Wednesday’s rate cut may help achieve some of his goals, but it’s unclear if long-term rates will also decline. The discussion about interest rates and their effects is ongoing. With the President’s comments stirring up the market, the VIX index has risen to 19 ahead of next Wednesday’s Fed meeting. The most recent Consumer Price Index from August 2025 showed inflation at 2.8%. While this is an improvement, it remains above the Fed’s target. We’ve seen similar situations before, particularly in 2019, when political pressure on the Fed caused market fluctuations. The upcoming Fed decision makes short-term volatility interesting. We should consider buying options straddles on the SPX, which is near its all-time highs, to take advantage of any sharp moves, regardless of the direction. The real concern is not just the anticipated rate cut, but whether the Fed will signal more cuts or view it as a “one and done.” This could easily cause the market to swing by 2% or more.Trading Strategies in a Volatile Market
Monitoring the Treasury market is crucial, as a rate cut might not lead to lower long-term rates. The current 10-year yield is at 4.1%. If the market sees this cut as a mistake regarding inflation, that yield might increase. This scenario suggests a potential yield curve steepening trade, where futures could be used to bet on the widening spread between 2-year and 10-year notes. This environment also offers specific sector opportunities. Financial stocks, especially regional banks, are affected by the yield curve. Therefore, put options on an ETF like KRE could serve as a hedge if long-term rates decline and affect net interest margins. Conversely, if the market interprets the cut as a boost for growth, call options on rate-sensitive tech stocks could do well. Create your live VT Markets account and start trading now.July building permits in Canada declined by 0.1%, missing the 4.0% forecast, while capacity utilization surpassed expectations.
In July 2025, building permits in Canada fell by 0.1%, against expectations of a 4.0% rise. The previous month saw a drop of 9.0%, and permits were down 8.2% compared to last year. However, residential construction intentions increased by $268.3 million, reaching $7.3 billion in July. On the other hand, non-residential building permits decreased by $279.2 million, totaling $4.6 billion.
A separate report on capacity utilization indicated that in the second quarter (Q2), utilization was at 79.3%, slightly above the expected 78.8%. In the first quarter (Q1), this number was 80.1%. For manufacturing, capacity utilization stood at 79.3%, down from 79.9% in the previous period.
Signs Of A Cooling Economy
This data, especially the significant drop in building permits, suggests that the Canadian economy is cooling faster than expected. Instead of a 4.0% increase, we saw a small decline, indicating weaker future investment and construction. This raises questions about any further interest rate hikes from the Bank of Canada. Given these signs, it may be wise to prepare for lower interest rates in Canada in the coming months. Derivatives like Bankers’ Acceptance futures (BAX) or options on Canadian Government Bond futures could be worth considering. This information supports the idea that the Bank of Canada is more likely to cut rates than raise them next. Just last week, on September 5, 2025, the Bank of Canada kept its policy rate steady at 4.5%, citing a better balance between supply and demand. However, with the latest inflation report for August 2025 showing that the Consumer Price Index (CPI) remains high at 3.1%, this new weak data complicates their decision-making. We recall the slowdown during the rate pause in late 2023, and this situation feels similar.Impact On The Canadian Dollar
A more cautious Bank of Canada generally puts pressure on the Canadian dollar. We might want to consider buying put options on the CAD or call options on the USD/CAD currency pair. If the market begins to expect rate cuts in early 2026, the Canadian dollar could weaken significantly against the US dollar. The weakness also varies by sector, as non-residential permits declined and manufacturing capacity utilization dropped from the first quarter. This poses a negative signal for industrial and materials companies on the Toronto Stock Exchange. To hedge against this potential downturn, we could buy put options on ETFs that focus on these sectors. Create your live VT Markets account and start trading now.The US dollar rises against several currencies as stocks hit record levels amid mixed economic data
The US dollar increased by 0.35% against the JPY, 0.40% against the NZD, and 0.21% against the AUD when US trading began. Other currencies like the EUR, GBP, CHF, and CAD had slight gains after earlier declines.
For the week, the dollar’s performance varied. It rose 0.25% against the JPY and 0.10% against the CAD. However, the AUD dropped by 1.47% and the NZD by 1.09%. The EUR, GBP, and CHF also experienced small losses.
US Markets and ECB Position
This week, US markets set new records with the S&P increasing by 1.63% and NASDAQ by 1.58%. ECB officials kept interest rates unchanged, citing concerns about inflation from energy prices and currency strength. Discussions between Russia and Ukraine have stalled, with Russia rejecting threats and blaming Europe for hindering peace talks. In the UK, economic data painted a mixed picture, revealing stagnant GDP and declines in industrial and manufacturing production. Germany’s CPI stayed steady and matched forecasts. Economic indicators from the recent European session were mixed, with some UK data falling short of expectations. Despite recent downturns, US indices finished at record highs, with Gemini’s shares debuting at $28. US treasury yields rose after coupon auctions, and commodities like crude oil, gold, and silver increased, while Bitcoin fell by $672.The US Dollar and Market Trends
The US dollar is showing short-term strength after a period of weakness, particularly against the AUD and NZD. This rebound comes after a strong rally that pushed US stocks to record highs, suggesting it might be a technical correction rather than a long-term trend. We need to see if this buying trend continues with the Euro and British Pound. The mixed signals from ECB officials create uncertainty, providing opportunities for options traders. Some policymakers are considering more rate cuts to combat low inflation, so any significant rise in the EUR/USD exchange rate might see selling pressure. This situation makes strategies like selling call spreads on the Euro appealing, as they can profit from limited upward movements. UK data indicates economic stagnation, with a 1.3% drop in manufacturing output this month. This reinforces the weak trend that has been developing since the second quarter of 2025. Traders should prepare for continued weakness in the pound, using put options on GBP/USD to manage risks or to profit from further declines. Even with US stock indices reaching new highs, there is some hesitation today. Volatility, as measured by the VIX index, is near multi-year lows around 13-14, which often signals a market reversal. It would be wise to purchase some inexpensive out-of-the-money puts on the S&P 500 to hedge against a potential downturn. US Treasury yields are climbing, with the 10-year note yield back above 4.0%. Rising rates put pressure on growth and tech stocks in 2023 and 2024. Traders should keep an eye on interest rate futures for signs of an accelerating trend, which could foreshadow weakness in the Nasdaq index. The Australian dollar has had a tough week, which is unexpected during a time of record-high stock prices. This suggests that the market is focusing on the Reserve Bank of Australia’s neutral stance and the decline in iron ore prices since their mid-2025 highs. We see an opportunity to short the AUD/USD through derivatives, betting that local economic factors will outweigh global risk sentiment. Geopolitical tensions pose a risk that might escalate unexpectedly, and the rise in crude oil prices reflects some of this concern. In recent years, conflicts have led to sudden spikes in energy prices and market volatility. Maintaining long positions in oil futures or options can effectively guard against these global risks. The strong demand for the Gemini IPO, even for a company not yet profitable, suggests a high level of speculation in certain market sectors. While Bitcoin is down today, the IPO’s success could lead to more volatility in the crypto market. This environment is suitable for volatility-based strategies, like straddles on Bitcoin, which can benefit from significant price movements in either direction. Create your live VT Markets account and start trading now.Dollar remains stable as stocks show little movement by the week’s end; indices fluctuate.
Traders expect the Federal Reserve to cut rates three times by 25 basis points each before the year ends. In Europe, ECB officials shared mixed opinions on inflation and interest rates, hinting at possible rate cuts in future meetings. Additionally, US tariffs could lower Japan’s corporate earnings by up to 3%.
In the UK, July showed no growth in GDP, while a BOE survey indicated rising public inflation expectations. France and Germany’s final CPI for August remained at 0.9% and 2.2%, respectively. China surprised analysts with an 8.8% increase in the M2 money supply.
Market Movements and Commodity Prices
In the markets, the USD was strong while the JPY weakened. Most European stocks dropped, and S&P 500 futures fell by 0.1%. US 10-year yields increased slightly to 4.039%. Gold went up by 0.4% to $3,648.62, and WTI crude rose by 1.1% to $63.09. Bitcoin also saw a small gain, rising 0.6% to $115,096. The dollar remained stable despite mixed economic data from the US. The EUR/USD pair stayed unchanged at 1.1727, whereas the USD/JPY rose 0.3% to 147.70. Equity trading was subdued, with the DAX taking a small step back after recent gains.Diverging Central Bank Policies
Now that markets expect almost 75 basis points of Fed cuts by the end of the year, attention turns to Fed funds futures. The drop in US Core PCE inflation to 2.5%, the lowest since early 2023, supports this outlook. We should consider options to prepare for a possible 50 basis point cut at next week’s meeting; such a surprise would significantly shift market pricing. The European Central Bank is sending mixed signals, creating uncertainty and keeping the euro stable for now. With German inflation at 2.2%, we’re quite a distance from the nearly 4% seen earlier this year, which provides support for ECB doves. This situation suggests that buying volatility through straddles on EUR/USD with expirations after the December meeting could be beneficial, as the pair will eventually break out when a clear policy direction is set. The calm in equities, with S&P 500 futures nearly flat, might be a temporary pause before potential volatility. The VIX index, although still under 20, has risen from summer lows of around 15, indicating that traders are beginning to anticipate more risk. We should consider options on major indices to bet on a volatility spike, as the current subdued atmosphere is unlikely to last through next week’s Fed decision. Gold’s consistent rise above $3,600 signals where bond traders expect real yields to head. This behavior echoes the rally we observed after the 2020 pandemic in a low-rate environment. Using call options on gold futures is a smart, capital-efficient way to stay bullish while the Fed prepares to ease policies. Although the Japanese yen continues to weaken, this trend may soon change against the dollar. This scenario is very different from the aggressive rate hikes seen in 2023 and 2024, which hurt the yen. As the interest rate gap between the US and Japan narrows, we should look at buying put options on USD/JPY to prepare for a movement away from its current level of 147.70. Create your live VT Markets account and start trading now.Recent developments have changed expectations for interest rates in various central banks.
Expectations for interest rate changes this week have remained stable without major shifts. By the end of the year, the anticipated rate cuts are projected as follows:
– **Fed:** 71 basis points, with a 92% probability of a rate cut.
– **ECB:** 4 basis points, with a 97% probability of maintaining current rates.
– **BoE:** 9 basis points, with a 98% probability of no change.
Other central banks are also adjusting their forecasts:
– **BoC:** 43 basis points cut
– **RBA:** 30 basis points cut
– **RBNZ:** 38 basis points cut
The **BoJ** and **SNB** are expected to keep their rates unchanged.
By 2026, overall easing is anticipated, with the following cumulative reductions:
– **Fed:** 145 basis points
– **ECB:** 10 basis points
– **BoE:** 42 basis points
– **BoC:** 59 basis points
– **RBA:** 48 basis points
– **RBNZ:** 48 basis points
– **SNB:** 6 basis points
– **BoJ:** 50 basis points
Economic Indicators and Market Reactions
In the U.S., recent economic data has supported expectations for rate cuts, with a strong agreement for a total of 75 basis points of easing by year-end. The ECB appears more hawkish, as President Lagarde announced the end of the cutting cycle. Overall, the market remains cautious about significant changes due to potential effects on economic growth and inflation. With the Federal Reserve’s easing plans becoming clearer, we can expect lower interest rates in the U.S. August 2025 data showed the Consumer Price Index cooling to 2.8%, while initial jobless claims rose to 245,000, indicating a slowing economy. Traders might consider buying SOFR futures or call options on Treasury bonds to prepare for the 71 basis points of cuts expected by year-end. The market might be undervaluing the chances of a 50 basis point cut at the Fed’s meeting next week. The implied volatility for short-term interest rate options seems too low, suggesting an opportunity to buy inexpensive options that would benefit from a larger-than-expected rate cut as the Fed aims to address the economic downturn.Central Bank Policy Divergence
The European Central Bank is signaling a different direction, with President Lagarde confirming the end of the cutting cycle. This hawkish stance aligns with persistent Eurozone inflation, which held steady at 2.9% in August 2025. This creates a clear divide in policy direction compared to the U.S., encouraging strategies focused on a stronger U.S. dollar against the euro, such as selling EUR/USD futures. Additionally, the Bank of Canada and the Reserve Bank of New Zealand are also expected to cut rates soon. This marks a significant shift from the first half of 2025 when many central banks held firm. We see this as a clear sign to short the Canadian and New Zealand dollars against the U.S. dollar. Create your live VT Markets account and start trading now.Morgan Stanley updates predictions, expecting the Fed to cut rates in three upcoming meetings.
Morgan Stanley now expects the Federal Reserve to cut interest rates in its meetings for September, October, and December. Before, they only predicted cuts for September and December.
Looking ahead to next year, Morgan Stanley predicts the Fed will lower rates by 25 basis points in January, April, and July. This shows how quickly financial forecasts can change.
The Nature Of Economic Forecasts
The firm’s updated prediction highlights how forecasts can evolve. Traders should be careful not to rely only on analyst predictions when making decisions. The outlook now anticipates rate cuts from the Federal Reserve in all three meetings left this year, starting with next week. This change is mainly due to recent signs of a slowing economy. For instance, last week’s August jobs report revealed only 85,000 new jobs, and the latest CPI data showed core inflation dropped to 2.8%. In response, we can expect more activity in interest rate derivatives linked to short-term rates. The price of futures contracts on the 2-Year Treasury note is likely to rise as the market adjusts to these more aggressive cuts. This offers a chance for traders looking to profit from falling yields as the year ends.Opportunities And Risks For Traders
This dovish shift also benefits stocks, potentially making call options on indices like the S&P 500 more appealing. However, the swift change in forecasts creates uncertainty. This could push the VIX index higher from its current level around 17. Traders might want to explore strategies that take advantage of increased price swings leading up to the October and December meetings. We’ve seen similar swift changes before, such as in late 2018 when the Fed quickly moved from raising rates to pausing. That time was marked by notable market volatility as traders rushed to adjust their expectations. This current situation suggests we should be ready for similar shifts in the coming months. Create your live VT Markets account and start trading now.UBS raises gold price forecast to $3,800 by the end of 2025, showing optimism.
UBS has raised its gold price forecast for the end of 2025 to $3,800, an increase of $300 from their previous estimate. For mid-2026, the forecast now stands at $3,900, up by $200.
Central banks are likely to continue supporting gold prices, with expected purchases between 900 and 950 tons this year. This is slightly lower than last year’s total of just over 1,000 tons. UBS remains interested in gold and recommends a mid-single-digit percentage allocation in global asset portfolios.
