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European indices rise slightly at the end of the week, contrasting with weaker US futures and sustaining optimism
Gold aims for a new record high, driven by weak jobless claims and CPI data before the FOMC meeting.
Gold prices are staying strong after a recent US CPI report met expectations and initial jobless claims rose more than anticipated. The jobless claims hit their highest point since 2021, mainly due to a spike in Texas. This suggests the labor market may be weakening, which could influence the Federal Reserve’s decisions.
The overall trend for gold seems to be upward, as falling real yields are expected, driven by possible dovish actions from the Fed. However, short-term interest rates that lean toward a hawkish stance might temporarily affect gold prices.
Technical Analysis Overview
Looking at the daily chart, buyers may find good opportunities near the $3,400 level. On the other hand, sellers might aim for a drop to around $3,120. The 4-hour chart shows a slight upward trendline that supports bullish momentum, while sellers could target a break below this line, aiming for the $3,400 level. The 1-hour chart indicates resistance at the $3,657 level, with a minor trendline influencing momentum. Buyers may look for a breakout above this level, while sellers could seek a pullback to around $3,590. The University of Michigan Consumer Sentiment report will wrap up the week. Gold prices remain stable as we near the next Federal Reserve policy decision. The unexpected rise in initial jobless claims to 275,000, notably due to an increase in Texas, is raising concerns about a weakening labor market. This perception makes it more likely for the Fed to adopt a dovish stance, historically supportive for gold prices. In this setting, the broader outlook for gold suggests an uptrend, as a dovish Fed would likely drive real yields lower. We noticed a similar trend beginning in late 2023, when markets first started anticipating rate cuts for the following year. However, any surprising hawkish signals from officials could lead to short-term corrections, so we should be ready for volatility.Gold Trading Strategies
For those who are optimistic about gold, the key support level is around $3,400. Buying call options or creating bull call spreads on pullbacks toward this level could offer a good risk-to-reward ratio. This approach would aim for a return to recent highs near $3,657 while keeping potential losses limited. Conversely, if the Fed takes a more aggressive hawkish stance, it could disrupt current market sentiment. If we see a clear break below the $3,400 support line, it might be time to consider bearish strategies, such as buying put options. In that case, the next key downside target would be the support level at $3,120. It’s also important to note that implied volatility for gold options is increasing ahead of the FOMC meeting, making new positions more costly. We saw this trend during the volatile rate-hiking cycle of 2022-2023. Traders with existing long positions in gold may want to purchase protective puts to safeguard against a sudden unfavorable move. While today’s University of Michigan Consumer Sentiment report will be closely monitored, the Federal Reserve’s decision will be the key driver. Short-term traders can use minor trendlines, like the one near $3,590, for tactical entries and exits. However, significant capital should be invested based on reactions to the more established, longer-term technical levels. Create your live VT Markets account and start trading now.Core annual inflation in France drops from 1.5% to 1.2% due to lower services inflation
France’s consumer price index (CPI) for August increased by 0.9% compared to last year, matching early estimates. Last month, the CPI was at 1.0%. The harmonized index of consumer prices (HICP) for August also confirmed the preliminary figure of 0.8%, slightly lower than July’s 0.9%.
Core annual inflation in France dropped from 1.5% in July to 1.2% in August. This change is due to a decrease in services inflation, which fell from 2.5% in July to 2.1% in August. Food prices remained stable at 1.6%, consistent with July’s figures.
Disinflation Trend in the Eurozone
The recent inflation data from France highlights the ongoing trend of disinflation across the Eurozone. A key point is the drop in core inflation, influenced by slowing services prices, indicating that inflation is becoming less persistent. This is an important signal for the European Central Bank’s (ECB) future policy discussions. For interest rate traders, this data suggests a higher chance of an ECB rate cut sooner than expected, potentially in early 2026. Eurozone unemployment ticked up to 6.7% last month. This easing inflation gives the central bank more flexibility. Traders might consider buying Euribor futures or using swaps that benefit from falling short-term rates. This situation is favorable for European stocks, particularly in sectors sensitive to interest rates. We should explore long positions on the CAC 40 index via futures or buy call options to take advantage of possible gains from a more dovish ECB. The index has been stuck in sideways trading for weeks, and this could trigger a breakout.Impact on Euro and Currency Markets
In the currency markets, this data puts pressure on the Euro. The difference in policies between the ECB and the US Federal Reserve, which signals a longer period of high rates, is likely to weigh on the EUR/USD pair. We should consider purchasing put options on the Euro to protect against or speculate on further declines toward the 1.05 level we saw earlier this year. Remember how markets reacted swiftly to policy changes in late 2023 and early 2024, even before any official announcements? The current situation feels similar, where waiting for the central bank to confirm changes might mean missing out on the biggest movement. Capitalizing on early data is where the real opportunity lies. Create your live VT Markets account and start trading now.Muller says current rates support economic recovery and boost financial markets and growth prospects.
The European Central Bank (ECB) has successfully reduced inflation and interest rates without harming the job market. Meanwhile, the Federal Reserve is set to cut rates soon, which is likely to benefit financial markets and global growth.
Potential Effects of Rate Cuts
The possible impacts of rate cuts are key factors for the ECB to consider. The current interest rates are well-suited for today’s economic conditions. For now, the ECB is likely to keep interest rates stable. With August 2025’s Eurozone inflation rate at 2.3%, we are close enough to the target to pause on any changes. This stability may reduce short-term interest rate swings in Europe and could be an ideal time to sell options on EURIBOR futures for profit. In contrast, the United States is heading towards rate cuts, with the CME FedWatch tool showing an 85% likelihood of a cut by the December 2025 meeting. This creates a notable difference in policy compared to the ECB, which typically strengthens the euro against the dollar. Traders may want to use options to prepare for a potential increase in the EUR/USD exchange rate. This cautious approach is supported by a strong job market that has managed to cope well with the rate hikes from 2023. The latest data from Eurostat shows unemployment remains low at 6.4% across Europe. This economic strength gives the ECB less reason to rush into rate cuts, favoring a stable policy in the near future.Impact on European Stocks
The anticipated rate cuts by the Fed are already uplifting European stock markets. For instance, the Euro Stoxx 50 index has risen over 5% in just the past month. Traders might consider buying call options or using bullish call spreads on key European indices like the DAX to take advantage of this positive trend. Create your live VT Markets account and start trading now.Today, the European session includes low-tier CPI releases, while the American session focuses on consumer sentiment data.
During the European session, we expect some lower-impact economic data, specifically the final CPI readings for France and Spain. The European Central Bank (ECB) is currently on hold after its last rate change, and no adjustments are expected unless something significant happens. Today, we will hear from several ECB speakers, which is typical after a rate decision.
In the American session, the focus will be on the University of Michigan Consumer Sentiment report. It’s expected to drop slightly from 58.2 to 58.0. We will also pay attention to inflation expectations, but unless there are surprises, this data is unlikely to lead to any changes.
FOMC Decision Anticipation
Looking ahead, the FOMC decision will be closely watched, especially for any hints of a possible 50 basis point cut. Keep an eye on insights from WSJ’s Timiraos about this. With little on the schedule today, it’s a good time to prepare for next week’s important FOMC decision. The University of Michigan sentiment report is only significant if it shows a major change. A much lower reading could reinforce the case for a Federal Reserve rate cut. Consumer sentiment has been stuck at levels similar to those in 2022, indicating ongoing economic weakness. As we approach this major event, we believe implied volatility is currently underestimated. For example, the VIX index has been around 17 but may easily rise above 20 when the Fed announces its decision—a trend seen before significant policy changes. This makes buying options, like straddles or strangles on indices such as the SPX, an appealing strategy to anticipate increased market movement, no matter the direction. The possibility of a 50 basis point cut creates a strong dovish outlook in the market. Traders are already positioning themselves by buying out-of-the-money call options on rate-sensitive sectors and major indices. Recent economic data, like the August jobs report showing unemployment rising to 4.2%, supports the idea that the Fed needs to take stronger action to help the economy.Market Reaction to Potential Fed Actions
However, we must also think about the risk of a “hawkish disappointment.” If the Fed decides to cut by only 25 basis points or hints at a pause, we could see a sharp negative reaction in the market, given current dovish expectations. Smart traders might consider buying protective put options or setting up put spreads on the QQQ to hedge against this scenario. In contrast, the ECB’s steady stance suggests we expect less volatility in European assets for now. Recent final inflation figures for Spain showed core CPI steady at 2.5%, giving the ECB little reason to change its course. Therefore, in the upcoming weeks, the best trading opportunities will likely come from positioning around the Fed’s decisions rather than Europe’s inaction. Create your live VT Markets account and start trading now.Villeroy suggests a possible rate cut discussion in December because of inflation risks
Villeroy is known for his supportive views on monetary policy and continues to hold this stance. He and others at the ECB are worried about the risks to inflation, which they believe lean more towards the downside than the upside.
The idea of a rate cut will be reconsidered in December, depending on economic conditions. Right now, the economy does not strongly indicate that a rate cut is imminent.
Villeroy’s Comments Impact
Villeroy’s views are making waves, especially since Eurozone inflation for August was slightly below target at 1.9%. This suggests that inflation risks are more likely to decrease, making a December rate cut a topic for discussion. However, the latest flash PMI data showed unexpected strength in the services sector, indicating that another cut is not guaranteed. For those trading interest rate derivatives, there’s an opportunity in options on EURIBOR futures. Pricing for December contracts now reflects this uncertainty, with implied volatility rising from August’s lows. A long straddle bet, predicting a significant price move after the year’s final meeting, may be a smart strategy given the differing opinions within the ECB. This ongoing ECB discussion is affecting the euro, which has weakened against the dollar since the comments were made. We saw a similar situation in late 2024, when the market overestimated the likelihood of rate cuts, leading to spikes in EUR/USD volatility before the central bank decided to maintain rates. Traders should consider buying relatively inexpensive, medium-term volatility through options, as the currency could move sharply if the ECB surprises the market with a rate cut or rules it out.Impact on Equity Markets
In the equity markets, speculation about lower rates is providing support for indices like the Euro Stoxx 50. Any sign of a cut could further bolster these indices, making call options a good hedge or a speculative bet on dovish policies. Historically, the ECB’s first cut in June 2024 gave a significant, though temporary, boost to European stocks before concerns about growth dominated once more. Create your live VT Markets account and start trading now.European indices show early gains as DAX, CAC 40, and FTSE futures rise slightly
Eurostoxx futures have risen by 0.2% in early European trading. German DAX futures are up by 0.3%, while French CAC 40 and UK FTSE futures have each gained 0.2%.
US futures seem less active today, but European indices are holding steady after a moderate week. The German DAX is trying to bounce back from last week’s drop, while the French, Spanish, and Italian indices have already improved from last week. Yesterday, Wall Street saw broad gains, mainly driven by financial stocks, with the Dow leading the way.
European Equities Keep Pushing Forward
European equities are keeping their momentum as we approach next week’s Federal Reserve meeting, which could sway market movements. There’s a positive trend in European markets, which is encouraging after last week’s declines. However, this steady performance feels more like a pause. The main concern for investors is the Federal Reserve’s decision on interest rates next week. The latest US inflation data from August 2025 showed a rate of 3.4%, slightly higher than expected. This complicates the Fed’s decisions. The CME FedWatch tool suggests a good chance of a pause in rates, but their wording will be crucial. We should brace for volatility, as any hint of future rate hikes could easily unsettle the market.Effects of the ECB’s Cautious Approach
In Europe, the scenario is different. The European Central Bank is taking a more cautious approach due to weaker economic signals. This is evident in the German DAX, which is still trying to keep pace with its counterparts. This difference in policy could create opportunities in currency trading, such as betting on the dollar gaining strength against the euro. With the VIX index around 15, implied volatility is relatively low before such a big event. This may be a good time to buy protection through put options on major indices like the S&P 500. A surprise hawkish statement from the Fed could quickly spike volatility, making those positions profitable. We recall a similar situation in 2023 when the Fed paused its rate hikes but left the possibility open for future increases. That led to volatile markets for months as each data release was closely scrutinized. This history suggests that even with a Fed pause, we shouldn’t expect an immediate smooth rally. The recent strength in financial stocks is noteworthy, as they typically thrive in a higher-for-longer interest rate setting. This could mean a strong pairs trade opportunity in the coming weeks. We might look into call options on financial ETFs while considering puts on interest-sensitive sectors like technology or utilities. Create your live VT Markets account and start trading now.Kazaks suggested an unpredictable ECB trajectory, highlighting elevated risks and confidence in current inflation management.
Comments suggest that the ECB’s forecast hasn’t changed much since June, and risks are still high. They believe a meeting-by-meeting strategy is suitable for now, viewing their stance on inflation positively.
ECB President Lagarde reported no stress in France. The cycle of cutting rates is over, and any future cuts would need strong reasons. The market expects only a slight easing of 4 basis points by the end of the year and 14 basis points by the end of 2026.
More Comments Expected
Additional comments from ECB members are likely after the recent rate decision, as is typical. The European Central Bank is signaling a prolonged pause, using a meeting-by-meeting approach. Officials feel the fight against inflation is in a “good place,” meaning the significant rate hikes seen through 2024 are behind us. This indicates a period of stability, where central bank policies won’t drive major market fluctuations. This steady policy approach is backed by recent economic data. The flash inflation rate for the Eurozone in August 2025 was a stubborn 2.4%, still above the target but not high enough to warrant a rate hike. Coupled with lackluster Q2 2025 GDP growth of just 0.2%, it keeps the ECB in this holding pattern for the foreseeable future.Strategies for Derivative Traders
For derivative traders, this environment favors strategies that thrive on low volatility and stable interest rates. Selling short-dated options on EURIBOR or Bund futures may be appealing, as implied volatility will probably decrease with the central bank stepping back. These conditions are suitable for earning premiums through strategies like iron condors or short strangles, betting that rates will stay within a set range. Political risks, such as the turmoil from the French election in mid-2024, have significantly decreased as a market concern. The gap between French and German 10-year government bond yields has narrowed from last year’s peak to below 50 basis points, supporting the ECB’s calm view on political stress. This alleviates a major source of uncertainty that previously unsettled traders. The market has fully adopted this outlook, pricing in almost no chance of a rate cut for the rest of 2025. This could lead to complacency, making the market sensitive to any surprising economic data. An unexpected rise in inflation or a sharp economic downturn could unravel these low-volatility positions, so any trades should include careful risk management. Create your live VT Markets account and start trading now.Germany’s final August CPI rose 2.2% compared to last year, with core inflation at 2.7%
Germany’s consumer price index (CPI) for August stayed at 2.2% compared to last year, according to Destatis on September 12, 2025. The harmonised index of consumer prices (HICP) also remained at 2.1% from the preliminary figure.
Before this, the CPI was at 2.0%, and the HICP was at 1.8%. Core annual inflation is currently at 2.7%, matching the European Central Bank’s neutral policy.
German Inflation Trends
The inflation data from August 2025 shows that price pressures are easing but are still persistent. With headline inflation at 2.2% and core inflation at 2.7%, it seems unlikely that the European Central Bank will cut interest rates soon. This supports the view that the ECB will maintain its current stance for the rest of the year. For interest rate traders, this means lower volatility in the upcoming weeks. A steady ECB policy suggests that the front end of the yield curve will remain stable, making strategies like selling straddles on short-term EURIBOR futures more appealing. We observed a similar situation in late 2023 when the market began anticipating a prolonged pause in policy. In the currency market, this news may keep the Euro down, especially against the US dollar. Last week, US job data surprised with an addition of 210,000 jobs, strengthening the Federal Reserve’s hawkish position compared to the ECB’s inaction. This difference in policy is likely to limit any major rallies in the EUR/USD pair.Equity Market and Economic Indicators
From an equity standpoint, a stable central bank is usually a good sign, but the reason for this pause is weak economic growth. The latest Eurozone Manufacturing PMI for August dropped to 48.5, indicating a decline in industrial activity for the third month in a row. This suggests that while a rate cut isn’t on the horizon, the economic challenges may limit gains for indices such as the German DAX. Create your live VT Markets account and start trading now.July’s UK GDP remains unchanged, raising concerns about economic stability due to mixed sector results
In July, the UK economy showed no growth in its monthly GDP, which was expected. Earlier reports indicated a 0.4% increase.
The services sector grew by 0.1%, better than the expected stagnation, but slightly less than the previous 0.3% growth. In contrast, industrial output fell by 0.9%, going against the prediction of stability and down from a gain of 0.7%.
