China’s manufacturing purchasing managers’ index (PMI) fell to 49.3 in January, indicating a contraction and missing expectations. The non-manufacturing PMI also dropped to 49.4, reaching a 37-month low. This suggests ongoing domestic challenges despite some improvement in external conditions. For the manufacturing sector, the PMI has been contracting for nine of the last ten months. Key sub-indices weakened, with new orders at 46.1 and export orders at 46.9, both lower than in December.

Service Sector Strategy

China plans to enhance service consumption and quality to boost domestic demand. Future improvements in the service sector may be reflected in upcoming non-manufacturing PMI data. The January PMI data showed a contraction at 49.3, significantly lower than expected. This weak start, along with the non-manufacturing PMI hitting a 37-month low, indicates that China’s domestic economy is facing more challenges than anticipated. The drop in new orders to 46.1 is particularly concerning for the upcoming quarter. However, it’s important to note that the Caixin Manufacturing PMI, which surveys smaller private firms, rose slightly to 50.8 in January. This suggests that, while state-owned enterprises are struggling, some private sector areas are performing better. This mixed picture indicates that targeted investments could be more effective than broad pessimistic strategies on the entire Chinese economy. The weakness in Chinese manufacturing poses a direct threat to the demand for industrial commodities. With LME copper prices around $8,600 per tonne, there is a strong case for buying put options to protect against a possible drop to the $8,200 support level observed in late 2025. Similarly, iron ore prices, which fell over 9% in January, appear at risk of further declines.

Australian Market Impact

The Australian dollar is particularly vulnerable due to Australia’s heavy reliance on exports to China. After record iron ore shipments to China at the end of 2025, this new data raises significant doubts about future demand. We are now considering shorting AUD/USD futures, as the currency often reflects Chinese economic sentiment. We should also keep an eye on policy responses. The People’s Bank of China recently reduced the bank reserve requirement ratio by 50 basis points to inject liquidity. This stimulus may take time to have an effect and could eventually support the services sector later this year. For now, the market views this as a reaction to weakness rather than a proactive measure for growth. The uncertainty from this data creates opportunities for volatility. The contrast between weak official data and stronger private sector surveys, coupled with policy stimulus, suggests potential sharp movements in the market. Therefore, we are thinking about buying call options on the VIX, as any further negative news from China could lead to a significant risk-off response in global equity markets. Create your live VT Markets account and start trading now.

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The Canadian Dollar (CAD) has dropped against the US Dollar (USD) because the US government is in shutdown mode, pausing important economic data releases. Traders are paying close attention to the USD/CAD exchange rate, which is hovering around 1.3550, as key US labor statistics, like Nonfarm Payrolls (NFP), are on hold until the government reopens. This ongoing partial shutdown, now in its third day, has created uncertainty, forcing traders to depend on less reliable private-sector data. The US Dollar Index has stabilized above 97.00 after President Trump tapped Kevin Warsh as the new Federal Reserve Chairman. At the same time, West Texas Intermediate (WTI) Crude Oil prices have dipped to about $62.00 a barrel after easing geopolitical concerns.

Bank Of Canada Interest Rate Decision

On January 28, the Bank of Canada kept its interest rate steady at 2.25% as the Canadian economy adapts to slower population growth and US trade policies. In November, Canada’s GDP stagnated, and manufacturing output fell by 1.3%. The lack of US data affects usual market indicators, leading traders to be cautious until new information comes out. Key factors like GDP, inflation, and oil prices are crucial for determining CAD’s value; typically, higher oil prices and positive economic indicators help the Canadian dollar. Right now, the US government shutdown is the main concern. With crucial data like the Nonfarm Payrolls report unavailable, traders are feeling uncertain. This unpredictability makes it risky to make big bets on the US dollar for the time being. It might be wise to lower position sizes until Congress gets federal operations back on track. Looking back at the last major shutdown from late 2018 to early 2019, which lasted 35 days, we saw a drop in currency volatility initially, followed by a sharp rise as a resolution approached. Historical data from the CBOE suggests that currency volatility indexes for the Euro (EVZ) and Yen (JYVIX) followed a similar trend. This pattern indicates that the current calm in the market could be a good time to buy inexpensive, longer-dated options in preparation for the inevitable data rush and market changes once the shutdown concludes. For Canada, economic fundamentals paint a weaker picture for the loonie. The Bank of Canada’s decision to maintain a 2.25% rate and forecast a slow 1.1% GDP growth for 2026 shows a dovish outlook. Adding to the negativity, WTI crude oil has dipped into the low $62 per barrel range, weakening a key support for the commodity-linked currency.

Impact Of US Federal Reserve Nomination

The US dollar is getting some support from Kevin Warsh’s nomination as Fed Chair, which many view as a stabilizing factor. However, federal funds futures still show a greater than 60% chance of at least two rate cuts by the end of 2026, which limits the dollar’s upward potential. The mix of stable Fed leadership and anticipated easing creates a challenging trading environment. Looking at the technical situation, with USD/CAD finding support near 1.3540 and resistance around 1.3670, the currency pair is likely to stay in a range. This creates an opportunity to sell short-dated option strangles and earn premiums from the expected lack of movement in the coming days. It’s crucial to manage this position carefully, as news of a funding deal could lead to a sharp breakout. Our main focus should be on volatility rather than the market direction. While the shutdown drags on, implied volatility may stay low, providing an opportunity to build positions that could benefit from a significant market move later. We need to be prepared to act swiftly once lawmakers reach an agreement, as the release of delayed economic data will likely cause major changes across currency pairs. Create your live VT Markets account and start trading now.

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Earnings Season Shows Strong Growth

Earnings season is looking promising, with 78% of companies exceeding expectations, according to FactSet. Companies like Amazon and Alphabet did well, while Disney faced some difficulties, even though it met analyst targets. Additionally, the US Bureau of Labor Statistics has postponed the latest jobs report because of the ongoing government shutdown, which creates uncertainty for federal operations and data.

Market Volatility and Strategy

Yesterday’s jump in the ISM manufacturing index to 52.6 marks its first growth reading in 26 months. This positive change suggests that cyclical sectors might continue to rise. Historically, such data increases have led to market rallies, like the one in mid-2020 that started a long bull run. Therefore, buying call options on industrial and materials ETFs such as XLI and XLB could be a smart move to take advantage of potential economic growth. However, the ongoing government shutdown and the delay of the January jobs report leave gaps in information and create significant risks. The last major shutdown in late 2018 led to a nearly 20% market drop before a resolution. To protect against such a scenario, we should consider buying protective puts on broad market indices like the SPY. Last Friday’s sharp drop in precious metals likely caused implied volatility to spike, presenting us with an opportunity. As markets stabilize, volatility is expected to decrease—a phenomenon known as “volatility crush.” Selling options using strategies like iron condors or credit spreads on indices could be profitable in the upcoming weeks. In the tech sector, the market is distinguishing between companies. Oracle is being rewarded for its strong cloud growth, while Nvidia is struggling due to uncertainty around its OpenAI deal. This scenario suggests that pairs trading could be an effective strategy. For instance, going long on Oracle call options and buying puts on Nvidia allows us to benefit from specific company news while staying neutral on the broader tech sector. Create your live VT Markets account and start trading now.

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At a recent meeting, Raphael Bostic, President of the Federal Reserve Bank of Atlanta, shared that the US economy is expected to stay steady and strong. By midyear, a balance in the economy is likely, despite worries about inflation. The Fed is focused on controlling inflation, which remains a concern partly because of tariffs. The job of the Fed Chair is tough, as it involves building trust with the committee.

Currency Markets Update

In currency markets, the US Dollar has shown strength against major currencies. It rose by 0.57% against the Euro, 0.59% against the British Pound, and 0.60% against the Japanese Yen. Many economic and global factors are affecting different sectors. Gold prices have bounced back to around $4,820, while Ethereum saw a spike in buying activity. The Reserve Bank of Australia is likely to raise interest rates in February due to growing inflation pressures. Ripple and the wider cryptocurrency market had mixed responses, with XRP stabilizing after a recent dip. These events come as many economic forecasts and regulatory updates are emerging from financial markets worldwide. The Federal Reserve’s message is clear: the economy is strong, and the battle against inflation is still ongoing. The outlook for the first half of the year supports a cautious monetary policy. Therefore, traders should prepare for interest rates to stay high for a while.

US Dollar Strength

In this context, the US Dollar’s strength, particularly its 0.97% rise against the Swiss Franc, is expected to continue. We think strategies that favor a stronger dollar, like buying call options on the USD/JPY pair, are a good idea. The market expects a tough stance from the Fed, boosted by the nomination of Kevin Warsh as the next Fed chair. The latest Consumer Price Index (CPI) data from January 2026 shows core inflation is stuck at 3.9%, which is higher than the Fed’s target. This persistence in price pressures suggests it is too early to expect any policy changes. As a result, we are looking at positions that could benefit from sustained high rates, such as shorting interest rate futures contracts. We are also observing differences among global central banks, particularly the Reserve Bank of Australia, which is set to increase rates this week. This may create opportunities in currency pairs, but the dollar’s overall strength might limit gains for other currencies. The upcoming Bank of England decision adds more event risk, making strategies like straddles on the GBP/USD a smart way to navigate potential volatility. In commodities, gold is encountering challenges around the $4,820 mark. A strong dollar and high interest rates raise the cost of holding non-yielding assets like gold, similar to patterns seen during the 2025 market sell-off. Buying put options on gold futures could protect against a potential price drop. The US labor market remains resilient, with the January Non-Farm Payrolls report showing an addition of 225,000 jobs. This solid employment situation allows the Fed to maintain its tight policy. Traders should expect ongoing volatility in rate-sensitive assets until the economy shows clear signs of slowing down. Create your live VT Markets account and start trading now.

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The EUR/JPY is around 183.50 as the Japanese Yen continues to weaken due to lower inflation rates in Tokyo. The recent Consumer Price Index showed significant slowdowns, which lowers the urgency for the Bank of Japan to raise interest rates. While markets expect a potential rate hike in spring, worries about Japan’s economic health due to proposed fiscal spending and an upcoming election remain. The Yen’s decline is slightly eased by concerns that officials might intervene, along with warnings from Japan’s Ministry of Finance. Geopolitical tensions keep demand for safe-haven currencies high, offering limited support to the Yen.

Euro and ECB Policy Decisions

The Euro is cautiously awaiting the European Central Bank’s policy decisions, with rates expected to stay the same. Recent data from the Eurozone suggests moderate improvement, as seen by the Hamburg Commercial Bank’s Manufacturing PMI rising to 49.5. The heat map shows how the Euro compares with other major currencies, revealing it is strongest against the Swiss Franc. Market analyst Ghiles Guezout uses both fundamental and technical analysis, while FXStreet shares unbiased content with no investment advice or business ties. Given the Yen’s ongoing weakness, the EUR/JPY cross presents opportunities. Last week’s Tokyo Core CPI data revealed inflation had dropped to 1.8%, below the Bank of Japan’s target. This pushes expectations for a rate hike past May 2026. The disparity with the European Central Bank, which is maintaining steady rates, creates upward pressure on this currency pair. Political talk of fiscal stimulus in Japan adds to the Yen’s challenges. The fundamental weaknesses are expected to continue in the near term. Current overnight index swaps suggest there is less than a 25% chance of a Bank of Japan rate hike before the second quarter, supporting our perspective.

Strategies for Traders

Meanwhile, the Euro demonstrates stability ahead of the ECB meeting. Although last month’s Eurozone Manufacturing PMI was still below 50 at 49.5, it outperformed expectations and showed slight improvement. This indicates the Euro is holding strong, particularly against the weakening Yen. For traders, this situation suggests setting up bullish positions with options to manage risks. We recommend buying EUR/JPY call options with March or April 2026 expirations and strike prices around 185.00. This approach allows traders to benefit from potential price increases while limiting maximum losses to the premium paid. However, it’s essential to be cautious about possible government actions to support the Yen. Recall the significant intervention by the Ministry of Finance in autumn 2024, which led to a 500-pip drop in EUR/JPY in one day. To safeguard against a similar sudden decline, holding some out-of-the-money put options as a hedge would be a smart defensive strategy. Create your live VT Markets account and start trading now.

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The Australian Dollar (AUD) has slightly improved against the US Dollar (USD), with AUD/USD trading at about 0.6942. This comes after it hit intraday lows, as traders look ahead to the Reserve Bank of Australia’s (RBA) decision on interest rates. Currently, the market expects a 25 basis point increase, raising the rate to 3.85%. There is a 70-75% chance of this change, driven by ongoing inflation concerns. Core inflation in Australia rose to 3.4% year-on-year in the last quarter, which is above the RBA’s target of 2-3%. A tight job market, shown by an unemployment rate around 4%, supports the need for tighter monetary policy. Additionally, Australia’s TD-MI Inflation Gauge reported a 3.6% rise in January. Chinese economic data is also significant because China is Australia’s biggest trading partner.

US Federal Reserve and Market Reactions

In the US, the USD is gaining strength due to the nomination of Kevin Warsh as the new Federal Reserve Chair, who is known for being tough on inflation. This has lowered expectations for drastic rate cuts. Strong US manufacturing data also helps, with the ISM Manufacturing PMI increasing to 52.6. The US Dollar Index is around 97.63; however, a partial US government shutdown might affect its future movement, causing delays in employment data. With the market already anticipating a likely 25 basis point rate hike from the RBA today, there may not be significant immediate movement in the Aussie dollar. We believe the real opportunity for traders lies in the RBA’s future guidance. If the RBA issues an unexpectedly cautious statement, the AUD/USD could quickly reverse its recent gains. Expectations of a rate hike have been building for 2025 as inflation has remained stubbornly high, with quarterly CPI results consistently exceeding the RBA’s target. The job market is very tight, with unemployment staying below 4% for much of last year, allowing the central bank to justify tighter policies. For example, official data from December 2025 showed the unemployment rate at a solid 3.9%. Conversely, the US Dollar is showing renewed strength, making it risky to be overly optimistic about the Aussie. The inflation-focused selection of a new Fed leader and the strong manufacturing PMI reading of 52.6 are prompting us to re-evaluate US rate trends. This suggests that selling AUD/USD during rallies could be a good strategy in the coming weeks.

US Shutdown and Trading Strategies

However, the partial US government shutdown brings about significant uncertainty, which could limit the Greenback’s increase. The confirmed delay of the January jobs report means we lack a vital piece of economic data. This makes aggressive short positions on the AUD/USD less appealing until we get more clarity from Washington. In light of this situation, we should think about using options to trade the potential volatility. Buying puts on the AUD/USD could effectively position you for a dovish RBA surprise or further strength in the US Dollar. Alternatively, a straddle strategy could benefit from significant price movement in either direction after today’s announcement, without needing to predict the outcome. Looking ahead, attention will shift from the RBA to the length of the US shutdown and the eventual release of delayed economic data. Signs of a lengthy political standoff in the US could weaken the dollar and support the AUD. Therefore, we need to stay agile and be ready to adjust our positions as circumstances change. Create your live VT Markets account and start trading now.

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Gold prices fell over 4% after Kevin Warsh was nominated as the likely new Federal Reserve Chair. Improvements in the US economy, especially in manufacturing, also contributed to the drop in the gold market. The XAU/USD exchange rate stood at $4,681, continuing its decline from last Friday with a total drop of more than 14%. The ISM Manufacturing PMI rose to 52.6 in January, showing a significant rebound from December’s downturn. Even with a strong US Dollar and rising Treasury yields, gold prices remain below $5,000, bouncing back from a daily low of $4,402. The Federal Reserve is keeping interest rates steady while waiting for more economic data to guide future decisions.

Upcoming US Economic Updates

Upcoming economic reports from the US include speeches from Federal Reserve officials, job data, S&P and ISM Services PMIs, and consumer sentiment information. The Nonfarm Payrolls report has been postponed due to a government shutdown. The DXY index increased by 0.74% to 97.54, alongside rising Treasury yields. In January, the S&P Global Manufacturing PMI hit its highest level since May 2022 at 52.4. Gold prices remain unstable, testing key support levels while sellers dominate the market. If prices rise above $4,700, we may see further gains. However, if they drop below $4,600, additional declines could follow. Factors influencing gold prices include geopolitical events, interest rates, and movements in the US Dollar. Gold’s sharp 14% drop from last week’s highs signals a new market environment. The nomination of Kevin Warsh to lead the Fed and unexpectedly strong manufacturing data have shaken investor confidence. This rapid change indicates we should expect increased volatility in the weeks ahead. With the Fed’s decisions relying on data, this week’s Services PMI and consumer sentiment reports are crucial for future movements. Similar scenarios occurred in 2025 when the manufacturing index ended a 16-month decline, leading to an increase in rate cut expectations and a rise in the US 10-year yield, which temporarily lowered gold prices.

Strategies and Market Moves

Now may be a good time to buy volatility since the sharp price drop suggests that implied volatility in gold options will increase. Traders holding long positions might consider buying puts with a strike price near $4,500 to protect against a break below the key support level of $4,381. Those expecting a bounce might find short-dated calls above $4,700 enticing if the dollar’s rally cools down. The crucial support level for the current uptrend is at $4,381, which we have tested successfully. If it can’t hold up on a closing basis, we could see a deeper correction targeting around $4,300. On the other hand, regaining the moving average at $4,773 would indicate that this sell-off was just a temporary shakeout before a potential rise. It’s important to monitor the US Dollar Index and 10-year Treasury yields, as they are influencing the market’s direction. Last year, the DXY climbed from 95 to above 100 in the second half of 2025, limiting gold’s growth even with ongoing geopolitical issues. Until the dollar and yields reverse their upward trend, any rallies in gold are likely to be short-lived. Create your live VT Markets account and start trading now.

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The US Bureau of Labor Statistics (BLS) has announced that it will not release the Nonfarm Payrolls data scheduled for this Friday. This decision comes as a result of the ongoing partial government shutdown, which is affecting federal operations. According to the BLS website, updates are currently on hold. The last update was on February 2, 2026, and new updates will only start again when the federal government is back in action.

Government Funding Freeze

In late 2025, the US faced its longest government funding freeze ever. A temporary funding solution extended operations only until the end of January. Despite attempts to keep the budget functioning, disagreements in Congress have left vital federal offices without enough funds. The delay in the Nonfarm Payrolls report creates a significant gap in understanding the US economy’s health. Without this important data, predicting the Federal Reserve’s decisions on interest rates becomes much more challenging. This uncertainty is likely to cause fluctuating market activity in the upcoming weeks. We now need to pay attention to other labor market indicators still being reported by private firms or less affected agencies. For example, tomorrow’s ADP National Employment Report will be crucial as it becomes the main signal for job growth. Additionally, initial jobless claims data, which rose slightly to 215,000 last week, will be closely examined for signs of any weaknesses.

Market Volatility and Strategies

For traders in derivatives, this situation could lead to increased volatility. The CBOE Volatility Index (VIX), known as the “fear gauge,” has already increased by over 5% this week, nearing the 19 mark. A similar rise occurred during the 35-day government shutdown from late 2018 to January 2019, when the VIX first surged due to uncertainty before the market stabilized. This scenario makes options strategies that benefit from price changes—regardless of direction—particularly useful. Although implied volatility increases will raise the cost of options, buying straddles or strangles on major indices like the SPX could be a smart way to prepare for a big move once a budget deal is reached. The aim is to expect significant price shifts when the political stalemate finally ends. Alternatively, this is an important time to hedge existing portfolios against sudden risks. Purchasing put options on equity index futures or exchange-traded funds like the SPY can serve as budget-friendly protection. This strategy allows investors to participate in potential relief rallies while safeguarding against a prolonged political deadlock that negatively impacts market sentiment. In the short term, market direction will be more influenced by political developments in Washington than by economic fundamentals. We should stay updated on news sources for any signs of progress on a funding solution, as such news is likely to lead to the most significant market movements. Comments from key congressional leaders can have a greater effect than regular data releases. Create your live VT Markets account and start trading now.

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The Pound Sterling (GBP) fell by 0.17% as the US Dollar (USD) rose for two days in a row. The current GBP/USD exchange rate is 1.3662, with a daily high of 1.3715. On Monday, the Pound began the week positively but later lost ground due to a stronger US Dollar, which benefited from political stability in the United States. The GBP/USD rate found temporary support around 1.3660, briefly rose above 1.3700, and then settled around 1.3670.

Traders Keep Watch on US Data

Traders are paying attention to the upcoming US ISM Manufacturing Purchasing Managers Index (PMI) data, expected later on Monday. The fast-paced market movements continue to favor the dollar, supported by strong US data. The US Dollar’s strength is the main topic, driven by a robust January ISM Manufacturing score of 58.5 and the White House’s nomination of Kevin Warsh to the Fed, suggesting a more aggressive approach to rate hikes. This has attracted investors towards USD assets. Additionally, a recent drop in gold prices from nearly $5,600 emphasizes this shift. For GBP/USD, the recent dip to 1.3660 suggests a continuation of the trend rather than a reversal. The gap between UK and US policies is widening, especially after last month’s UK inflation was slightly lower than expected at 3.1%. Buying put options on GBP/USD with strike prices below 1.3600 presents a clear strategy for those anticipating further declines. The sudden $1,000 drop in gold serves as a reminder that volatility has returned to the markets. Implied volatility on major currency pairs, including Sterling, has increased since the more stable period at the end of 2025. This makes options more expensive, but it also means that straddles could be a good strategy for those predicting larger movements from upcoming data releases.

Dollar’s Strength

This situation isn’t just about the weakness of the Pound; it highlights the overall strength of the dollar. The Euro struggles to stay above 1.1800, while the Yen has fallen below 155.50, showing that the dollar is currently dominant. Therefore, anyone holding long positions in Pound Sterling should heavily hedge against the dollar. Reflecting on the fourth quarter of 2025, the Bank of England indicated it might pause its rate hikes, in contrast to the Fed’s more aggressive stance. This divergence, which we noted at the time, is proving to be a key factor in the current market movement. With US 10-year yields nearing 5.25%, the most likely direction for GBP/USD is still downward. Create your live VT Markets account and start trading now.

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Equity markets had a strong day even with falling gold and silver prices. The FTSE 100 showed resilience, closing up 90 points despite lower values for precious metals. AstraZeneca’s move from the Nasdaq to the NYSE boosted the overall market sentiment. The drop in gold and silver has led to some buying opportunities. While these metals faced big losses recently, their underlying fundamentals seem unchanged, prompting some investors to rethink previous trading strategies based on past trends.

Risk On Sentiment and Precious Metals

The decline in the VIX index has created a more positive outlook for the broader market, even as gold and silver have entered a bear market. The decrease in mining and oil stocks was somewhat contained due to increased dip buying and adjustments following the recent market developments. Currency pairs like NZD/USD, USD/JPY, and GBP/USD showed mixed movements influenced by economic indicators and actions from central banks. For example, GBP/USD regained some ground after the U.S. dollar strengthened and ahead of a meeting from the Bank of England. In the crypto world, Ethereum and XRP are following distinct trends, with factors like low retail interest and changes in holdings affecting their paths. There’s a noticeable split between equities and precious metals, suggesting a strong risk-on attitude as the month begins. The VIX has dropped sharply from its late January peak above 25 and now trades comfortably below 18, encouraging risk-taking. This environment indicates that any short-term drops in major indices could present good buying opportunities. The dramatic drop in gold and silver over the weekend saw gold plummet from over $5,000 to around $4,600 an ounce in just two sessions. While dip buyers are starting to emerge, we must consider whether the momentum seen in 2025 is finally fading. Friday had the highest trading volume since the third quarter of 2025, often indicating that weaker investors have exited the market.

Central Bank Policy and Market Impact

Central bank policy is becoming increasingly important, opening up immediate opportunities in currency markets. The Reserve Bank of Australia is expected to raise its cash rate to 3.85% tomorrow, a move that the market has largely anticipated. We should keep an eye on the implied volatility of Australian dollar options; any surprises in the RBA’s statements could lead to significant price changes. The FTSE 100 remains strong, reaching new record highs even as its mining stocks face challenges. AstraZeneca’s strong performance amid speculation about its potential to drop its London listing is a crucial driver for the index. We believe buying call options on the FTSE 100 is a smart way to stay engaged with this upside momentum while managing risk. Create your live VT Markets account and start trading now.

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