USD/CAD slipped to around 1.3690 on Friday as the US Dollar gave back earlier gains, while the Canadian Dollar held steady. Even so, the pair was still on track for small weekly gains after the US Supreme Court struck down President Donald Trump’s global tariffs. In a 6–3 ruling, the Court said Trump went beyond his authority by using the International Emergency Economic Powers Act to impose broad import duties. The Court did not rule on tariff refunds. The Penn Wharton Budget Model estimates refund claims could top $175 billion.

Tariff Ruling Keeps Markets On Edge

Uncertainty stayed high because Trump said he may seek other legal ways to keep tariffs in place. Markets also digested fresh economic data from Canada and the United States. Canada’s Retail Sales fell 0.4% month-on-month in December, compared with expectations for a 0.5% drop, after a 1.2% rise in November. Retail Sales excluding autos rose 0.1%, beating forecasts for a 0.3% decline, but slowing from 1.6%. US GDP rose at an annualised 1.4% in Q4 2025, down from 4.4% and below the 3% forecast. Core PCE increased 0.4% month-on-month and 3.0% year-on-year. Headline PCE also rose 0.4% month-on-month and 2.9% year-on-year. February S&P Global Composite PMI slipped to 52.3 from 53. Manufacturing came in at 51.2 and Services at 52.3. University of Michigan sentiment fell to 56.6, while 1-year and 5-year inflation expectations eased to 3.4% and 3.3%.

Outlook For Usdcad Volatility Ahead

The Supreme Court decision adds major uncertainty and is a clear bearish driver for the US dollar. USD/CAD may stay volatile in the coming weeks as markets digest what comes next. The unresolved вопрос of more than $175 billion in possible refunds is enough on its own to keep traders cautious. A useful comparison is 2018–2019, when these same tariffs led to sharp swings and instability for the Canadian dollar. Removing them is broadly positive for Canada, which depends heavily on trade with the United States. More than 75% of Canadian exports go to the US. This history points to the potential for a sustained move lower in USD/CAD. This shock also comes as US data has softened from late 2025 into the start of this year. GDP slowing to 1.4% and cooler PMI readings support the case for a weaker US dollar. The main counterpoint is sticky Core PCE inflation at 3.0%, which may limit how soon the Federal Reserve can cut rates. With a strong bearish catalyst on one side and stubborn inflation on the other, options may be a practical way to trade the view. Buying USD/CAD put options positions for downside while limiting risk if the Fed stays hawkish. This approach benefits if the tariff reversal and weaker growth outweigh inflation concerns. The interest rate gap that has supported the US dollar is now under scrutiny as the US economy slows. With the tariff burden removed, the Bank of Canada may feel less need to match the Fed’s tight policy stance. Traders who are unsure about direction may prefer long-volatility setups, such as straddles, to benefit from a large move while the market decides which narrative wins. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

Gold rose on Friday after a flat session, trading near $5,030. It had dropped to about $4,842 on Tuesday, its lowest level in nearly two weeks. Tensions between the US and Iran increased after Donald Trump said he expects clarity on a nuclear deal within 10 to 15 days. Iran and Russia also held joint naval drills in the Gulf of Oman. Iran told the UN it would respond “decisively” to any US military action.

Inflation Data Supports Gold Demand

US data showed stronger inflation, which can boost demand for gold as a hedge. Core PCE rose 0.4% month-on-month in December, up from 0.2% and above the 0.3% forecast. The annual rate rose to 3.0% from 2.8%. GDP growth slowed in the fourth quarter of 2025. The economy grew at an annualised 1.4%, down from 4.4% in Q3 and below the 3.0% estimate. The University of Michigan Consumer Sentiment Index came in at 56.6 in February, down from 57.3. The Expectations Index held at 56.6. One-year inflation expectations eased to 3.4% from 3.5%, and the five-year measure slipped to 3.3% from 3.4%. With gold holding above $5,000, fear is driving the market. Rising US-Iran tensions and stubborn late-2025 inflation data are boosting demand for safe-haven assets. This is a key bullish signal in the near term.

Options Strategy For Geopolitical Catalyst

The 10 to 15-day timeline for the Iran nuclear deal is a major catalyst. A key approach is to buy short-dated call options to capture any sharp upside move. A similar setup appeared in early 2022, when gold rose more than 10% in the weeks before the Ukraine conflict as markets priced in geopolitical risk. The weak Q4 2025 GDP result of 1.4% also puts the Federal Reserve in a tough spot. Even with high inflation, slower growth makes further rate hikes harder. That tends to support gold, which does not pay interest. This backdrop resembles stagflation, which has often been positive for precious metals. This shift is showing up in the options market. The CBOE Gold Volatility Index (GVZ) recently hit a 52-week high of 24.5. Open interest in out-of-the-money call options has also surged, especially the $5,200 strike for the March 2026 expiration. It has more than doubled in the past week. This suggests traders are positioning for a meaningful upside breakout. The main risk to this view is a sudden diplomatic breakthrough between the US and Iran. Because of that, using derivatives such as bull call spreads can help lower the upfront premium and cap downside risk. This keeps upside exposure while offering protection if tensions ease and gold reverses. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

US new home sales rose to 0.758 million in November. The previous figure was 0.737 million. This is a month-on-month increase of 0.021 million. The data compares November with the prior month.

Housing Demand Signals Economic Strength

New home sales rose to 758,000 in November 2025. This was an early sign of underlying economic strength. It suggested that consumers had healthier balance sheets than we previously thought. We now see that this strength has carried into the new year. More recent data supports this view. January 2026 housing starts beat forecasts, reaching a 1.45 million annualized rate. This strength has helped support homebuilder stocks and related sectors. As a result, we are looking at call options on housing ETFs like XHB to express a bullish view through the spring. Ongoing economic strength is also shifting interest-rate expectations. The implied probability of a March rate cut in SOFR futures has dropped from over 60% a month ago to just under 20% today. We should consider strategies that benefit if the Federal Reserve stays on hold, such as selling out-of-the-money call options on Treasury bond futures. That said, the January Consumer Price Index came in slightly hot at 3.2%, which complicates the picture. Sticky inflation, combined with strong housing, could push the Fed to keep a hawkish stance. This raises the risk of near-term volatility and makes options that can benefit from choppy markets—such as straddles on rate-sensitive indices—more attractive.

Volatility And Rate Outlook

Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

US new home sales rose to 0.745 million in December on a month-on-month basis. This was above the expectation of 0.73 million.

Implications For Growth And Fed Policy

The stronger-than-expected new home sales data for December 2025 points to solid underlying momentum in the U.S. economy at the start of the year. The report showed an annualized pace of 745,000, suggesting demand is still strong even with high borrowing costs. That strength makes the Federal Reserve’s next policy steps harder to predict in the weeks ahead. Alongside this housing report, the January 2026 inflation data showed core CPI holding at a stubborn 3.7%. Together, these releases have reduced expectations for a near-term rate cut. Fed Funds futures now imply less than a 30% chance of a March cut, down from over 60% just a month ago. This shift is forcing a repricing across rate-sensitive assets. In this setup, traders may prefer strategies that benefit if rates stay higher for longer. One approach is selling SOFR (Secured Overnight Financing Rate) futures for Q2 2026. Options on Treasury bond ETFs that can profit from flat or falling prices may also look more appealing. In equity derivatives, the homebuilding sector may continue to show relative strength. Builders have handled higher mortgage rates better than expected, even as the 30-year fixed rate has moved back up to around 6.8%. Call options or bullish spreads on homebuilder ETFs could make sense, especially since the sector also held up well during the rate uncertainty seen through much of 2024. Strong economic data that delays rate cuts can also raise volatility. The VIX has stayed fairly low, but gaps between economic performance and policy expectations often lead to short-term swings. Buying near-term options on broad market indexes may be a practical hedge against sharp moves tied to upcoming Fed commentary.

Positioning And Risk Management

Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

The University of Michigan Consumer Expectations Index was 56.6 in February in the United States. The result matched expectations. The index shows how households think the economy will perform in the months ahead. It is based on survey responses from consumers in Michigan.

Market Reaction And Implications

The February reading of 56.6 came in exactly as forecast. Because there was no surprise, markets likely already priced in this level of consumer pessimism. That should limit any immediate volatility. We do not expect this release alone to drive a sharp move in major indices. Instead, it supports the idea that markets remain in their current trading range rather than breaking out. Even though it was expected, the low level still matters. It points to ongoing economic softness we have been tracking. This fits with January retail sales, which fell 0.4%. That was the third straight monthly decline, as consumers reduced discretionary spending. This strengthens our view that earnings estimates for consumer-focused companies could be revised lower over the next quarter. Consumer caution, along with core PCE inflation holding at 2.7% last month, may increase pressure on the Federal Reserve to respond. We think this keeps a possible rate cut in play for the Fed’s April meeting, as it weighs sticky inflation against a cooling economy. Fed funds futures already imply more than a 65% chance of a cut by the end of Q2. If near-term volatility stays muted, selling premium with strategies like iron condors on the S&P 500 may appeal to traders who expect the index to stay range-bound. For those more worried about weak consumer demand, buying protective puts on retail ETFs such as XRT may offer a cost-effective hedge against further declines in spending.

Longer Term Context

From our perspective in early 2026, a reading near 56 is uncomfortably close to the lows seen during the 2023 recession scare. It suggests the rebound that carried much of 2024 has faded, and the 2025 slowdown is still pressuring households. In that context, the market’s foundation may be more fragile than it looks. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

US University of Michigan 1-year consumer inflation expectations were 3.4% in February. The forecast was 3.5%. The February reading came in 0.1 percentage points below expectations. It points to slightly lower inflation expected over the next year than forecast.

Inflation Expectations Ease

The latest report shows one-year inflation expectations at 3.4%, a touch below the 3.5% forecast. This suggests consumers are a bit less worried about price increases ahead. It also gives the Federal Reserve more room to ease off and reduces the need to keep policy overly restrictive. This result extends the disinflation trend seen through 2025. It also lines up with the January 2026 CPI report, where core inflation cooled to 3.7%, the lowest in almost two years. In response, markets are now assigning a higher chance of a mid-year rate cut. Fed funds futures imply about a 65% probability of a cut by the July FOMC meeting. With that in mind, it may make sense to position for lower interest rates in the weeks ahead. That could include buying SOFR futures or buying call options on Treasury bond ETFs like TLT. These trades can benefit if markets continue to price in a more dovish Fed. For equity derivatives, this setup is supportive for the S&P 500 and especially the Nasdaq. One approach is to build bullish exposure using call options on index ETFs like QQQ, since lower rates can lift valuations for growth stocks. Selling out-of-the-money puts may also be attractive to collect premium, as lower rate-hike fears can help reduce volatility.

Dollar Outlook Weakens

A less aggressive Fed path can also point to a weaker U.S. dollar. We saw a similar move in Q4 2025, when dovish Fed messaging drove a sharp drop in the Dollar Index (DXY). With that precedent, it may be worth considering call options on pairs like EUR/USD to position for possible dollar weakness. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

US University of Michigan 5-year consumer inflation expectations were 3.3% in February, compared with a forecast of 3.4%. This was 0.1 percentage points below expectations, based on the February release.

Implications For Federal Reserve Policy

This lower-than-expected inflation reading is an important signal for the Federal Reserve. We believe it gives the Fed more room to consider easing monetary policy later this year. In recent weeks, markets have been concerned about inflation staying high, but this data helps reduce those worries. Headline CPI was stubbornly high through the second half of 2025, which kept the Fed from hinting at any policy shift. This new University of Michigan report adds to the softer January jobs data, which showed wage growth starting to slow. Together, these signs suggest last year’s inflation fight is beginning to show clearer results. Interest rate traders should note the change in expectations for future Fed action. Fed Funds futures now show more than a 60% chance of a rate cut by the July FOMC meeting, up from about 40% two weeks ago. This shift suggests that positioning for lower rates in the medium term may be attractive. For equity derivatives, this setup supports higher stock prices. Lower long-term rates raise the value of future earnings and reduce borrowing costs. This is already visible in the S&P 500 moving back above 5,400. Traders may consider buying call options on major indices or selling put options to benefit from the more bullish mood.

Volatility And Currency Market Impact

Lower inflation concerns can also reduce market volatility. The VIX has already fallen below 15, showing less investor fear of aggressive Fed hikes. If volatility stays low, selling VIX futures or related options may be a potential strategy in the coming weeks. The U.S. dollar outlook is also weakening as rate-cut expectations rise. The U.S. Dollar Index (DXY) has fallen from near 105 in January to around 103.50. This trend suggests FX derivatives traders may want to position for further dollar weakness against other major currencies. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

The University of Michigan Consumer Sentiment Index for the United States was 56.6 in February. This was below the expected level of 57.3. The lower-than-expected reading of 56.6 is a clear warning sign. It suggests consumers may be pulling back, which could slow the broader economy. We will be watching for higher market volatility. This could make options strategies that benefit from bigger price moves—such as VIX calls—more attractive in the near term.

Implications For Fed Policy

This weak data point challenges the Federal Reserve’s recent message. The January CPI report showed inflation is still stubborn at 2.8%, which pushed markets toward the “higher for longer” rate view. Now, it may make sense to consider trades that position for a more cautious Fed, such as buying 10-year Treasury note futures. For stock indices, this update is bearish. During 2025, dips in consumer confidence often came before market pullbacks, as traders priced in weaker corporate earnings. It may be prudent to start buying protective puts on the S&P 500 or Nasdaq 100 in the coming weeks. We can also narrow the focus to consumer-related sectors. Companies that sell non-essential goods tend to be most exposed, so we are considering puts on the consumer discretionary ETF (XLY). In contrast, consumer staples (XLP) may hold up better, which could make a pairs trade worth considering. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

US private sector business activity grew in February, but at a slower pace than in January, according to S&P Global’s preliminary Composite PMI. The index slipped to 52.3 from 53.0. The Manufacturing PMI fell to 51.2 from 52.4, and the Services PMI edged down to 52.3 from 52.7. Both figures came in slightly below analyst estimates.

Drivers Of The February Slowdown

S&P Global cited weaker demand, high prices, and bad weather as key drags on activity in February. Output growth was the slowest in 10 months. Factory orders declined, and job growth eased in both manufacturing and services. The US Dollar Index did not react right away. It was last up 0.12% on the day at 97.95. Because activity slowed more than expected, we should temper our view of overall economic strength. The pullback in both manufacturing and services suggests the strong growth seen in late 2025 is starting to cool. The drop in new factory orders, in particular, points to softer corporate earnings ahead. This report also affects our view on Federal Reserve policy. After the last FOMC meeting left rates unchanged, weaker activity makes another rate hike less likely. It also raises the chance of a rate cut later this year. This is already showing up in Fed Funds futures, where the probability of a fourth-quarter rate cut has risen to above 50%.

Positioning Implications For Markets

Over the next few weeks, we should consider buying volatility because this report adds uncertainty. The VIX has been hovering near 14. At the same time, January CPI remains elevated at 3.1%. Slower growth plus sticky inflation is a tension point for markets and can trigger a volatility spike. That makes VIX call options, or calls on other volatility products, more appealing. In equities, a more defensive stance makes sense, especially in cyclical sectors. Consider put options on industrial and materials ETFs as a hedge against weaker factory demand. Services are holding up better, but slower hiring across both sectors is a warning sign for consumer spending. Even though the US Dollar Index was flat today, the broader message is dollar-negative. A softer economy and the prospect of earlier Fed cuts typically reduce the dollar’s appeal. One potential trade is positioning for a weaker dollar against currencies backed by more hawkish central banks—for example, via euro call options. Overall, the strong rebound that shaped much of 2025 appears to be losing momentum as we move through Q1 2026. This slowdown looks like prior mid-cycle pullbacks, when Treasury yields often fall. The 10-year Treasury yield, now around 4.15%, could retest 4.0%, which may create opportunities in bond futures. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

Canada’s move away from exporting to the United States in 2025 was driven mostly by gold shipments. If you exclude gold, the rise in exports to non‑US partners looks much smaller. Overall, Canada’s exports have had trouble growing over the past year, even as shipments shift to other markets. Higher gold prices raised the dollar value of exports, including gold that Canada was already sending overseas.

Gold Driven Export Shift

The US trade deficit did not change much in 2025, but trade flows and the mix of products did. Canada’s export data showed these shifts most clearly. Some tariffs are being challenged in court, which could lower global tariff levels. Meanwhile, targeted tariffs in certain sectors continue to disrupt trade. Canada’s tariff outlook is tied to the upcoming USMCA review. USMCA exemptions pushed firms to meet compliance rules, and sector‑specific US tariffs now account for most of Canada’s effective tariff rate. In 2025, Canada’s “export diversification” was largely a gold story. That made the headline numbers look stronger than the underlying trade picture. It also suggests the economy is more fragile than it appeared. Attention now turns to the political risks around U.S. trade.

Usmca Review Market Risk

The upcoming USMCA review is the biggest near‑term risk factor for the Canadian dollar. The 2017–2018 NAFTA talks drove swings of about 10% in USD/CAD, showing how volatile this process can be. Recent reports also show one‑year implied volatility on CAD options climbing above 9%, which suggests traders are already pricing in this uncertainty. Traders may want to look beyond broad index positions and focus on sectors most exposed to targeted tariffs. Auto parts and manufacturing are especially vulnerable, making up more than 15% of Canada’s goods exports to the U.S. in the last quarter of 2025. Possible hedges include buying put options on Canadian industrial ETFs or shorting futures on the S&P/TSX Capped Industrials Index to protect against negative review headlines. The run‑up in gold prices in 2025 helped support trade data, but it may not support the currency this year. Other major exports, such as oil, face their own price pressure. Without assured preferential access to the U.S. market, Canada looks more exposed. That makes any negative outcome from the USMCA review a much larger risk. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now