The US Dollar Index (DXY) stayed above 97.00 on Wednesday and traded near 97.29, up about 0.20%. Trading was cautious ahead of US Industrial Production data and the FOMC meeting minutes. US Durable Goods Orders fell 1.4% in December. This was better than the 2% drop expected, after a 5.4% rise in November. Orders excluding transportation rose 0.9%, up from 0.5% previously.

Fed Easing Expectations And Market Pricing

Markets are pricing in almost 60 basis points of Fed rate cuts in 2026. The first cut is expected in June, according to the CME FedWatch Tool. Recent labour data lowered the odds of cuts in the near term. But softer inflation has kept the case for easing later in the year. Major central banks have been cutting their USD holdings. They are concerned about US trade policy and the Federal Reserve’s independence. This has hurt confidence in US policy and raised doubts about the Dollar’s long-term reserve role. DXY bounced from four-year lows near 95.56 in late January, but it is still below key moving averages. The 21-day SMA is below the 100-day SMA. The 21-day SMA is around 97.19, and 98.00 is now a key resistance level. Support sits near 96.50. If DXY breaks below it, the index may retest the 95.56 low. MACD has turned slightly positive, while RSI is 45.84. With DXY holding near 97.29, it is best to be careful about short-term strength. The market is already pricing about 60 basis points of Federal Reserve rate cuts this year, likely starting in June. That outlook puts bearish pressure on the dollar. As a result, rallies may offer a chance to position for a move lower.

Technical Levels And Trade Positioning

Recent data from late 2025 and early 2026 has been mixed. This has helped create the current, temporary stability. For example, the January nonfarm payrolls report surprised to the upside, adding 225,000 jobs. That reduced the most aggressive rate-cut bets. However, last week’s Consumer Price Index showed core inflation easing to 2.1%, which gives the Fed room to cut rates later this year. Technically, the dollar is having trouble clearing resistance near the 21-day moving average at around 97.19. This level may limit upside. The bigger psychological level at 98.00 still looks far away. For derivatives traders, selling call spreads above 98.00 may be a way to collect premium while expecting the rally to fade. The downside still looks more likely in the weeks ahead. A break below 96.50 would suggest the bearish trend is returning. That would increase the chance of a retest of the four-year lows near 95.56 seen in January. Traders could consider DXY puts that expire after the June FOMC meeting to position for that weakness. Longer-term factors also still weigh on the dollar, which supports a bearish view. Protectionist trade policies over the last decade pushed many global central banks to diversify away from the dollar. Recent IMF data for Q4 2025 supports this trend, showing the dollar’s share of global reserves fell to 58.5%. This suggests the current calm is more of a pause than a true turnaround. The upcoming FOMC minutes may not create a clear direction, but they will likely repeat the Fed’s data-dependent approach. That means weaker economic data could quickly increase rate-cut expectations and put more pressure on the dollar. Create your live VT Markets account and start trading now.

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Rabobank says the European Commission plans to present a renewed push for a Capital Markets Union in March, alongside work on a Savings and Investment Union. It adds that the Commission wants to have a phase-one plan for the Savings and Investment Union ready by June. The Commission says the initiative aims to move about EUR 10 trillion in cash savings into more productive uses. It is expected to focus on market integration, supervision, and securitisation.

Savings And Investment Union Roadmap

If progress is not strong enough by June, the Commission may move ahead in stages. This could start with a group of at least nine member states. Rabobank also notes that Sweden may rethink EMU membership, although a formal review would only begin after Sweden’s September election. It links this debate to Sweden joining NATO and shifts in geopolitical risk. We saw the European Commission’s Savings and Investment Union plans gain some momentum last year, following the roadmaps set out in March and June 2025. The phased approach began with a core group of countries, but progress is still slow. Eurostat data released this quarter shows the bloc’s household savings rate remains high at 17.8%, which suggests large amounts of cash have not yet moved into capital markets. Talk of Sweden joining the monetary union increased after the September 2025 election, which triggered a formal evaluation process. This initially supported the krona. However, EUR/SEK has since moved higher from its late-2025 lows as markets accept that any entry would likely take years. Sweden’s strong fundamentals—such as inflation near 2.1% and steady GDP—still make it a credible future candidate.

Implications For Eur Sek Options Traders

For derivatives traders, the long-term positives for the euro are clear, but they are unlikely to arrive soon. Implied volatility in EUR/SEK options may be too low given the chance of sudden political headlines. That could create opportunities for traders looking at straddles or strangles. Since this agenda is developing slowly, traders expecting a stronger euro may prefer long-dated options. This can help limit theta decay while waiting for catalysts to unfold. Create your live VT Markets account and start trading now.

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US housing starts rose to 1.322 million in November, up from 1.246 million in the previous month. This is a month-on-month increase in the annualised pace of new home construction.

Housing Starts Signal Resilience

From today’s date (February 18, 2026), the strong housing starts figure from November 2025 was an early sign that the economy was holding up well. It suggested the housing market had more momentum going into winter than many forecasts expected. That strength has remained an important theme in our view for the first quarter of this year. Newer data supports this story. For example, the January 2026 Consumer Price Index came in hotter than expected at 3.1%. Because of this, markets have quickly reduced expectations for Federal Reserve rate cuts. The chance of a cut by June has dropped from over 70% at the start of the year to just under 40% today. In the near term, we are positioning for a “higher for longer” rate backdrop. That could mean considering short positions in interest rate futures, since we expect yields to stay elevated. Another potential hedge is buying puts on Treasury bond ETFs, as protection if the Fed keeps policy tight through spring. For housing, steady demand suggests homebuilders may be able to handle higher borrowing costs. We are watching the idea of selling out-of-the-money puts on homebuilder ETFs. The thesis is that recent strength has created a solid support level. We saw something similar in 2023. Builder stocks rose even as mortgage rates climbed, largely because there were not enough existing homes for sale.

Positioning For Rate Driven Volatility

This push and pull—an economy that stays firm, and a Fed that stays hawkish—adds uncertainty. We think that can lift volatility. One approach we are considering is buying short-dated call options on the VIX ahead of the March FOMC meeting. This can be a lower-cost way to help protect against a sharp market move after the Fed releases updated projections. Create your live VT Markets account and start trading now.

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US building permits fell month to month in November. They dropped from 1.412 million to 1.388 million. That is a decline of 0.024 million permits. In other words, there were 24,000 fewer permits than the prior reading.

Early Warning From November Permits

The November 2025 decline in building permits was an early warning for the housing market. The fall to 1.388 million suggested that the higher interest rates from the prior year were starting to slow future building plans. This data point set a bearish tone that we have tracked closely. New government data now supports that view. The January 2026 report, released yesterday, showed permits down another 2.1% to a seasonally adjusted annual rate of 1.33 million units. This suggests the weakness from late last year was not temporary. It looks more like part of a wider slowdown in residential investment. For traders, this strengthens the case for bearish exposure to homebuilder stocks. The SPDR S&P Homebuilders ETF (XHB) has lagged the broader market and is down nearly 4% year to date in 2026. In the weeks ahead, we plan to buy put options on XHB, or on individual names like D.R. Horton, to target potential further downside. The slowdown is also weighing on commodities linked to construction. Lumber futures have retreated from their January highs and now trade below $500 per thousand board feet. Traders may consider shorting lumber futures or using options on copper, as demand for building materials could weaken further.

Housing Weakness And Fed Policy Outlook

Ongoing housing weakness could also affect the Federal Reserve’s rate outlook. The Fed has kept rates steady so far in 2026. But if housing data stays weak, the odds of a rate cut later this year may rise. We are looking to position for this with call options on Treasury bond ETFs like TLT, which typically benefit when the central bank turns more dovish. Create your live VT Markets account and start trading now.

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US housing starts rose in November. The reading moved from -4.6% to 6.2%. The latest data shows housing starts increased compared with the prior period. The earlier figure showed a 4.6% drop.

Housing Strength Shifts Fed Expectations

The sharp rise in housing starts in November 2025 showed the economy was stronger than many expected. Markets began to move away from fears of a hard downturn and toward a firmer outlook. This has made us rethink what the Federal Reserve may do in the months ahead. This strength is also supported by the January 2026 jobs report, which showed 215,000 new payrolls. The January 2026 consumer price index also showed inflation staying sticky at 3.1%, slightly above forecasts. As a result, the chance of a March rate cut, once widely expected, has fallen sharply. Derivative traders may want to adjust positions in interest rate futures, including SOFR-linked contracts. We see value in trades that expect the Fed to keep rates steady for longer than the market had priced in. This could mean selling futures contracts or buying put options on Treasury bond ETFs to help protect against rising yields. In equities, homebuilder stocks, tracked by ETFs like XHB, have performed well since the November 2025 release. It may now make sense to manage risk with options, such as buying protective puts or selling covered calls on existing positions. While the January 2026 housing starts report eased to a 1.47 million annual rate, it is still historically strong and continues to support the sector. Strong housing activity also affects commodities like lumber and copper. Lumber futures, which rallied in late 2025, have started to settle near recent highs. We see potential in options spreads on these futures to trade a market that may stay range-bound in the near term.

Dollar Trade As Macro Hedge

A more hawkish Fed outlook often supports a stronger U.S. dollar. With other global central banks signaling a more dovish stance, we think long positions in U.S. Dollar Index (DXY) futures could do well. This can also serve as a macro hedge against ongoing geopolitical and economic uncertainty. Create your live VT Markets account and start trading now.

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US building permits rose to 1.448 million in December (month over month). This was above the forecast of 1.4 million. The result was 48,000 permits higher than expected. This shows permitting activity beat market estimates for the month.

Implications For Economic Strength

The stronger-than-expected building permits data for December 2025 points to solid strength in the U.S. economy. It suggests the housing sector is holding up better than many expected, which supports overall growth. This means we may need to rethink bearish positions that relied on a weaker economy in Q1 2026. This strong housing data also makes near-term Federal Reserve rate cuts less likely. We saw a similar setup in late 2023 and early 2024, when strong data kept pushing back rate-cut hopes. Last month, the CME FedWatch Tool showed a 60% chance of a rate cut by June, but this report may force markets to reprice those odds lower. Because of that, it may make sense to position for a “higher for longer” rate backdrop. One approach is to sell short-term interest rate futures or buy put options on Treasury bond ETFs like TLT. The idea is that yields could stay high, or move higher, as markets absorb continued economic strength. For equities, this supports continued strength in cyclical areas tied to housing and construction. We could look at buying call options on homebuilder ETFs like XHB, or on individual building materials companies. A resilient economy can also support the broader market and back bullish positions in S&P 500 futures. This housing report fits with other recent data. The January jobs report showed 225,000 new jobs, beating estimates. The latest CPI report also showed core inflation staying sticky at 3.5%. Together, these numbers suggest the economy does not need monetary stimulus right now.

Managing Volatility Risk

A strong economy alongside a more hawkish Fed can still create choppy markets in the weeks ahead. That makes it reasonable to add protection, or to position for a jump in volatility. One way to do this is by buying near-term call options on the VIX index as a hedge against market turbulence. Create your live VT Markets account and start trading now.

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US durable goods orders fell 1.4% in December. That was less than the expected 2.0% decline. This points to a smaller drop than forecast. The report showed -1.4% versus a forecast of -2.0%.

Manufacturing Momentum Into The New Year

The December durable goods report showed a 1.4% decline. That was much better than the -2.0% drop we expected. It suggests manufacturing had more momentum going into the new year than we thought. We view this as a sign the economy remains resilient. This stronger late-2025 reading, along with the January jobs report showing more than 200,000 new jobs, suggests the economy is holding up well. Core inflation is still a little above 3%, which weakens the case for a near-term Federal Reserve rate cut. As a result, we are adjusting our expectations for policy through the second quarter. In response, we are considering buying call options on industrial and technology sector ETFs in the coming weeks. Stronger economic data can support better earnings expectations for companies tied to business spending. Options offer defined risk with upside exposure if markets move higher. We are also reassessing the interest-rate outlook, given how markets reacted to policy changes in 2024 and 2025. This report suggests yields may not fall as quickly as we priced in at the end of last year. Because of that, we are reviewing options on Treasury bond ETFs that could benefit if yields stay steady or rise slightly.

Positioning For Lower Volatility

Steady economic data like this often keeps market volatility low. The VIX has been trading in a lower range and recently sat near 14. Based on this report, we see little reason for a sudden spike. In this setup, selling premium with strategies such as put credit spreads on major indices may be attractive. Create your live VT Markets account and start trading now.

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CFTC data from last weekend showed the largest net speculative long position in EUR futures since 2020. Total USD short positioning is less extreme, but it is still near levels seen in 2023 and after Liberation Day. The US Administration has said it prefers a weaker dollar and lower interest rates. Lower rates would cut the cost of hedging FX exposure on large foreign-owned US equity and bond holdings.

Positioning Remains Crowded

Even with that backdrop, USD selling has struggled to gain momentum. Short positions remain crowded. DXY fell below its 50-, 100- and 200-day moving averages in mid-January. A rise of a little over 1% would push DXY back above those moving-average levels. That suggests the recent break lower could be reversed with only a modest rebound. Betting against the US dollar has become a crowded trade. Speculative positioning now looks similar to the extremes seen in 2023. Last weekend’s data showed net long euro futures positions at their highest level since 2020. That means many traders are already positioned for dollar weakness, leaving less room for new sellers. Even though the US Administration would like a weaker dollar to ease financial conditions, bears have not been able to push it lower. The US economy still looks resilient. January data showed inflation holding at 2.8% year-on-year, while retail sales surprised with a 0.8% jump. That underlying strength helps support the dollar against other currencies.

Options May Offer Better Asymmetry

Technically, DXY did fall below the key 50-, 100- and 200-day moving averages last month, but the move looks fragile. A gain of just over 1% from current levels would put the index back above all three averages, which could trap short-sellers. In that context, aggressive USD selling looks high risk. For derivatives traders, this argues for caution when shorting the dollar outright via futures. A heavy build-up of shorts increases the risk of a sharp rally, or “short squeeze,” in the coming weeks. A more balanced approach may be to use options to define risk—for example, buying DXY call spreads or selling out-of-the-money puts to collect premium. The crowded long-euro trade also stands out. We saw a painful unwind from similar levels in late 2025. Traders could consider EUR/USD put options as either a hedge or a directional bet on a reversal. If the dollar strengthens, the heavily owned euro is likely to face the most pressure. Create your live VT Markets account and start trading now.

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Japan’s provisional trade data for January 2026 show exports of ¥9.19tn. That is up 16.8% year on year from ¥7.87tn in January 2025. It is the biggest rise since November 2022, when exports rose 20% year on year. Even so, USD/JPY was slightly lower and the yen barely moved. Exports to Asia rose 25.8% year on year. China led with +32.0%, followed by Taiwan at +35.3%. Exports to Western Europe rose 25.5% year on year. Exports to the United States fell 5% year on year.

Yen Drivers In Early 2026

Japan plans to invest up to $36bn in US oil, gas, and critical mineral projects. This is described as the first tranche of a $550bn commitment under a trade agreement with President Trump. Separately, a Japanese accounting group is proposing changes to how life insurers record unrealised losses on government bonds. Under the proposal, some bonds that match long-term policies could be treated as held to maturity. If conditions are met, this would avoid impairment accounting. As of February 18, 2026, the yen outlook is mixed. January export growth was the strongest since November 2022, but the yen did not strengthen much. That suggests other forces are outweighing the positive trade data. The main force holding back the yen is the interest rate gap. The U.S. Federal Reserve funds rate is around 3.25%, while the Bank of Japan policy rate is 0.10%. This makes it attractive to borrow in yen and invest in dollar assets. That carry trade keeps steady demand for dollars over yen. Large capital outflows also matter. The newly announced $36bn investment into U.S. energy and mineral projects is a structural headwind for the yen. Converting yen into dollars for these projects could offset the support normally provided by stronger exports.

Implications For Yen Derivatives

The potential rule change for Japanese life insurers could offer some support for the yen. If accounting rules are eased, insurers may face less pressure to react to bond losses by shifting funds overseas in search of higher yields. This is a smaller factor, but it could reduce some of the yen selling seen through 2025. For derivatives traders, this backdrop suggests limited yen upside even with strong fundamentals. One possible strategy is selling out-of-the-money yen call options (or USD/JPY puts) to collect premium. This trades the view that the wide rate differential and investment outflows will limit any major yen rally, keeping USD/JPY range-bound or drifting higher. Create your live VT Markets account and start trading now.

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EUR/GBP fell on Wednesday. The Euro weakened after reports that ECB President Christine Lagarde may leave before her term ends in October 2027. The pair traded near 0.8723, down about 0.17% on the day. The report added uncertainty around Eurozone policy. An ECB spokesperson told Euronews the claim is false and said Lagarde has not decided to end her term early.

Euro Policy Uncertainty

The report followed news that Bank of France Governor François Villeroy de Galhau will step down in June, before his term ends. On Wednesday, he said the ECB has won the fight against inflation. He added that inflation in France is not too low, and said his decision to step down is personal. Sterling held firm after mixed UK inflation data and weaker labour market figures released on Tuesday. Together, these releases have strengthened the case for more Bank of England rate cuts. UK CPI fell 0.5% month on month in January after a 0.4% rise in December. Annual CPI slowed to 3.0% from 3.4%, while core CPI eased to 3.1% from 3.2%. Output PPI was flat (0.0%) on the month versus 0.2% expected, and slowed to 2.5% year on year from 3.1%. RPI fell 0.5% month on month after a 0.7% rise. It eased to 3.8% year on year from 4.2% (3.9% forecast). Markets expect a BoE cut in March and almost two more this year. By contrast, the ECB is expected to hold rates through 2026.

Upcoming Data Watch

Attention now turns to Friday’s preliminary PMI data for the Eurozone and the UK, along with UK Retail Sales. We see the recent drop in EUR/GBP as a short-term response to uncertainty around the European Central Bank. Markets are adding a risk premium after the headlines about President Lagarde, and that appears to be outweighing the more important economic backdrop. This near-term weakness could create an opportunity in the weeks ahead. For us, the main driver is the widening policy gap between the Bank of England and the ECB. Today’s data confirms UK annual inflation has cooled to 3.0%, well below the 4.2% rate seen in late 2025. That keeps the door open for BoE rate cuts. In contrast, Eurostat’s January flash estimate showed Eurozone inflation holding firmer at 3.3%. This supports the view that the ECB will keep its deposit facility rate at 4.00% for the foreseeable future. Because of this gap, we see dips toward 0.8700 as chances to build long positions. Options may be a good way to express this view. For example, buying EUR/GBP call options with April or May 2026 expiries could position for a rebound while limiting downside risk if ECB political noise increases. Looking back at 2025 price action, the pair found strong support near 0.8650. That suggests the current downside may be limited. We are therefore looking for a move back toward 0.8800, the level seen in Q4 last year. Friday’s PMI releases and UK retail sales will be key to confirming whether the divergence story remains intact. Create your live VT Markets account and start trading now.

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