Elliott Wave (EW) describes market moves as repeating waves across different timeframes. It uses a “three steps forward, two steps back” structure and a fractal pattern. EW outlines a preferred price path, but that path changes if key levels break. This analysis looks at the S&P 500 advance since the November 2025 low (green W-4). That move is labelled green Wave-5 and is described as an overlapping ending diagonal (ED). We track the ED as it develops through its expected stages.

Ending Diagonal Structure

An ending diagonal has five overlapping waves: grey W-i, ii, iii, iv, and v. Each grey wave is a three-wave pattern, which creates extra overlap and complexity. The index is back near the same level as late October last year. It has tagged 6985 ten times and has held support near 6780 four times. This suggests a developing range, with: – An upside target near 7190 (6985+6985-6780) – A downside target near 6575 (6780-6985+6780) The key level is the November low at 6521. A break below 6521 would suggest the ED is complete and a larger black W-4 is underway, ideally toward 5500-6125. Holding 6780 is the third warning level. A daily close below 6780 implies a 60% chance the uptrend is over. If 6780 holds, grey W-v is projected to reach 7120-7190 into the April turn date window. If it does not hold, 6575 becomes the next level to watch.

Options Positioning Framework

With the market coiling tightly, the S&P 500 appears pinned between 6780 support and 6985 resistance. This standoff is building pressure and suggests a larger move may be close. For derivative traders, the message is to prepare for a breakout rather than assume the sideways action will continue. This long stalemate has also pushed volatility lower. The VIX recently hit a year-to-date low near 13.5. Low implied volatility makes options cheaper, which can create a good setup for breakout trades. Strategies like straddles or strangles, which benefit from a large move in either direction, look attractive here. If you expect an upside breakout, a sustained move above 6985 would be the trigger to buy calls or set up bull put spreads. The target would be the 7120-7190 zone, using April or May 2026 expirations to give the final wave time to develop. A positive RSI divergence is a small sign that bullish momentum may be building. Recent data also supports the bullish case. The January 2026 CPI report came in at 2.8%, slightly below expectations, which reduces fears of more Fed tightening. That could be the catalyst needed to push through resistance. In options, open interest is building in the 7100 and 7200 April call strikes, suggesting many traders are positioned for this outcome. On the other hand, a daily close below 6780 is the first major warning to turn bearish. That would support buying protective puts or using bear call spreads, with 6575 as the first target. If the November 2025 low at 6521 breaks, it would confirm a major top and point to a much deeper correction. We saw a similar, frustrating range in Q3 2023 before the market launched into a strong year-end rally. That period also had mixed economic signals and high uncertainty, much like today. The eventual break was sharp and directional, showing that long ranges often end with a decisive move. Create your live VT Markets account and start trading now.

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USD/JPY was little changed on Tuesday after the US Presidents’ Day weekend. It hovered near 153.40 after dipping to about 152.70. Trading was mixed as the US Dollar struggled to extend its rebound. The Yen stayed supported as investors continued to expect a Bank of Japan rate hike in the coming months. Markets also kept a close eye on Prime Minister Sanae Takaichi’s pro-stimulus policy plans.

Dollar And Yen Drivers

US data gave the Dollar some support. The NY Empire State Manufacturing Index rose to 7.1 in February versus 6 expected, down from 7.7. The ADP Employment Change four-week average increased to 10.3K from a revised 7.8K (previously 6.5K). The US Dollar Index traded near 97.24 after hitting an intraday high of 97.54. Recent data showed Nonfarm Payrolls rose 130K in January versus December’s revised 48K, while unemployment ticked down to 4.3% from 4.4%. US CPI rose 0.2% month-on-month, down from 0.3%. It eased to 2.4% year-on-year from 2.7%. Fed Governor Michael Barr said he wants more evidence that inflation is moving to 2%, and noted the jobs market is stabilising. Markets are pricing in two cuts this year, with rising odds of a third. The December dot plot showed one cut in 2026. CME FedWatch suggests the first cut could come as early as June. In Japan, the key release is Friday’s National CPI. In the US, traders will watch the Fed minutes on Wednesday, then core PCE and Q4 GDP on Friday.

What Changed Since Last Year

A year ago, USD/JPY was near 153.40. Sentiment leaned toward a stronger yen because traders expected Bank of Japan (BoJ) rate hikes. In early 2025, the market was also pricing in at least two Federal Reserve rate cuts. The main view was that the policy gap between the US and Japan would narrow. Instead, events played out very differently. The pair is now trading around 168.50. The Federal Reserve delivered only one rate cut in late 2025 because inflation stayed sticky. The latest January 2026 CPI report showed core inflation still high at 2.8% year-over-year. Meanwhile, the BoJ’s exit from negative rates was a one-off move to 0.10% and did not give the yen lasting support. This policy divergence has pushed yen implied volatility to its highest level since 2023. That creates an opportunity for options traders. One approach is to buy volatility using structures like long straddles, which can profit from a large move in either direction. These strategies can work well when central bank policy remains uncertain. The interest rate gap is also much wider than expected last year. The US Fed Funds Rate is 5.00%–5.25% versus Japan’s 0.10%. That makes carry trades attractive, benefiting traders who are long USD and short JPY. Derivatives traders can use forward contracts or currency futures to capture this yield difference over the coming weeks. Now, focus turns to upcoming US core Personal Consumption Expenditures (PCE) data for clues on inflation. A stronger-than-expected result could push USD/JPY higher by delaying expectations for the next Fed cut. A weaker reading could trigger a sharp, although possibly temporary, pullback. Create your live VT Markets account and start trading now.

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The United States held a 52-week Treasury bill auction with a yield of 3.345%. The previous auction yield was 3.39%. The latest yield is 0.045 percentage points lower than the prior result. This is a small drop compared with the last sale.

Lower Yield Signals Rate Cut Expectations

The lower yield on this 52-week bill suggests the market expects the Federal Reserve to cut rates more over the next year. This fits with the January 2026 CPI report, which showed core inflation slowing to a 2.8% annual rate. We should therefore expect a lower-rate environment. This supports our strategy of buying interest rate futures that benefit from falling rates, such as the December 2026 SOFR contract. Confidence in this view is rising. The CME FedWatch tool now shows more than a 75% chance of a rate cut by the June 2026 meeting. That is a clear change from the mood in late 2025. For equity exposure, this setup is positive for rate-sensitive technology and growth stocks, since lower rates can lift valuations by reducing the discount rate. We see an opportunity to buy call options on the Nasdaq 100 index (NDX). A cooling labor market also supports the case for easier policy. The last jobs report showed payroll growth of only 150,000, pointing to a slowing economy. Expected rate cuts may also weaken the U.S. dollar as yield gaps versus other currencies shrink. We can express this by buying put options on dollar-tracking ETFs. This would be a big shift from most of 2025, when the dollar stayed strong as the Fed held rates steady to fight stubborn services inflation. As the policy path becomes clearer, overall market volatility may fall. A more predictable Fed usually calms investors. Selling VIX futures, or selling call options on the index, could be a way to position for lower uncertainty.

Positioning For Lower Volatility

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WTI US Oil fell on Tuesday and traded near $62.50, down 1.80% on the day, while still staying within a recent range. Trading was quiet as markets waited for progress in nuclear talks between the US and Iran in Geneva. US President Donald Trump said he would be involved “indirectly” in the negotiations and said Iran seemed willing to reach a deal. Iran’s Foreign Minister said the US position on the nuclear issue had become “more realistic”.

Geopolitical Risk And Hormuz Focus

Extra US naval forces in the region, along with Iranian military drills in the Strait of Hormuz, kept geopolitical risks high. Around 20% of global crude oil flows through the Strait of Hormuz. Reuters reported that OPEC+ is considering restarting output increases from April. This raised worries about more supply in the second quarter, ahead of peak summer demand in Western economies. Commerzbank said higher official targets may not fully turn into higher output because of structural limits and sanctions, including in Russia. It also said lower Russian exports to India could reduce the overall supply increase and limit downside for prices. WTI stayed range-bound as markets waited for clearer signals on diplomacy and supply.

Trading Strategy Under Elevated Volatility

WTI crude oil is now trading around $81.50, much higher than the level mentioned earlier, but the core tension in the market is unchanged. The market is caught between worries about slower global growth and ongoing geopolitical supply risks. This push and pull makes it hard to take strong directional views. In 2025, similar diplomatic signals with Iran unsettled the market, and that uncertainty remains. With nuclear talks still stalled and nearly 21% of the world’s daily oil supply moving through the Strait of Hormuz, the risk premium stays high. Any escalation could trigger a sharp price jump, which makes outright short positions risky. On the supply side, OPEC+ recently chose a modest production cut, reflecting concerns about weaker demand, especially from Asia. But questions about compliance and the real effect on physical supply have kept prices from falling much. As a result, the market looks more likely to trade in a range than start a new, lasting trend. With uncertainty high and the oil volatility index (OVX) near 35, selling options premium may be a sensible approach. Traders may consider strategies such as iron condors or strangles to benefit from time decay while the market waits for a clear catalyst. This approach aims to profit from the current indecision rather than betting on one outcome. For those expecting a breakout later, calendar spreads can offer a lower-risk way to position for it. This lets traders take advantage of short-term premium decay while holding a longer-dated option that could gain if a clearer trend develops in the months ahead. It is a patient approach in a market that is acting impatient. Create your live VT Markets account and start trading now.

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The DJIA fell about 120 points (0.24%) on Tuesday. The S&P 500 dropped about 0.5%, and the Nasdaq Composite slid about 0.8%. The Dow and S&P 500 have declined in four of the past five weeks. The Nasdaq started this week after five straight weekly losses. The 10-year Treasury yield dipped to around 4.03%, a two-month low, after Friday’s cooler-than-expected CPI report. Tech shares were weaker. Salesforce fell about 2.5%, and CrowdStrike dropped more than 2% after a Mizuho rating cut.

Tech And Industrials Slide

Nvidia, AMD, and Broadcom also traded lower. Chevron fell 2.6% and Caterpillar dropped 2.1%. Travelers rose 1.8%, Visa gained 1.5%, and Apple added 1%. Danaher fell about 6% after agreeing to buy Masimo for $180 per share in an all-cash deal valued at about $9.9 billion. The offer is a 38% premium to Masimo’s Friday close. Masimo shares rose about 34%. The deal is expected to close in the second half of 2026. Warner Bros Discovery rose more than 2% after reopening talks with Paramount Skydance, which was up about 3%. A seven-day waiver runs through 23 February. Paramount may raise its all-cash offer to at least $31 per share from $30. Netflix’s $83 billion enterprise-value deal remains in place. The NY Empire State Manufacturing Index came in at 7.1 versus 6 expected, compared with 7.7 in January. FOMC minutes are due Wednesday. Markets are pricing in about two 25-basis-point cuts by year-end, with June seen as the most likely first cut. Friday brings PCE and preliminary Q4 GDP. Palo Alto Networks reports with revenue expected at $2.58 billion and adjusted EPS at $0.94, after beating revenue estimates in every quarter for two years.

Options And Volatility Strategy

With the Nasdaq posting five straight weekly declines entering this week, tech is clearly under pressure. Traders may consider buying puts on tech-heavy indices like the QQQ to hedge portfolios or seek gains if markets fall further. The CBOE Volatility Index (VIX) has climbed to 19.5, up from the low teens seen in late 2025, which points to higher expected volatility. Worries about how AI may reshape software and hardware are also pressuring sentiment. Buying puts on stocks like Salesforce (CRM) and Nvidia (NVDA) may still make sense as investors question high valuations. Year-to-date, the iShares Expanded Tech-Software Sector ETF (IGV) is down nearly 8%, and the downtrend may continue through month-end. This week’s FOMC minutes and PCE data are key for rate-sensitive trades. With the 10-year yield near two-month lows, call options on Treasury ETFs like TLT could offer a way to position for even lower yields. The CME FedWatch tool now shows a 75% probability of a rate cut by the June meeting, and Friday’s inflation data will be a major test of that view. M&A news is also raising volatility in certain names after a slower deal environment in 2025. With the Warner Bros and Paramount talks creating uncertainty, a straddle on Paramount (PSKY) could benefit from a large move in either direction. Danaher’s (DHR) pullback after announcing the acquisition could also be traded with puts if investors continue to focus on the high premium paid for Masimo. Palo Alto Networks (PANW) reports after the bell, creating a clear options event. Given the stock’s pattern of beating estimates and the current anxiety in tech, a large move is possible. The options market is pricing in an 11% post-earnings move, which makes a long straddle a way to trade volatility rather than direction. Create your live VT Markets account and start trading now.

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Canada’s CPI inflation slowed in January. Headline inflation was 2.3%. Inflation excluding indirect taxes was 2.1%, down from 2.5% in December. The Bank of Canada’s core trim and core median measures eased to an average of 2.5% year over year. That was down from 2.6% in December, after a 0.1% month-on-month rise.

Core Inflation Trends

Core trim and core median came in at 2.4% and 2.5%. Both are still above the Bank’s 2% target. Over the past three months, they averaged a 1.2% annualised rate. The share of the CPI basket seeing unusually fast price increases also declined. About 23% of the basket rose at an annual rate above 5% over the last three months. That was down from 28% in December and 30% in November. Overall, the data gives policymakers more room to cut interest rates if the economy weakens. The base case mentioned in the source did not assume further rate cuts, even as grocery and services prices stayed high. From our perspective in mid-February 2025, the January inflation report is an important shift. With headline inflation down to 2.3%, the Bank of Canada has more flexibility to cut rates if the economy continues to soften. This supports the view that the next move in policy is likely to be a cut.

Market Implications For Rates

The Bank’s preferred core measures have eased to 2.5%. The annualised pace over the past three months was a very low 1.2%. With the policy rate held at 4.25% since December 2024, markets are likely to price in a higher chance of a rate cut at the spring meetings. This could support strategies that benefit from lower yields, such as buying call options on Government of Canada bond futures. A more dovish Bank of Canada also tends to weigh on the Canadian dollar, especially versus the U.S. dollar. The Federal Reserve has been more cautious about when it might cut rates. If this policy gap widens, it could favour trades that expect a weaker loonie, such as buying puts on CAD futures. This has been a key theme we have tracked since the start of the year. This inflation report follows weak growth data. Canada’s GDP growth nearly stalled in Q4 2024, and the unemployment rate rose to 5.8% in January 2025. If rate cuts arrive sooner than expected to support the economy, Canadian equities could benefit. That could lead to more interest in call options on the S&P/TSX 60, as traders position for easier financial conditions. Disinflation also appears to be spreading across more categories, rather than being limited to a few items. The share of the basket with high price growth fell to 23% in January, continuing the drop from 30% in November 2024. This steady trend strengthens the case for the Bank of Canada to act, and it may also reduce implied volatility in rate markets as the policy path becomes clearer. Create your live VT Markets account and start trading now.

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New Zealand’s GDT Price Index rose 3.6% in the latest update, down from a 6.7% rise in the previous release. The latest Global Dairy Trade data shows weaker momentum. The index is still rising, but the pace has slowed from 6.7% to 3.6%. We see this as a sign that the dairy price rally is fading. It may be time to take profits on long dairy futures and get ready for a period of consolidation or a pullback in the weeks ahead.

Dairy Rally Losing Momentum

This slowdown is a headwind for the New Zealand dollar, because dairy remains a major part of the country’s export income. Stats NZ data for the year ending December 2025 shows dairy made up more than 28% of total goods exports. With that in mind, we are looking for chances to short NZD against currencies with stronger outlooks, such as the US dollar. The RBNZ is likely to watch this closely. Softer export prices can make it harder to manage inflation, which was still 3.9% in the last quarter of 2025. This could also reduce the odds of further rate hikes that markets had priced in. A shift in rate expectations would add to our bearish view on NZD. We see the slower price growth as a result of softer global demand, especially from key buyers. China’s January 2026 import data showed whole milk powder purchases fell 4% month over month. That is a clear change from the strong buying seen in late 2025. This supports the view that dairy prices may have peaked for now. In response, we are considering buying NZD/USD put options that expire in late March or April. This approach lets us benefit if the currency falls, while keeping risk capped at the premium paid. The slower GDT price index is the main driver for this trade, as its impact can spread across the New Zealand economy.

Potential Strategy For NZD USD

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USD/CHF traded near 0.7729 on Tuesday, close to a one-week high. The Swiss franc weakened as the US dollar strengthened. The US Dollar Index held near 97.40, up about 0.32%. Recent US data helped the move: – The NY Empire State Manufacturing Index came in at 7.1 in February, above the 6.0 forecast, but down from 7.7. – The ADP Employment Change four-week average rose to 10.3K from a revised 7.8K (previously 6.5K). Traders have scaled back expectations for a near-term Federal Reserve rate cut. This followed stronger Nonfarm Payrolls data and an Unemployment Rate that fell to 4.3% from 4.4%. The CME FedWatch Tool shows June as the most likely month for the first cut. Markets are focused on: – The Fed’s Meeting Minutes on Wednesday – Friday’s core PCE Price Index – The advance estimate of fourth-quarter US GDP These releases could shift rate expectations and move the dollar. Lower demand for safe-haven assets also pressured the franc after a second round of US–Iran nuclear talks in Geneva. In Switzerland, CPI rose 0.1% in January. The SNB targets 0–2% inflation, and markets expect rates to stay unchanged in March and remain steady through 2026. We first discussed this setup in February 2025, when USD/CHF traded near 0.7729. At the time, markets expected Fed rate cuts to begin by June 2025 because inflation was easing. That view was generally bearish for the US dollar versus the Swiss franc. Over the past year, the story changed. The Fed delivered only two of the four expected rate cuts in the second half of 2025, then paused. The US economy held up better than expected, and that strength has continued into this year. The US Dollar Index (DXY) shows the shift, now trading around 104.5—well above the 97.40 level from this time last year. January 2026 data is adding to the dollar’s support and weakening the case for more Fed easing. The latest Nonfarm Payrolls report showed a stronger-than-expected gain of 210,000 jobs. The most recent CPI report showed inflation rising to 3.2% year over year. As a result, markets have sharply reduced the odds of a March 2026 rate cut. The Swiss National Bank has also stayed on hold. Swiss inflation remains low, at 1.4% in the latest report. The diplomatic progress with Iran seen in early 2025 has mostly held, which has reduced safe-haven demand that can lift the franc. The gap in economic momentum and monetary policy between the US and Switzerland is becoming clearer. Given this setup, we think USD/CHF is more likely to move higher in the coming weeks. The dollar’s yield advantage is widening again, which makes it more attractive to hold than the franc. Traders may want to consider strategies that benefit from a stronger dollar versus the franc. Derivative trades can be built to match this view. One approach is to buy near-the-money USD/CHF call options, such as a 0.9000 strike expiring in April, to gain upside with defined risk. A lower-cost alternative is a bull call spread, which can help offset the cost of the calls.

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Pound Sterling fell during the North American session as trading resumed after the US President’s Day holiday. GBP/USD dropped 0.71%, or nearly 100 pips, to 1.3529 after weaker-than-expected UK jobs data.

Pound Under Pressure

The UK jobless rate hit a 10-year high, putting more pressure on the exchange rate. In 2025, a report showing the highest jobless rate in a decade sent the Pound down almost 100 pips. The move showed how quickly Sterling can react to signs of economic weakness. When the UK outlook worsens, the currency often falls too. Today, February 17, 2026, the tension is still there, but the main issue has changed. The latest Office for National Statistics data puts the UK unemployment rate at 4.3%, while growth remains flat. The bigger worry is sticky inflation, especially in services. That could stop the Bank of England from cutting rates to support growth. This mix of weak growth and stubborn inflation adds uncertainty, which often helps option traders. Implied volatility in GBP/USD is rising from the lows seen late last year. Traders may look at buying straddles to position for a breakout, since the Bank of England’s next step could push the pair sharply in either direction.

Strategy For Volatility

With the signs of economic weakness we saw in 2025, a bearish stance may make sense. Buying out-of-the-money GBP/USD put options is a low-cost way to prepare for a drop if upcoming growth data disappoints. This approach limits risk while offering meaningful upside if Sterling weakens. The US dollar also matters, since it is the other side of the pair. Recent US data shows core inflation is easing more slowly than expected. That has pushed back expectations for Federal Reserve rate cuts. If the UK is forced to cut rates before the US, that policy gap can weigh on GBP/USD. If you already hold long positions, consider hedging against a possible decline. Buying protective puts with a strike price near the key 1.2500 support level—an area that held several times last year—can be a cost-effective form of insurance. It may help protect portfolios if weak UK data triggers a sudden reversal. Create your live VT Markets account and start trading now.

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GBP/USD fell 0.71% (nearly 100 pips) to around 1.3529 during Tuesday’s North American session, following the US Presidents’ Day holiday. The drop came after a weaker UK jobs report. ONS data showed the ILO unemployment rate rose to 5.2% in the three months to December, up from 5.1% in November and above forecasts. It was the highest level in a decade, excluding the pandemic period. Average earnings excluding bonuses slowed to 4.2% from 4.4% over the same period.

Market Pricing Shifts

Prime Market Terminal put the odds of a 25 bps Bank of England cut at 71% for the 19 March meeting. For the full year, money markets priced in 49 bps of easing. UK CPI data is due on Wednesday. January inflation is expected to cool to 3.0% from 3.4%. In the US, the New York Empire State Manufacturing Index rose to 7.1 in January, slightly above the 7.0 expected, and down from 7.7 in December. The ADP Employment Change four-week average rose to 10.3K from 7.8K. GBP/USD was also quoted near 1.3502. A nearby level sits at 1.3522, with support around 1.3511, while a trend line stems from 1.3035. Around this time in 2025, a weak UK jobs report also pushed the pound sharply lower. Unemployment had reached a decade-high of 5.2% (excluding the pandemic), and markets quickly priced in a strong chance of a Bank of England rate cut in March.

Policy Divergence

Today, the picture looks different. UK unemployment has improved to 4.5% for the three months ending December 2025. More importantly, inflation remains sticky, with January 2026 CPI holding at 2.9%, still well above the central bank’s target. As a result, expectations for a near-term rate cut have dropped sharply, and markets now see only a small chance of a move before summer. In the US, the Federal Reserve remains cautious, much as it was in 2025. Recent comments from officials continue to stress a data-dependent approach, especially with core inflation still above 3%. This “higher for longer” stance in the US contrasts with the pressures facing the UK economy. This setup points to a different playbook than the simple short seen in 2025. With the US dollar still holding a clear rate advantage, traders may prefer strategies suited to range-bound trading or limited upside in GBP/USD. Options approaches such as selling call spreads may fit this view, based on the idea that any meaningful pound strength could be capped. Create your live VT Markets account and start trading now.

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