Russian drones from Iran entered Poland, but this had little impact on the markets, only causing small increases in the USD. Authorities closed two airports, and parts of Poland went into lockdown due to concerns. Some politicians called this an “act of war.” Even with these pressures, financial markets stayed stable. In the U.S., a court decision kept Lisa Cook as a Fed Governor, influencing the September FOMC meeting vote. The ruling clarified that grounds for dismissal relate to current conduct, not past actions, causing a slight dip in the dollar.

Chinese Economy and Corporate Updates

China’s economy is facing deflation, with the August Consumer Price Index (CPI) at –0.4% year over year, and the Producer Price Index (PPI) down by –2.9% year over year. However, the rate of PPI decline slowed for the first time in months. In corporate news, Oracle’s shares jumped over 25% after securing several billion-dollar cloud contracts. In the Asia-Pacific region, markets showed gains: Japan’s Nikkei 225 rose 0.65%, Hong Kong’s Hang Seng increased by 1%, the Shanghai Composite was up 0.16%, and Australia’s S&P/ASX 200 grew by 0.25%. The market’s calm response to the Russian drones in Poland highlights a possible mispricing of geopolitical risk. The Cboe Volatility Index (VIX) is low at around 14, similar to the period just before Russia’s 2022 invasion of Ukraine, when the index surged above 35. Investing in VIX call options or long-dated puts on European indices like the Euro Stoxx 50 could be a cost-effective way to protect against a sudden rise in tension. Increased tension in Europe may lead to a rise in energy prices, much like Brent crude oil spiked from $90 to over $120 per barrel in early 2022. We think oil and natural gas call options are undervalued now that a NATO-Russia conflict is being discussed, even if it’s unlikely. These derivative positions could provide considerable gains if the situation worsens in the coming weeks.

Federal Reserve Developments

The Federal Reserve is facing changes, with the court ruling keeping Governor Cook on the FOMC adding a dovish element ahead of the next meeting. While Fed Funds futures predict more than a 70% chance of another rate hike, this situation introduces some uncertainty. We may use options straddles on 2-year Treasury note futures to capitalize on potential interest rate volatility, no matter how the meeting turns out. China’s return to deflation suggests a serious lack of domestic demand. This is negative for industrial metals and the currencies of exporting nations, leading us to consider buying puts on copper futures and the Australian dollar. With copper struggling to maintain $8,100 per metric ton, more weak data from China could lead to a quick drop. Lastly, Oracle’s significant 25% after-hours stock jump indicates that tech sectors like enterprise cloud and AI remain strong despite the overall economic downturn. Instead of broad index investments, we’re focusing on call option spreads for the Technology Select Sector SPDR Fund (XLK), which is already up 32% this year. This strategy allows us to engage in the upside of key tech stocks while minimizing risk. Create your live VT Markets account and start trading now.

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Currently, Ethereum futures (ETH1!) are trading at $4,328.5, up by $22.5 (+0.52%). Ethereum’s price is above the VWAP, which is at $4,319.5, while Bitcoin futures remain steady at around $4,334.5. In addition, U.S. stocks are rising, boosted by strong earnings from Oracle, creating a positive atmosphere for cryptocurrencies. TradeCompass shows that Ethereum is in a bullish position as long as it stays above $4,310. If it crosses $4,369, it could gain further momentum. However, if the price drops below $4,240, a bearish trend could take hold, in line with the VWAP’s lower deviation from September 5. Bullish traders aim for profit targets ranging from $4,352 to $4,910, while bearish traders look to start at $4,204, dropping to $4,032. Since August 10, Ethereum futures have traded between $4,100 and $4,850. Short-term bearish pressure has eased, with prices consolidating around $4,300. The options markets indicate lower volatility, as traders seem hesitant to expect a major downturn, suggesting a stabilizing market. TradeCompass advises cautious trading: one trade per direction and taking partial profits to manage risk. This approach is strengthened by using stops and the stop-to-entry rule for risk control. With Ethereum futures showing bullish tendencies, the strategy is prepared for potential downturns. As of today, September 10, 2025, Ethereum futures are holding steady at around $4,328. Traders should focus on the critical level of $4,310. If the price stays above this threshold, a cautiously bullish approach makes sense for the near future. This positive outlook is supported by an overall “risk-on” market sentiment, driven by strong tech earnings and Nasdaq 100 futures nearing 24,000. Last week’s Consumer Price Index (CPI) report showed inflation easing slightly to 3.1% in August 2025, reducing concerns about aggressive central bank policies. This creates a favorable environment for assets like Ethereum to rise. On-chain data shows stability as Ethereum’s daily active addresses have bounced back to over 600,000 after a small dip in late August 2025. This suggests a strong user base and indicates that accumulation might be happening around current prices, similar to patterns seen in summer 2023 before a significant market rise. The options market reflects a similar sentiment, indicating calm before a potential shift. Implied volatility for at-the-money Ethereum options is at its lowest in two months, suggesting traders aren’t preparing for a major crash. Although call buying is modest, there’s also a lack of aggressive put buying, indicating minimal bearish bets. For derivative traders, this means looking for chances to enter long positions or buy call options if ETH stays above $4,310. Key profit targets to watch are $4,352 and $4,369. A break above $4,369 would indicate stronger buying pressure, pointing toward a potential rise to the $4,500 range. However, it’s essential to stay disciplined and ready for a possible reversal. A significant drop below $4,240 would challenge the bullish outlook, signaling that sellers might take control. In this case, traders should be prepared to adjust their strategy, potentially entering short positions or buying puts with an initial target around $4,204. Regardless of which way the market moves, good risk management is crucial in the coming weeks. Traders should take partial profits at the first or second target levels and adjust their stop-loss to the entry point to protect their capital. This allows part of the trade to continue while minimizing potential losses. Additionally, there is anticipation surrounding decisions on major spot Ether ETF applications expected in the fourth quarter of 2025. This institutional interest likely supports price stability and could serve as a significant catalyst for future growth. Thus, while focusing on short-term levels, we acknowledge that a major upward driver is on the way.

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Goldman Sachs predicts an increase in U.S. inflation for August. They expect core CPI to rise by 0.36% month-on-month, which is a bit higher than the consensus forecast of 0.30%. As a result, the annual core CPI rate would reach 3.13%. Headline CPI is expected to grow by 0.37% month-on-month, mainly due to higher food prices (+0.35%) and energy costs (+0.60%). Additionally, car and airfare prices might also push inflation up.

Tariffs Drive Up Inflation

The bank pointed out that tariffs are making inflation worse, especially in areas like communications, furniture, and recreation. These tariffs, set by policies from President Donald Trump, are likely to keep the monthly core CPI around 0.3% for now. However, besides tariffs, economists think inflation will cool down soon. This is because there are soothing pressures in the housing and labor markets. The inflation data is set to be released on Thursday, September 11, 2025, at 08:30 AM ET, or 12:30 PM GMT. With the August inflation report coming out tomorrow morning, we are preparing for a possible surprise in the numbers. The 0.36% rise forecast for core prices is above the general market expectation, indicating that current market valuations might be too relaxed. This scenario suggests trades that benefit from a more aggressive Federal Reserve policy adjustment right after the report. We are particularly watching options on short-term interest rate futures, which currently do not reflect a high chance of a rate increase. According to CME FedWatch data, the market is predicting only a 15% chance of a hike before the end of 2025. If inflation is higher than expected tomorrow, those odds could easily double or triple, leading to a sharp decline in Fed Funds and SOFR futures prices.

Effects on Market Volatility

Such a surprise in inflation would likely lead to a surge in market volatility from its currently low levels. The VIX index, which measures expected market volatility, has risen by over 20% on days with major inflation surprises, similar to what we observed several times in 2022. Buying VIX call options or front-month futures offers a straightforward way to capitalize on the uncertainty that would accompany a higher-than-expected inflation report. We also need to remember that the inflation trend is expected to cool off when the impact of tariffs fades. This means a strong market reaction tomorrow could be excessive, creating a chance for a rebound. If short-term yields spike sharply, we might consider taking positions that bet on a decline in those yields over the next few weeks as the market realizes the core issues are temporary. The report’s focus on tariffs affecting specific items like furniture and recreation provides a targeted trading strategy. We can use equity options to invest against sectors most affected by these price hikes and the resulting drop in consumer demand. Observing how consumer discretionary stocks reacted to tariff announcements earlier in 2025 gives us useful insights into which companies are most at risk. Create your live VT Markets account and start trading now.

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The US dollar fell after a legal ruling regarding Fed Governor Lisa Cook. A federal judge blocked former President Trump’s efforts to remove Cook from her position on the Federal Reserve Board. The judge ordered Chair Powell and the Board of Governors to let her continue in her role during the ongoing legal proceedings. This legal case led to a drop in the USD. The dollar stayed weak, even with rising geopolitical tensions due to Russia’s actions aimed at Poland. Reports showed that Russian drones had entered NATO airspace by crossing into Poland. A US congress member called these actions an act of war, while the Polish military confirmed they were actively responding to the Russian incursion with weapons.

The Federal Reserve Focus

The dollar’s decline related to the Federal Reserve news seems to be the main focus for the market, but we see this as a distraction. The court’s decision to keep Governor Cook suggests a more independent Fed, which may lead traders to rethink their expectations of aggressive rate cuts. Looking at market data from early 2025, Fed funds futures previously predicted a full percentage point of cuts by next year, but this has now been adjusted to 75 basis points in just a few hours. This focus on the Fed is creating a dangerous complacency about the situation in Eastern Europe. A military conflict between Russia and a NATO member like Poland is a serious risk that should prompt a rush of capital into the US dollar as a safe haven. We saw this clearly in February 2022 when the Dollar Index (DXY) rose from 96 to over 103 after the initial Russian invasion of Ukraine. The market’s current muted response indicates a significant mispricing of risk, presenting a clear opportunity. Volatility is unusually low given the serious news from Poland, with the VIX index around 14, a level inconsistent with the risk of major conflict. We should actively buy volatility through VIX calls or futures, as any escalation is likely to cause a sharp increase from these low levels.

European Currency Vulnerabilities

This situation makes European currencies, especially the Euro and the Polish Zloty, seem particularly at risk. The current weakness of the dollar creates an attractive opportunity to buy long positions against these currencies. We believe that taking long USD/PLN positions or purchasing call options on the dollar against the euro is a smart way to prepare for the expected flight to safety, which often follows events like this. Additionally, any conflict involving Russia could quickly threaten global energy supplies and lead to a rush for hard assets. We should expect a significant rise in crude oil and gold prices. Buying call options on both Brent crude futures and gold ETFs allows for upside exposure to the geopolitical risk premium that we believe the wider market is currently overlooking. Create your live VT Markets account and start trading now.

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China’s inflation data for August shows that the country is slipping deeper into deflation. The Consumer Price Index (CPI) fell by 0.4% compared to last year, missing the expected decline of 0.2% and going down from the previous stable reading of 0.0%. The month-over-month CPI stayed the same, even though a 0.1% rise was anticipated after a 0.4% increase in July.

Producer Price Index and Involution

The Producer Price Index (PPI) dropped by 2.9% year-over-year, in line with expectations but better than the earlier 3.6% decline. Month-over-month, the PPI remained unchanged. Efforts to tackle involution, where too much competition stifles progress, are still struggling. This issue, especially evident in industries like solar, electric vehicles, and steel, is part of a policy shift started in July under President Xi Jinping’s leadership. The challenge is significant due to oversupply in competitive private industries. As China falls further into deflation, the August consumer price data of -0.4% confirms weak domestic demand. This trend continues despite the government’s stimulus efforts, which have not made a significant impact. For us, this strengthens a negative outlook on assets linked to Chinese consumption and the overall domestic economy. We expect the People’s Bank of China (PBOC) to implement more substantial easing, likely through additional rate cuts in the coming weeks. The PBOC has already lowered key lending rates several times in 2025, widening the gap with the U.S. Federal Reserve’s policies. This difference will continue to pressure the yuan, making it prudent to hold positions that benefit from a weaker currency, like buying USD/CNY call options. The PPI’s drop of 2.9% annually indicates that industrial overcapacity remains a significant problem. This is detrimental to global commodities reliant on Chinese industrial activity. We foresee ongoing weakness in iron ore, which has already dropped over 12% in the last quarter, and we are considering put options on copper and other base metals.

Market Implications and Comparisons

This economic weakness poses a major challenge for Chinese stock markets, making it sensible to buy puts on China-focused ETFs like the FXI. Growing uncertainty about future stimulus is increasing volatility; the Hang Seng implied volatility index is nearing its 12-month highs. In this climate, option strategies become more attractive as significant price fluctuations are expected. The current situation bears resemblance to Japan’s “lost decade” that began in the 1990s, marked by ongoing deflation and stagnant growth. If this trend persists, we could face an extended period of poor performance for Chinese equities. This long-term perspective supports strategies that profit from slow declines or sideways movement in the market over the coming months. Create your live VT Markets account and start trading now.

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The People’s Bank of China (PBOC) sets the daily midpoint for the yuan, also known as renminbi or RMB. This is part of a system that allows the currency to float within a specific range, or “band,” around this reference point. The allowed fluctuation is +/- 2%. Today, the PBOC set the USD/CNY midpoint at 7.1062. This is lower than the market’s estimate of 7.1359, and the previous closing rate was 7.1250.

The Central Bank’s Message

Today’s midpoint is significantly stronger than expected, signaling the PBOC’s intent. They are showing that they won’t tolerate rapid depreciation of the yuan. This move should be seen as the central bank taking steps to manage market expectations. As a result, selling call options on the USD/CNY pair looks like a smart strategy for the coming weeks. The central bank’s intervention limits the potential for the dollar to rise against the yuan. This managed stability lowers implied volatility, making call option premiums appear high. This decision is backed by recent data showing China’s industrial production for August 2025 grew by 4.5% year-over-year, surpassing predictions. Additionally, reports suggest that capital outflows, a major concern in 2024, have slowed significantly in the third quarter of 2025. The PBOC likely believes it has the support needed to defend the currency more forcibly now. This situation feels different from the market shocks during the 2015 devaluation. Back then, central bank actions created uncertainty and volatility. Today’s actions aim to reduce volatility and promote a sense of control and stability for the currency.

Reducing Currency Risk

The perceived drop in currency risk makes carry trades with the yuan more appealing. The one-month offshore yuan (CNH) implied volatility has fallen to 4.5% today, lowering the cost of hedging. This stability is vital for traders wanting to profit from interest rate differences without facing sudden currency shifts. However, we need to be alert for any signs that this policy may not last. A decline in the next purchasing managers’ index (PMI) or a rise in trade tensions could lead the PBOC to change its approach. Therefore, it would be wise to hold some inexpensive, long-dated USD/CNY call options as a safety measure against a possible policy shift. Create your live VT Markets account and start trading now.

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The People’s Bank of China (PBOC) plans to set the USD/CNY reference rate at 7.1359, according to Reuters. This bank sets the daily midpoint for the yuan, known as renminbi (RMB), against a group of currencies, primarily the US dollar. The PBOC uses a managed floating exchange rate system. This allows the yuan to move within a +/- 2% range from the central reference rate. Each morning, the midpoint is determined based on market supply and demand, economic data, and global currency trends.

Midpoint Guidance

The midpoint serves as a guide for trading each day. The trading band permits the yuan to adjust within a set range around this midpoint, allowing for a maximum appreciation or depreciation of 2% during any trading day. If the yuan approaches the trading band limits or experiences high volatility, the PBOC may intervene by buying or selling the yuan. This aims to stabilize its value, ensuring that changes in the currency’s market position remain controlled. With the PBOC expected to set the USD/CNY midpoint at 7.1359, there’s a continued focus on stabilizing the yuan. This strong guidance indicates that the central bank will try to prevent rapid depreciation, as seen throughout 2023 and 2024. For derivative traders, this means the currency will likely stay within a narrow range in the near future. However, there is ongoing pressure for a weaker yuan due to the interest rate gap with the US, where 10-year Treasury yields remain around 3.9%. China’s own economic data, like the 4.8% GDP growth for the second quarter of 2025, indicates a slow domestic recovery. This environment makes the PBOC’s daily management of the exchange rate a key focus for traders.

Trading Strategies

Given the PBOC’s active management, implied volatility on USD/CNH options has decreased, with one-month volatility recently hitting a low of 3.5%. In this context, selling options becomes an appealing strategy for generating income. Traders might consider selling short-dated strangles, which allow them to profit as long as the currency pair does not move significantly in either direction. For those expecting a slow and controlled depreciation, using option spreads is a smart approach. Buying simple call options may not be effective due to time decay in a stable market. Instead, bullish call spreads offer a good alternative, capping potential profits while lowering initial costs and risks. Looking back, a similar situation occurred in late 2023 when the spot rate remained close to the weak end of its 2% trading band for months due to strong central bank guidance. This period demonstrated that betting against the PBOC’s control is challenging. Therefore, strategies that align with a gradually moving currency appear to be the best choice for the coming weeks. Create your live VT Markets account and start trading now.

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Oracle’s latest earnings and revenue fell short of what analysts expected. However, the stock rose after hours because of positive cloud growth projections and new contracts. In the first quarter of the fiscal year, Oracle clinched four multibillion-dollar deals, boosting its remaining performance obligations to $455 billion—a 359% increase from last year. Shares jumped 26% in after-hours trading, which could make it one of the biggest single-day gains for a U.S. company valued over $500 billion. Oracle expects to sign even more large contracts soon, anticipating its remaining performance obligations will exceed $500 billion. The company also raised its cloud infrastructure revenue forecast to $18 billion for the fiscal year, reflecting a 77% increase, and expects up to $144 billion over the next five years. For the second quarter, Oracle predicts a revenue growth of 12-14% in constant currency, which is above consensus estimates. Adjusted earnings per share are expected to be between $1.61 and $1.65. After the surge in after-hours trading, the implied volatility of Oracle options hit its highest level in over a year. This makes it appealing to sell options for premium in the coming weeks. The market anticipates significant future movements, creating an opportunity to sell puts or put spreads below the new expected stock price. The remarkable 359% increase in remaining performance obligations signals a major change in the company’s growth path, justifying the stock’s price increase. A similar situation occurred with Nvidia’s stock in May 2023 when a significant earnings boost created a higher trading floor that lasted for months. Betting against this momentum by buying puts is quite risky, as the market is clearly focused on the long-term potential of AI-driven cloud contracts. From current options data, the 30-day implied volatility has likely risen above 60%, placing it in the 100th percentile of its yearly range. This situation is perfect for strategies that benefit from time decay and lower volatility, often referred to as “volatility crush,” which usually follows big price changes. Additionally, we are seeing many analyst upgrades this morning, with average price targets moving toward the $250 level, further supporting the new valuation. Given all this, a strong strategy would be to sell out-of-the-money put credit spreads with expiration dates in October and November 2025. This approach allows us to collect the inflated premium while providing the stock with room to settle into its new price range. This well-defined risk strategy profits if Oracle’s stock stays above our selected strike price, leveraging both the positive sentiment and the eventual drop in volatility.

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Chinese insurers are investing more in stocks than they have in over three years, thanks to Beijing’s efforts to maintain a stable bull market. Data shows these investments surged by 640 billion yuan ($90 billion) in the first half of 2025, bringing total equity holdings to 3.1 trillion yuan, which is 8.5% of their total assets. Experts expect this trend to continue, with Morgan Stanley predicting purchases of over 1 trillion yuan in Chinese and Hong Kong equities this year. Analysts say that long-term insurance investments can improve market liquidity, help dividend-paying companies and industry leaders, while keeping valuations steady.

Policy Changes Favoring Equity Investments

To support this trend, authorities have relaxed investment limits, raised allocation requirements, and reduced capital charges. Strategists believe this trend will carry on through 2026. However, increased investments may lead to more volatility during economic downturns. Even with potential risks, low bond yields and supportive regulations suggest that insurers will remain crucial in the Chinese equity market. With substantial and ongoing capital flowing from insurers, we can expect a more stable and slowly rising market. This consistent buying pressure should reduce overall market volatility in the coming weeks. We have already seen this impact, as the implied volatility on CSI 300 index options has dropped to its lowest level since the second quarter of 2025. Considering the outlook for a steady, less volatile rise, we should adopt strategies that take advantage of this environment. Selling cash-secured puts or using bull put spreads on broad market ETFs tracking the A50 and CSI 300 indices looks promising. These strategies will benefit from both the gradual upward trend and from option premiums decreasing over time. The capital is particularly focused on dividend-paying stocks and leading sectors, so our equity strategies should mirror this. We should target large-cap financials and well-established consumer brands known for their reliable dividend payouts. As of early September 2025, the CSI Dividend Index has outperformed the broader market by over 6% year-to-date, indicating where institutional investments are concentrated.

Market Support and Risks

However, we must remember the government-supported rally of 2014-2015, which was followed by a sharp decline. While this investment flow offers a solid support level for the market, it could also lead to complacency and a swift reversal if sentiment changes. This is why it is wiser to use defined-risk strategies like spreads rather than holding naked short options. This institutional investment trend comes amid decent economic data, such as last month’s manufacturing PMI, which remained just above the 50-point mark indicating growth. With low bond yields, equities offer a clear advantage for large funds seeking returns. This supports a stable market outlook through the end of the year, creating an ideal environment for selling volatility. Create your live VT Markets account and start trading now.

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Deutsche Bank has updated its S&P 500 earnings prediction for 2025 to $277 per share, up from the earlier estimate of $267. This change comes after a strong second quarter of earnings reports. Analysts noticed that companies are confidently discussing the impacts of tariffs and the outlook for economic growth. Because of this, Deutsche Bank has set its year-end S&P 500 target at 7,000.

Higher Earnings Expected

The bank believes that stronger earnings will help counter some of the negative effects from trade policies. This revised forecast shows a positive outlook for both the economy and company performance. With the new earnings estimate of $277 per share, we have a solid base for the market as we enter the last quarter. This indicates that investment strategies should lean towards bullish options, anticipating that the S&P 500 will aim for the 7,000 target by year-end. We might consider buying call options or using bull call spreads to benefit from potential market gains in the upcoming weeks. This positive outlook is backed by recent economic data, including the August 2025 jobs report, which shows steady wage growth and an unemployment rate of just 3.7%. This economic stability, along with strong corporate performance, suggests that any market pullbacks may be brief and minor. Therefore, selling cash-secured puts during dips could be a smart way to earn premiums while preparing for a rising market.

Low Market Volatility

Market volatility, as shown by the VIX index, has remained low at around 15, down from a brief spike in July 2025. This situation makes buying options cheaper than it was earlier this summer. We can take advantage of this by purchasing longer-term call options that expire in December 2025 or January 2026, aligning with our year-end target. Analysts believe that strong earnings will mitigate the effects of tariffs, a topic that has gained focus since trade discussions heated up earlier this year. The resilience shown during the Q2 earnings season last month confirms this view. This means that trading strategies focused on market indices, like SPY or ES futures options, may be more successful than trying to select specific companies that could be negatively impacted by trade policies. Looking back, the market has performed well since easing concerns about interest rates earlier this year. The current scenario resembles what we saw in late 2023, when robust earnings helped the market navigate geopolitical uncertainties. We believe this pattern is repeating, suggesting we should prioritize strong earnings over headline risks for the time being. Create your live VT Markets account and start trading now.

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