Over the weekend, the US President announced a 10% tariff on goods from eight European countries as part of a plan involving Greenland. On Monday, US stock and bond markets were closed for Martin Luther King Jr. Day. The tariffs will affect goods from Denmark, Sweden, France, Germany, the Netherlands, Finland, the UK, and Norway starting February 1. If no agreement on Greenland is reached by June 1, the tariff will increase to 25%. The European Union is considering retaliatory tariffs on €93 billion worth of US imports, which had been put on hold earlier.

Currency Movements

The US Dollar Index remained steady at around 99.00 due to the market closures. The USD performed best against the Japanese Yen, while its value changed slightly against other currencies. Gold prices climbed near $4,690 in response to rising tensions between the US and Europe. Investors view gold as a safe option during times of geopolitical and economic uncertainty, leading to increased buying from central banks. Gold tends to rise when the US Dollar and US Treasuries decline. This week, we expect important economic data from the UK, Germany, Japan, and the Eurozone, along with key US reports and a speech by Trump. Reflecting on the market shock in 2025, unexpected tariffs on European goods due to a Greenland purchase plan caused significant risk aversion and demonstrated how quickly geopolitics can disrupt currency markets. In the coming weeks, focus on assets that thrive in uncertain situations. Last year’s spike in gold to nearly $4,700 per ounce marked a clear shift toward safety, and that trend continues. Central banks have maintained their buying patterns, with the World Gold Council reporting over 1,000 tonnes purchased in 2024 for the second year in a row, providing a solid support for prices. Continued institutional demand suggests that buying call options on gold futures (GC) is a smart way to benefit from potential new global tensions.

Financial Strategies Amid Currency Volatility

The US Dollar’s weakness in early 2025 stemmed from tariff concerns, but its current softness stems more from interest rate policies. After peaking in 2024, US core PCE inflation has decreased to just under 3%, allowing the Federal Reserve to start rate cuts seen at the end of last year. Traders might consider using options to bet on ongoing dollar weakness, like purchasing puts on the Invesco DB US Dollar Index Bullish Fund (UUP). The EUR/USD rallied to 1.1650 during last year’s tariff dispute but quickly fell as stronger economic fundamentals took charge. Europe’s economy faces ongoing challenges, as shown by last year’s German ZEW Economic Sentiment index, which spent months in negative territory. Thus, selling out-of-the-money call options on EUR/USD could be an effective strategy to earn income while betting against significant upward movement. The Japanese Yen gained strength against the dollar last year as a safe-haven currency, even amid political unrest like a snap election. The Bank of Japan has made gradual but important changes to its extremely loose monetary policy, boosting the yen’s appeal. With this shift in mind, consider long positions in yen futures or call options on the CurrencyShares Japanese Yen Trust (FXY) to profit from safe-haven flows and policy adjustments. The key takeaway from the 2025 Greenland incident is how quickly unexpected events can create volatility in otherwise stable markets. The CBOE Volatility Index (VIX) is currently low, making protective options more affordable than during previous spikes. Buying long-dated put options on equity indices like the S&P 500 (SPX) can be a wise way to hedge your portfolio against future geopolitical surprises. Create your live VT Markets account and start trading now.

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EUR/USD rose as Trump’s tariff threats weakened the US Dollar. The pair is trading around 1.1648, up nearly 0.40%. European officials warned of possible countermeasures, which increased market uncertainty. President Trump announced a 10% tariff on eight European countries starting on February 1, with a potential increase to 25% by June unless an agreement about purchasing Greenland is reached. This has reignited concerns about a trade war and shaken market confidence.

European Response and Economic Data Influence

European leaders are preparing countermeasures, while EU officials downplay the tariff threats. Steady Eurozone inflation data supports the Euro. The monthly Core Harmonised Index of Consumer Prices (HICP) rose by 0.3%, with an annual core rate of 2.3%. The headline HICP increased by 0.2% monthly, with yearly inflation slightly decreasing to 1.9%. Political uncertainties are also challenging the US Dollar. Markets are focused on an upcoming US Supreme Court ruling regarding emergency tariff powers. Participants are also considering potential changes in Federal Reserve leadership. Attention is shifting to upcoming US economic data, including PCE inflation, GDP figures, and consumer sentiment. The Eurozone’s economic performance is vital, with monetary policy and trade balance data impacting the Euro’s value.

Market Volatility and Historical Context

The recent tariff threats have created significant uncertainty in currency markets, increasing volatility. We should expect larger price swings in EUR/USD, making options strategies that benefit from this volatility more appealing than simple directional bets. The next few weeks will likely be guided by news headlines rather than just economic fundamentals. This renewed trade conflict has raised expectations for price swings. The Cboe EuroCurrency Volatility Index (EVZ) reached 8.5 yesterday, its highest level since market jitters in October last year. This indicates that the market is anticipating more turbulence, which justifies higher premiums on both put and call options. We should recall the trade disputes of 2018 and 2019. During those times, the US Dollar often gained strength as a safe-haven currency, even as the US initiated trade conflicts. This history suggests that the current Euro rally may be short-lived if global economic fears intensify. The Euro’s gains seem primarily based on the Dollar’s weakness rather than its own strength. With Eurozone core inflation stable around 2.3% and last week’s German IFO Business Climate index dropping to 90.1, the European Central Bank has little reason to raise rates. This limitation may prevent the Euro from climbing much higher on its own. All attention is on this week’s US inflation and GDP reports. Strong US economic data could quickly reverse the Dollar’s current decline, reminding markets of the economy’s resilience. This creates considerable risk for holding long Euro positions through these data releases. Given these mixed signals, using options to manage risk is a sensible strategy. We could consider buying EUR/USD call spreads to capture potential gains while limiting our costs. Traders worried about a sudden reversal might also think about buying puts to protect against a drop if trade tensions ease or if US data surprises. Create your live VT Markets account and start trading now.

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The Dow Jones Industrial Average opened the week low, mainly due to concerns about tariffs, echoing past trade war anxieties. A year after these issues first emerged, the Trump administration is still facing challenges with policy consistency. President Donald Trump has expressed interest in the US purchasing Greenland, linking this to his disappointment about not winning the Nobel Peace Prize. He also proposed a 10% tariff on exports to eight European nations, which could rise to 25% if the EU does not agree to a major deal with the US. This move triggered immediate threats of retaliation from European countries.

US Markets Are Quiet

US markets are quiet for Martin Luther King Day, with regular trading expected to resume on Tuesday. The week will feature important economic updates and speeches, including the Personal Consumption Expenditure Price Index and S&P Global Purchasing Managers Index results. Tariffs are charges on imports intended to make local products more competitive. Economists are split on their effectiveness; some support tariffs for local protection, while others warn they could raise prices and spark trade wars. As the 2024 election approaches, Trump is emphasizing tariffs to support the US economy. He is particularly focusing on Mexico, China, and Canada, which account for 42% of US imports. Trump’s goal is to use tariff revenue to lower income taxes. With geopolitical uncertainty affecting the market, we can expect a significant increase in volatility. During the trade tensions of 2018-2019, the VIX index, a gauge of market fear, often rose from around 12 to above 20 following tariff announcements. Traders should consider buying protection as price fluctuations are likely to become more frequent in the coming weeks.

Market Responses to Tariffs

The Dow’s negative reaction to tariff news mirrors the market weaknesses experienced in early 2025 under similar conditions. To guard against potential drops, traders may look to purchase put options on popular market index ETFs like SPY and DIA. This acts as a safeguard against losses ahead of the February 1st tariff rollout. Europe’s counter-tariffs will likely be crafted for maximum impact. Historically, the EU has targeted high-profile American products and key agricultural exports. For example, US soybean exports plummeted by nearly 75% after retaliatory tariffs were set in a previous trade dispute. This suggests that making derivative plays against agricultural ETFs (such as DBA) or specific companies with significant European sales could be a smart strategy. This brief trading week carries specific risks, particularly with the President’s speech on Wednesday and key inflation data due on Thursday. Given the uncertain tone of the speech, traders might consider straddles, which involve buying both a call and a put option to take advantage of large market movements in either direction. This is a strategic response to the expected spike in volatility after the event. Thursday’s Personal Consumption Expenditure (PCE) price index is expected to attract close attention, especially since core inflation has remained above the Federal Reserve’s 2% target for most of 2025. If inflation remains high, it could complicate the economic outlook and restrict the Fed’s ability to lower interest rates to stabilize the economy during a trade war. This scenario could put downward pressure on stock prices and bolster the case for defensive investments. Create your live VT Markets account and start trading now.

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The Canadian Dollar recently hit a weekly high against the US Dollar, driven by worries over the trade war during President Trump’s time in office. According to a Bank of Canada survey, while businesses in Canada are cautious, concerns about a recession are easing. The Canadian Consumer Price Index (CPI) showed annual inflation at 2.4%, but monthly figures dipped by 0.2%.

Canadian Economic Outlook

European leaders have rejected Trump’s potential tariffs against the EU, which are linked to Greenland’s cession. This could lead to retaliatory tariffs on US goods. Canadian companies are struggling with low sales due to trade tensions with the US but expect slight growth by 2026. The Canadian Dollar is facing challenges from moving averages but could gain if economic conditions remain steady. Its value is affected by Bank of Canada interest rates, oil prices, overall economic health, and the trade balance. The strength of the US economy, which is Canada’s main trading partner, also plays a significant role. Economic data plays a crucial part in determining the CAD’s value. Positive indicators, like GDP and employment numbers, can boost the Dollar by attracting foreign investment and supporting possible interest rate increases from the Bank of Canada. On the other hand, weak data may drag down the Canadian Dollar. The US Dollar has weakened significantly due to renewed trade tensions with the European Union over Greenland. This geopolitical risk is currently boosting the Canadian Dollar. We’re particularly focused on the USD/CAD currency pair, which is testing the 1.3900 level.

Crude Oil Prices and Foreign Investment

Recent reports show that WTI crude oil prices have risen by 4% this past week, surpassing $85 a barrel for the first time since the Q3 2025 sell-off. This supports the Loonie, as oil is Canada’s largest export. Additionally, data released last Friday indicated that foreign investment in Canadian securities reached a six-month high, reflecting growing confidence. The Bank of Canada is likely to stay put, especially since December’s annual inflation rate was a solid 2.4%. This is comfortably within their target range, reducing immediate pressure to cut interest rates. Such policy stability provides a solid foundation for the Canadian Dollar against a fluctuating US Dollar. We think that using options strategies makes sense in this environment, especially buying USD/CAD put options to take advantage of potential declines. With President Trump’s February 1st tariff deadline approaching, we expect implied volatility to increase. This makes strategies benefiting from price swings, like long straddles, worth considering if you anticipate sharp changes. It’s important to remember the rapid market changes we saw during the 2025 trade disputes, similar to the unpredictable swings from the earlier US-China trade war. A sudden easing of tensions from the White House could lead to a strong rally for the US Dollar. Therefore, we’re monitoring the 200-day moving average as a crucial support level for any bearish positions on the CAD. Create your live VT Markets account and start trading now.

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The US Dollar is holding steady against the Japanese Yen as global risk concerns rise and Japan faces political uncertainty. The USD/JPY pair is trading around 158.10, stable from earlier levels, after recently dropping from an 18-month peak. In Japan, rumors about a possible snap election by Prime Minister Sanae Takaichi are leading to economic uncertainty, which might affect public finances. The potential for large stimulus measures is also making investors cautious about the Yen.

Monetary Interventions and Interest Rate Speculations

To counter these pressures, Japan’s Finance Minister and some Bank of Japan officials are suggesting monetary interventions to address the currency’s weakness. Speculation about an interest rate hike as early as April is helping to support the Yen. Globally, investor sentiment remains shaky as US trade tensions re-emerge, with threats of 10% tariffs on imports from European countries. Additional geopolitical worries, including the ongoing Russia-Ukraine conflict, are further boosting safe-haven currencies like the Japanese Yen. The US Dollar has dropped from its recent highs due to trade tensions and geopolitical issues, although expectations for fewer Fed rate cuts are softening this decline. Key upcoming events, such as the US PCE price index and the BoJ’s monetary policy decision, are likely to impact the USD/JPY pair. Statistics show mixed percentage changes for the USD against key currencies, with notable stability against the Yen, while a heat map highlights daily fluctuations.

Political Landscape and Economic Indicators

Last year, the USD/JPY pair faced resistance around the 158 level, influenced by political jitters in Japan and a general atmosphere of risk aversion. At that time, market participants were weighing the possibility of a Japanese snap election against renewed trade war anxieties. This situation led to a stalemate where neither the dollar nor the yen could take the lead. As we enter January 2026, political uncertainty in Japan has significantly decreased, with discussions of a February snap election subsiding. This alleviates a major concern for the Yen. Attention has shifted back to monetary policy fundamentals, which currently favor a stronger Japanese currency. Recent data supports this perspective. Japan’s core CPI for December 2025 was 2.4%, marking the 21st consecutive month above the Bank of Japan’s 2% target. This ongoing inflation strengthens the case for a potential interest rate increase by April, as some policymakers had hinted last year. Such expectations give the Yen a solid backing. On the flip side, recent US economic data has softened the outlook for the Dollar. The latest jobs report from early January showed non-farm payrolls increasing by only 160,000, missing predictions and indicating a slowdown in the labor market. This has renewed speculation that the Federal Reserve might need to consider rate cuts later this year, putting downward pressure on the Dollar. With factors that were previously weakening the Yen fading, and arguments for its strength increasing, it appears that the USD/JPY pair may trend lower. The tug-of-war we saw in 2025 is likely to shift, leading to a significant downward move. The pair’s failure to remain above the 158 level now looks less like a pause and more like a resistance ceiling. For derivative traders, this situation suggests a strategy for the pending drop in the pair over the next few weeks. Buying USD/JPY put options set to expire in late February or March could be a clear and risk-defined method to take advantage of this emerging trend. These positions would profit if the pair slips below recent support levels and approaches the 155 area. Create your live VT Markets account and start trading now.

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Novo Nordisk’s stock has jumped over 45% in the last month. This rise is driven by positive sales predictions and the UK approving a higher dose of its Wegovy product. With such rapid changes, it’s important to consider how the stock behaves around certain resistance levels. There are two key resistance levels to watch. The first is near $69, corresponding to a gap that happened on July 29 last year. This level may be where the stock price halts or stabilizes. The second level is around $74, associated with another gap from June 20 last year, indicating another potential area of resistance. Novo Nordisk, known for its pharmaceuticals, is gaining attention due to Wegovy’s success, which has impacted its recent stock performance. The company also pays a quarterly dividend expected to reach $1.73 per share by 2026, marking a more than 19% increase from the August dividend. Even with the positive momentum, it’s vital to practice disciplined risk management. The focus should remain on technical factors, rather than what’s happening in the news. Remember the strong 45% gain in Novo Nordisk during 2025? That surge was fueled by early excitement regarding its product pipeline. Now, with the stock around $92.50, the technical landscape has shifted. We need to manage positions at these new highs. The key resistance levels at $69 and $74 from last year have been broken, and they may act as support if there’s a significant pullback. This current strength is backed by solid financials. Novo Nordisk reported a 38% increase in revenue year-over-year for the fourth quarter of 2025. This growth stems from its GLP-1 drugs, and the supply issues faced last year have mostly been resolved. This gives us greater confidence in the trend’s sustainability. For those trading options, the high price makes selling premium appealing. We might sell cash-secured puts with strike prices near the $85 support level to earn income or buy stock at a better price. This strategy takes advantage of steady implied volatility following the recent earnings report. For those who already own the stock, writing covered calls with a strike price close to the psychological $100 level for February could be a smart move. This allows you to benefit from any further increases while also generating income. Given the stock’s rise, this strategy can provide a small hedge against a possible dip. We also need to consider the competitive landscape. Recent industry data shows that Eli Lilly’s Zepbound has taken nearly 40% of the new prescription market for anti-obesity drugs. This fierce competition could lead to price fluctuations, making strategies like long-dated straddles appealing for those expecting significant movements but unsure of the direction. This battle for market share will be crucial to monitor in the first half of 2026. Lastly, the company’s strong cash flow supports the upcoming dividend, which is set to rise to $1.73 per share this year. This financial stability adds a layer of safety when selling options premium. We view this dividend as a key factor that will support investor interest in the months ahead.

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The Pound Sterling has risen against the US Dollar due to rising tensions between the US and Europe. President Trump’s threats of tariffs on European nations have affected the USD. As a result, the GBP/USD is trading at 1.3414, which is a 0.28% increase. This change is happening as the USD weakens over conflicts with the EU about Greenland. During the European trading session, the Pound Sterling climbed to around 1.3400, thanks to the weak performance of the USD. This situation stems from political tensions regarding Washington’s desire to buy Greenland, which the EU has viewed with skepticism. These issues have led to a volatile market.

Asian Session Impact

As the Asian session began, the GBP/USD kept rising, reaching about 1.3400. The USD remains under pressure due to Trump’s tariff discussions, and the US markets are closed for Martin Luther King Jr. Day. This has led to fluctuations in various assets and currencies, highlighting how sensitive the market is to political events. This week started with market volatility; equities fell, gold prices soared, and Treasuries gained interest. In contrast, meme coins like Dogecoin, Shiba Inu, and Pepe dropped around 3% on Monday, falling below crucial support levels. Cryptocurrency investments have seen $2.17 billion in net inflows, a positive sign since October. We’re seeing a repeat of market patterns today, January 19, 2026, similar to last year. In late January 2025, threats of US tariffs on the EU led to a rapid sell-off of the US Dollar, pushing GBP/USD close to the 1.3400 level. This geopolitical tension created significant opportunities for those prepared.

Market Signals and Strategies

Today, the administration is showing a tougher trade approach towards the Asia-Pacific region, which is once again weakening the dollar. Meanwhile, GBP/USD is trading around 1.2950. Last week’s US CPI data came in slightly higher at 3.1%, complicating the Federal Reserve’s decisions and adding to currency uncertainty. This economic backdrop could lead to a repeat of last year’s volatility. For derivative traders, this suggests possible increases in price swings in the upcoming weeks. The CME’s British Pound Volatility Index (BPVIX) has already risen to 8.5 from a low of 7.2 last month, indicating that options markets expect larger movements. This setting might make long volatility strategies, like buying straddles or strangles on GBP/USD, a good way to handle the expected fluctuations. However, unlike last year, both the Federal Reserve and the Bank of England are taking a more aggressive stance due to ongoing core inflation. This could limit the potential gains for GBP/USD, as the Bank of England may not be able to stray far from the Fed’s policies. Traders might want to consider call spreads to aim for a controlled move up to the 1.3100-1.3200 resistance range instead of hoping for a dramatic rally like in 2025. Create your live VT Markets account and start trading now.

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Silver (XAG/USD) has reached a new high of around $94.15, driven by strong demand for safe-haven assets amid increasing trade and geopolitical tensions. The price remains stable at about $93.90, showing a 32% increase this month. The market reacted strongly to U.S. President Trump’s announcement of new tariffs on European countries related to Greenland. Starting in February, these tariffs will be at 10%, increasing to 25% by June. This news has created uncertainty in global markets, impacting stocks and the U.S. Dollar. Silver is enjoying a boost as both an investment and industrial metal, with demand outpacing supply. The Gold-Silver ratio is close to 50, highlighting Silver’s impressive performance compared to Gold, as investors prefer Silver. From a technical perspective, XAG/USD is in a strong uptrend, with rising averages and buying on dips. The 4-hour chart indicates it’s testing the upper Bollinger Band, showing strong momentum but also a chance for a small pullback before further gains. The middle Bollinger Band at $91.36 provides immediate support; if this level breaks, prices could drop to the lower band at $87.66. On the upside, the $100 mark is an important psychological target. The momentum remains positive, with the 4-hour RSI nearing 63. Silver acts as a safe-haven asset and a key material for industries such as electronics and solar energy. Its price is influenced by geopolitical tensions, interest rates, and the U.S. Dollar. Silver prices often follow Gold’s movements, and the Gold/Silver ratio reflects their relative values. With Silver reaching nearly $94, we are witnessing strong bullish momentum fueled by geopolitical fears. This risk-averse climate, sparked by new tariff threats, drives investment toward safe-haven assets. Derivative traders should note that this strong uptrend is likely to continue as long as tensions remain high. Traders aiming for gains towards the $100 psychological level might consider buying call options. This strategy allows them to benefit from potential upside while limiting downside risk in case of a sudden pullback. Recent options volume data shows a significant rise in calls with strike prices between $95 and $100, set to expire in the next 60 days. The overall market trends support this bullish outlook, with physical demand for silver continuing to exceed supply. A recent report from Metals Focus noted that industrial silver usage grew by 8% year-over-year in Q4 of 2025, mainly due to rising solar panel installations. This supply shortage should keep prices stable, even if geopolitical tensions ease. Nonetheless, the market is technically overbought, so traders need to manage their risks carefully. The middle Bollinger Band around $91.36 is a key support level to watch in the coming weeks. A break below this might suggest a sharper correction, making protective put options or put spreads good hedges for long positions. Looking back to the silver rally of 2011 can provide some historical context, where prices surged significantly before facing a quick and severe correction. Recent data from the Chicago Board Options Exchange shows the Cboe Silver Volatility Index (VXSLV) has reached its highest level since the market chaos of 2022. This indicates that options premiums are high, supporting the use of spreads to manage costs. Investor positioning data also suggests caution. The latest Commitment of Traders report showed hedge funds boosting their net-long positions in silver futures to the highest level in three years. While this indicates strong buying interest, it also points to a crowded market that could adjust rapidly. Monitoring these positions is important for signs of profit-taking. The Gold-Silver ratio compressing near 50 further emphasizes silver’s strong performance. This ratio averaged well above 75 between 2020 and 2024, implying that silver may continue to lead gold. Traders could explore pairs trades, such as going long on silver futures while shorting gold futures, to take advantage of this relative strength.

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The GBP/USD pair has risen as Trump’s tariff threats against Europe put pressure on the US Dollar. Trump announced a 10% tariff on eight European countries, starting from February 1. If no agreement is made, this tariff will increase to 25% by June 1. In response, the EU and UK are considering possible retaliatory measures. The US Dollar is feeling the impact, with the US Dollar Index falling by 0.38% today. The GBP/USD is trading at 1.3414, up 0.28%, due to a general weakening of the US Dollar and growing geopolitical uncertainties.

UK and US Economic Data

This week, traders are looking out for UK and US economic data, including employment and inflation figures from the UK. Technical analysis suggests that the GBP/USD could recover if it closes above the 200-day Simple Moving Average at 1.3400. If it falls below this level, we may see further losses, with support levels around 1.3325 and 1.3300. The Pound Sterling is showing mixed results against major currencies, performing well against the Canadian Dollar. The market is focused on geopolitical events, such as President Trump’s speech at the World Economic Forum and ongoing tariff discussions, which could affect currency movements and investor feelings. The US Dollar’s sharp drop following the tariff news is a key signal right now. This impact seems to be driven mainly by geopolitical factors, overshadowing recent economic fundamentals. We can expect that any risks from social media and official statements will continue to influence short-term currency fluctuations. We should anticipate a significant increase in implied volatility across currency pairs, especially in GBP/USD and EUR/USD options. This trend is similar to previous spikes, such as when the Cboe Volatility Index (VIX) rose over 40% within days during trade tensions in August 2019. Buying options now, before volatility is fully reflected in prices, could be a smart way to prepare for the uncertainty around the February 1 tariff deadline.

Buying Call Options

With GBP/USD staying above the important 1.3400 level, purchasing call options is a straightforward way to benefit from its upward momentum. A bull call spread around 1.3400, targeting the January high of 1.3567, would be a cost-effective strategy to profit if the pound continues to strengthen. This method also limits our risk in case the dollar suddenly changes direction. The upcoming UK jobs and inflation data will be crucial for the Pound’s strength. It’s important to note that UK inflation in the final quarter of 2025 remained stubbornly above the Bank of England’s target, close to 3.1%. This situation makes additional rate cuts less likely compared to the Federal Reserve. A strong data release this week could further boost the GBP/USD. President Trump’s speech in Davos is the main event to watch, as it could either ease tensions or escalate them. For traders who are unsure of the market direction but expect a major movement, a long straddle on GBP/USD could be a useful strategy. This position would benefit from a significant price shift in either direction after the speech. The overall weakness of the dollar also presents opportunities outside of the pound. The Swiss Franc and Japanese Yen are holding their ground against the dollar during this time of uncertainty. We need to keep an eye on communications from the EU and UK for signs of coordinated retaliation, which could add further pressure on the greenback. Create your live VT Markets account and start trading now.

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The Bank of Canada’s most recent Business Outlook Survey reveals that business sentiment is still low, but concerns about a recession have eased. This survey, conducted in the last quarter of 2025, shows that while confidence among businesses is limited, it is better than the dip seen earlier this year.

Trade and Export Sales

Many businesses reported slow sales growth over the past year, mainly due to trade tensions. However, they anticipate a slight improvement soon. Growth in export sales is expected to be modest, with some companies seeing increased sales in markets outside the U.S. due to ongoing tensions with the U.S. Most companies have not faced significant capacity issues or labor shortages. With demand likely to stay low, many plan to keep or reduce their staffing levels. Investment plans have improved a bit, mainly geared toward routine maintenance while navigating trade uncertainty. In contrast, the oil sector expects to cut back on investment in 2026 because of low oil prices. Pressure from tariffs has decreased since the last quarter, yet some challenges remain. Few businesses foresee major price increases. Inflation expectations are steady, between 2.5% and 3%. The latest survey indicates that the Bank of Canada may take a wait-and-see approach. With their next interest rate decision coming up on January 22nd, this lukewarm economic data offers little motivation for change. December’s Consumer Price Index (CPI) was 2.8%, fitting well within the stable range businesses expect.

Investment and Currency Outlook

This outlook suggests that short-term interest rates are likely to remain stable for now. We think using strategies that benefit from stable or slightly declining interest rates, like selling out-of-the-money call options on CORRA futures, could be beneficial. This approach is based on the assumption that a rate hike isn’t expected in the near future. The subdued economic forecast, especially the anticipated fall in oil investment, signals ongoing weakness for the Canadian dollar. Western Canadian Select oil prices struggle to rise, staying around $60, leaving a key source of support for the currency lacking. This trend aligns with what we observed in late 2025, where the USD/CAD exchange rate rose from 1.35 to 1.38, making the strategy of buying calls on USD/CAD still relevant. For equity markets, the outlook is mixed as reduced recession fears are counterbalanced by reports of weak sales growth and low demand. The recent increase in the national unemployment rate to 6.2% confirms what businesses indicated last quarter about their hiring and investment plans. This situation suggests the S&P/TSX 60 may trade within a specific range, making strategies like covered calls or iron condors on index options attractive for collecting premiums from low volatility. Create your live VT Markets account and start trading now.

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