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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Gold continues to hold near record highs as more investors seek safe-haven assets amid rising trade tensions. Recent tariff threats from US President Trump towards several European Union countries related to Greenland have created additional geopolitical uncertainty, affecting market moods. Gold is trading around $4,667, just shy of its all-time high of $4,690, with an increase of almost 1.85% today. The US Dollar has weakened due to criticism from European leaders, which supports gold’s strength, even as expectations of a Federal Reserve interest rate cut fade.

Markets Shift Focus

US markets are closed for Martin Luther King Jr. Day, shifting attention to upcoming US economic reports. Key data due includes Personal Consumption Expenditures inflation figures and third-quarter GDP on Thursday, along with PMI surveys and consumer sentiment data on Friday. European leaders express concern over Trump’s tariff announcement and are exploring counteractions. They plan to consider potential measures, including executing previously prepared tariffs, at an upcoming emergency meeting. Meanwhile, the US Supreme Court is set to rule on Trump’s emergency tariff powers and another case regarding Federal Reserve leadership. From a technical view, Gold remains above key moving averages, showing a bullish trend. The RSI and MACD indicators indicate increased upside momentum, with immediate support levels established for Gold’s price movements. With gold hitting record highs amid tariff threats, there is a clear signal of a risk-averse climate favoring safe-haven assets. The immediate strategy should focus on protecting portfolios while taking advantage of the rising uncertainty in US-EU trade relations. Derivative traders may want to consider options to hedge against potential losses in equity markets affected by Europe. Gold’s strong performance suggests further increases, and derivatives can be used to speculate on this trend. Buying call options on gold ETFs or gold futures provides a direct way to profit from rising prices with limited risk. Recall that gold surged over 15% in just a few weeks during the early geopolitical shocks of 2022, showing a recent historical parallel for similar rallies.

Exploring Investment Strategies

Since gold’s Relative Strength Index is currently overbought, a smart approach might be to use bull call spreads. This means buying a call option while simultaneously selling another call at a higher strike price, lowering the initial trade cost and helping to manage risk if gold pulls back from these highs. As the US Dollar weakens under geopolitical pressure, further declines can be expected if the EU retaliates with its own tariffs. Positioning for this may involve buying put options on the US Dollar Index or using currency futures to short the dollar against a group of major currencies. During the escalations of the US-China trade war in 2019, we saw notable currency fluctuations, and we could experience similar volatility now. The transatlantic trade dispute will directly affect specific market sectors, so it’s important to identify companies heavily reliant on European revenues. Buying put options on industrial and consumer discretionary ETFs significantly tied to Europe is a sound defensive strategy. In the 2018 tariff disputes, sectors such as American automakers and agriculture faced severe impacts from retaliatory actions. Overall uncertainty is on the rise because of trade tensions, upcoming Supreme Court rulings, and the impending announcement of Fed leadership. This setting is ideal for long volatility strategies, like purchasing calls on the VIX index. Historically, major geopolitical events—such as the Brexit vote in 2016—caused the VIX to spike over 40%, and the current situation holds the potential for a similar surge in market anxiety. Create your live VT Markets account and start trading now.

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The Japanese Yen is stable after a snap election was announced in Japan, which has limited short-term foreign exchange movements. The markets are reflecting on whether the Bank of Japan (BoJ) might tighten interest rates, making the upcoming policy meeting crucial for the yen’s future. The yen has gained slightly by 0.1% as the market assesses the impact of the February 8 election. Prime Minister Takaichi wants to strengthen her mandate with proposals for looser fiscal policy. The BoJ’s response will be important since she favors working together with the bank and reducing its independence.

Expectations for the Bank of Japan

The market expects the BoJ to tighten its policies, with predictions of at least one 25 basis point increase by July. They anticipate a total of almost 50 basis points by the end of December. Analysts will closely watch for any changes in the BoJ’s position during its upcoming meeting. Right now, the yen is stable, but we face two significant risk events: the Bank of Japan meeting this Friday and the snap election on February 8th. The political uncertainty adds tension to the currency market, especially with Prime Minister Takaichi aiming for looser fiscal policies. This stance conflicts with the central bank’s expected tightening measures. All attention is on the BoJ meeting this Friday for clues about future policies, as this will provide the first major indication for the market. Recent data shows core inflation in Tokyo is stubbornly at 2.8% year-over-year, which is much higher than the central bank’s target and supports the case for raising rates. A strong hawkish signal could drive the yen up sharply, while any reluctance might appear to give in to political pressures. With the current calm in the market, considering buying volatility is a wise approach leading up to these events. The USD/JPY 1-month implied volatility has risen to 9.5%, up from a low of 8.0% last week, though it’s still below the peaks seen in late 2025 during policy discussions. A long straddle strategy, which gains from significant price movements in either direction, could effectively prepare traders for a breakout.

Snap Election Adds Another Layer of Risk

The snap election on February 8th brings additional risks, especially since early polling indicates a close competition for PM Takaichi’s ruling coalition. Many remember the dramatic market shifts in 2025 when the BoJ unexpectedly changed its policy, leading to significant volatility in the yen. A strong mandate for the Prime Minister might be viewed as a long-term negative for the currency if it threatens the central bank’s independence. It’s also important to highlight that speculative net short positions against the yen are still high, according to the latest market data. This means any unexpectedly positive news for the yen could lead to a quick rally, as traders would need to cover their short positions. The risk of a short squeeze in the coming weeks should not be underestimated. Create your live VT Markets account and start trading now.

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The New Zealand Dollar (NZD) started the week strong against the US Dollar (USD), thanks to positive economic data from China. However, concerns about new tariffs announced by Donald Trump may limit further gains, affecting market stability. NZD/USD was around 0.5780, showing a 0.50% increase for the day. China’s latest report showed a GDP growth of 4.5% Year-on-Year in the fourth quarter, beating expectations. This growth was supported by strong exports, which helped offset some weakness in domestic demand.

Industrial Production and Retail Challenges

China’s Industrial Production grew by 5.2% annually, but Retail Sales fell due to issues in the property sector, affecting consumer spending. Despite some positive signs, antipodean currencies have faced limited gains, influenced by global risk aversion. The Reserve Bank of New Zealand (RBNZ) continues to maintain a strict policy, providing some support to the currency. Meanwhile, the USD weakened after Trump’s announcement of possible tariffs on European countries related to tensions over Greenland. This uncertainty has reduced the Greenback’s appeal as a safe-haven asset, keeping the NZD/USD exchange rate above the mid-0.5700s. The New Zealand Dollar showed the strongest performance against the US Dollar, with a daily change of -0.33%. In 2025, the Kiwi recovered against the dollar due to solid data from China and fears of new US tariffs on Europe. Back then, NZD/USD struggled around the 0.5780 level, creating short-term trading opportunities amidst uncertainty.

Current Economic Landscape

As of January 19, 2026, the situation has changed, with NZD/USD trading significantly higher, around 0.6250. The specific tariff threats from last year are no longer a top concern. The main factor now is the clear policy divide between the RBNZ and the US Federal Reserve. China’s economy remains important, just like in 2025. Recent data indicates China’s GDP grew by 5.2% in the last quarter of 2025, an improvement from the earlier 4.5% growth. This ongoing demand for commodities supports the value of the Kiwi dollar. The RBNZ has kept its cash rate at 5.5% to combat stubborn domestic inflation, which is at 3.8%. In contrast, US inflation has cooled to 2.8%, leading the Federal Reserve to hint at lowering interest rates. This growing interest rate gap makes holding the New Zealand dollar more appealing. This situation creates a clearer trading environment, although it’s not without risks. Traders may want to consider buying call options on the NZD/USD to benefit from potential gains while limiting their losses. However, the primary risk is an unexpected slowdown in New Zealand’s economy that could prompt the RBNZ to change its approach. In the upcoming weeks, we will closely monitor US inflation and job data, which will impact the Fed’s decisions about rate cuts. Any signs of weaker economic performance in New Zealand could also challenge the RBNZ’s firm stance. These data points will be key drivers of market volatility. Create your live VT Markets account and start trading now.

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USD/CAD has dropped recently due to a weaker US Dollar and mixed data on Canadian inflation. The current exchange rate is about 1.3878, down 0.27%. Statistics Canada reported a 0.2% decrease in the Consumer Price Index (CPI) for December, while a decline of 0.3% was expected. Yearly inflation is now at 2.4%. The core CPI from the Bank of Canada fell by 0.4% month-over-month, with an annual decrease to 2.8%. These monthly figures suggest inflation is easing, but annual rates are still above the 2% target. This indicates the Bank of Canada may keep interest rates stable for the time being.

The Impact Of US Tariff Threats

In the US, the Dollar is weaker due to renewed tariff threats from President Trump, leading to a decline in the Dollar Index toward 99.00. Steady oil prices are giving some support to the Canadian Dollar, with West Texas Intermediate at about $59.15. Traders are watching for upcoming data and events, including the Bank of Canada’s Business Outlook Survey and various US economic reports. Please remember that the information here is for general purposes and should not be seen as investment advice. Always do further research before making financial decisions. Reflecting on early 2025, USD/CAD was around 1.3878 as markets responded to mixed Canadian inflation and a weaker US dollar. At that time, the Bank of Canada was holding rates, monitoring an annual CPI of 2.4% and a core rate of 2.8%. US tariff threats were significantly affecting the US dollar. As of today, January 19, 2026, the situation has changed dramatically, with USD/CAD now much lower at around 1.3350. Recent data from Statistics Canada shows that annual inflation has eased to 2.1%, prompting the Bank of Canada to start reducing rates, now down to 4.00%. This is a sharp contrast to the previous year’s wait-and-see approach.

Central Bank Policy Divergence

The US dollar’s driving force has shifted from politics to interest rate differences. The US Dollar Index (DXY) is now stronger, near 103.50, with the Federal Reserve’s policy rate at 4.50%, higher than Canada’s. This difference in central bank policies is a key focus, providing strong support for the US dollar. Additionally, the support for the Canadian dollar from oil prices has grown significantly. West Texas Intermediate (WTI) crude is now trading around $78 per barrel, a big increase from $59 in early 2025. This strong performance of oil helps the Canadian dollar offset the widening interest rate gap with the US. Given these changes, we should consider strategies that anticipate a potential floor in USD/CAD followed by a gradual increase. As the Bank of Canada is likely to continue cutting rates before the Federal Reserve, the interest rate gap may favor the US dollar in the medium term. To manage potential volatility, looking at call options on USD/CAD might be advisable to position for a rebound driven by this policy divergence. Create your live VT Markets account and start trading now.

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The Pound Sterling (GBP) has slightly increased against the US Dollar (USD), showing signs of stabilizing after its drop since early January. The currency gained 0.2% against the USD, indicating a move towards steadiness after the earlier decline.

Key Announcements Coming Up

While there haven’t been any major domestic data releases recently, the upcoming week is filled with important announcements. Jobs data will be released on Tuesday, the Consumer Price Index (CPI) will come out on Wednesday, public finance figures are on Thursday, and retail sales, along with preliminary Purchasing Managers’ Indexes (PMI), will be shared on Friday. Domestic rate expectations are starting to recover after a recent decline. These upcoming releases will be crucial as the next Bank of England meeting is set for February 5th. Although rate expectations remain cautious, the anticipated number of cuts for this year has decreased. Today, January 19th, 2026, the pound is stabilizing against the dollar after dropping from its highs earlier this month. The modest gain of 0.2% suggests a calm, but this is unlikely to last. A busy week of UK economic data will be the main factor driving currency movements. We expect major releases soon, starting with jobs data tomorrow, followed by the important CPI report on Wednesday. Current online predictions suggest that inflation may have eased slightly to 2.8%, down from 3.0% in December 2025. Any major surprise here will directly influence expectations for interest rates set by the Bank of England. For derivative traders, this packed schedule points to a significant rise in short-term implied volatility in the coming days. The pricing of options on GBP pairs will likely increase, reflecting the heightened risk of substantial price swings. This environment is perfect for traders looking to position themselves for a breakout, regardless of the direction.

Effects of Retail Sales and PMI Data

Looking back to autumn 2025, we see how sensitive the pound can be to unexpected data. A surprisingly strong retail sales report in October caused a significant rally, as markets quickly adjusted their expectations for rate cuts. The retail sales and PMI figures released this Friday could trigger a similar reaction if they fall short of expectations. This indicates that strategies aiming to profit from large moves, like long straddles, could be effective leading up to the CPI release. Alternatively, if you believe the market is overplaying the potential reaction, selling volatility may be a good option. This could involve trades that gain if GBP/USD stays within a certain range after the news. All of this week’s data sets the stage for the Bank of England’s policy meeting on February 5th. While expectations for rate cuts have been declining, this week’s inflation and economic activity numbers will be vital in determining the final outcome. The market is currently pricing in about a 40% chance of a rate cut by May, a figure likely to change dramatically based on this week’s releases. Create your live VT Markets account and start trading now.

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The Euro has risen by 0.2% against the US Dollar as trading starts on Monday. This recent weakness in the Euro (EUR) is largely due to smaller differences in interest rates. The EUR has stabilized around its 200-day moving average, which is at 1.1590. Since August, it has been fluctuating between 1.15 and 1.19.

Meme Coins Trend Downwards

Meme coins like Dogecoin, Shiba Inu, and Pepe have dropped by about 3% on Monday. These coins are trading below important moving averages and are looking for immediate support. As the week begins, there are noticeable changes in the markets, affecting various commodities and currencies. Stocks have pulled back, gold has reached new highs, and the dollar has weakened outside of safe-haven currencies. The market seems anxious right now. Stock prices are down, and gold is hitting new highs. The CBOE Volatility Index (VIX), which measures market fear, has risen to 22.5, a sharp increase from last week’s lows. This indicates a strong demand for protecting portfolios, likely due to ongoing geopolitical tensions and renewed discussions about trade tariffs. Despite this volatility, the EUR/USD pair remains in a narrow range, finding strong support near its 200-day moving average at around 1.1590. This situation reflects the growing gap in policies between the US and Europe. The European Central Bank has indicated a more neutral approach after weaker economic data came out in late 2025. The most recent US inflation report, which came in slightly higher than expected at 3.3%, suggests that the Federal Reserve has limited options to ease policies.

Options Strategies for EUR/USD

In the upcoming weeks, selling options on the EUR/USD could be a smart choice, given its defined range between 1.1580 and 1.1680. An iron condor strategy, which involves selling a call spread above 1.17 and a put spread below 1.1550, could benefit from this forecasted stability. We saw similar sideways movement in prices during much of the third quarter of 2025 before volatility returned. Given the risk aversion seen in falling speculative assets like Dogecoin and Shiba Inu, it’s wise to consider buying downside protection for overall portfolios. Purchasing put options on major equity indices such as the S&P 500 can act as a safeguard against further market declines. This is a sensible strategy until the reasons behind the market’s unease become clearer. Create your live VT Markets account and start trading now.

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Tariff threats from February regarding certain European countries, which oppose the US interest in Greenland, are impacting global politics. Consequently, the US Dollar has dipped slightly, and US assets have seen a sell-off, affecting both US stocks and Treasury futures. With the Supreme Court about to issue important opinions, the outcomes may influence the tariff measures related to Greenland. If the court rules against the current tariffs, new strategies could be put into place quickly, though they may face legal challenges. At the same time, US officials are handling possible changes in the Federal Reserve’s leadership.

Kevin Hassett’s Role and USD Trends

President Trump’s choice to keep Kevin Hassett in his role, instead of nominating him as Fed Chair, adds complexity to USD trends. Also, the steady rise of the Chinese Yuan is limiting the US Dollar’s performance. Recent gains for the USD faced resistance around 99.50, indicating a general lack of momentum, and analysts are cautious about the Dollar’s future. Reactions in the US markets might stay muted due to the Martin Luther King Jr. holiday. This combination of resistance and the influence of other currencies suggests a bearish outlook for the USD in the short term. Looking back to January 2025, tariff threats over Greenland began to negatively impact the US dollar. These geopolitical tensions created a bearish sentiment that lasted most of the year. The market’s negative reaction then was a clear sign of what was to come. That bearish view turned out to be correct. The DXY index fell from the 99.50 resistance we mentioned, closing 2025 near 92.30. Recent reports from the Commerce Department show a 5% year-over-year increase in Q4 2025 trade deficits, mostly due to ongoing European responses. This confirms that the dollar’s fundamental weakness extends into the new year.

Opportunities in the Derivatives Market

The ongoing uncertainty is opening up chances in the derivatives market. The implied volatility for major dollar pairs like EUR/USD has risen to 8.5%, compared to an average of 6% in the last quarter of 2025. Traders should think about buying volatility through strategies like straddles or strangles ahead of upcoming central bank meetings. The ongoing strength of the Chinese yuan, which we noted as a drag on the dollar in 2025, continues, with USD/CNY now testing the 6.85 level. For traders with a bearish view on the dollar, long-term put options on the DXY or call options on the CNH provide a way to manage risk as they position for further declines. These instruments can help guard against any unexpected short-term rallies in the dollar. Concerns about the Federal Reserve’s independence from last year remain, especially after the controversial replacement of Fed Chair Powell. The new Fed Chair’s first congressional testimony is scheduled for the first week of February, and the market is anticipating significant risks related to this event. This situation could be a key factor leading to further declines for the dollar. Create your live VT Markets account and start trading now.

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The Canadian Dollar (CAD) has seen a slight rise against a generally weaker US Dollar (USD), yet it remains within its recent range. Economic factors, particularly trade trends, have a small impact on the CAD, with its fair value estimated at 1.3865. The USD/CAD exchange rate is facing resistance around the 1.39 mark. Chart patterns indicate a neutral to bearish outlook in the low 1.39 range, with a ‘harami’ candle pointing to possible changes. Additionally, there’s a potential double top formation around 1.3925 from recent trading sessions.

Exchange Rate Patterns

If the exchange rate drops below 1.3855, it would confirm the double top, targeting 1.3780/90. On the other hand, if it rises above 1.3925, the next target would be between 1.3950 and 1.4000. Insights into these movements come from Scotiabank’s Chief FX Strategists, whose analyses contribute to market understanding. The Canadian dollar is making some progress as the US dollar weakens, yet the currency pair is stuck in a familiar range. The USD/CAD rate appears to be losing momentum as it hovers near the 1.39 mark, indicating a time of indecision in the market. Chart patterns are giving a warning for the US dollar, showing a minor double top around 1.3925. For traders using derivatives, this suggests a chance to buy USD/CAD put options that expire in the coming weeks. A drop below 1.3855 would be the signal we are looking for to confirm this bearish view, aiming for a decline towards the 1.3780 area.

Economic Influences

However, several key economic factors are limiting the CAD’s ability to rise. The difference in short-term interest rates still heavily favors the US, with recent data showing US 2-year yields outperforming Canadian bonds by 45 basis points. Additionally, WTI crude oil prices, which significantly impact the Canadian economy, have remained stuck around $81 per barrel, lacking a fresh catalyst for strength. This situation is reminiscent of a similar trend in the third quarter of 2025, where strong economic data from the US overshadowed technical signals. With recent inflation data showing US core CPI at 3.2% compared to Canada’s 2.6%, the fundamental case for a stronger US dollar remains intact. Selling out-of-the-money call spreads above the 1.3950 resistance may be a wise strategy to earn premiums while betting the pair won’t break higher. Conversely, if the rate decisively breaks above 1.3925, it would invalidate this cautious outlook and suggest that the US dollar’s rebound is back on course. Such a rise would likely prompt traders to close bearish positions and consider buying call options, with the next target being the psychologically significant 1.4000 level. Create your live VT Markets account and start trading now.

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