The S&P 500 held its strong upward trend until the end of 2025, even with a small pullback. By late November, it reached close to its past all-time highs but couldn’t break through, indicating a phase of correction with support around 6800. If it drops below 6872, it could change this trend. Still, the index seems to be in a strong upward movement that might continue into 2026. It is expected to rise within subwave (3) of a five-wave positive cycle, potentially hitting the 7000 range. The overall outlook shows an ongoing strong upward move within wave III, which may end in 2026. You can find this analysis in a recorded webinar released on January 5, 2026.

Related Market Movements

In other market news, the US ISM services PMI improved to 54.4 in December. The GBP/USD is likely to trade between 1.3470 and 1.3535, while the NZD/USD is rising due to weaker US ADP data. The JPY is performing well against other major currencies, and GBP/USD is stabilizing around 1.3500. The EUR remains steady ahead of the North American session. The economic outlook for 2026 points to steady growth, but uncertainties from 2025 still play a role. We believe the current pullback in the S&P 500 is temporary and not the end of the upward trend. The pattern that started in late 2025 is still positive, with strong support expected near the 6800 level. This dip could be a good buying opportunity before the market moves up again. Last week’s jobs report for December showed a moderate gain of 110,000 jobs, easing concerns about an overheated economy from earlier in 2025. This suggests that the bull market could continue without strong action from the Fed. The VIX has risen to around 19, indicating uncertainty in the market, which makes option premiums higher.

Trading Strategies in a Volatile Environment

For those who are confident about the support level, selling out-of-the-money puts with strike prices below 6800 could be a good strategy in the coming weeks. This allows traders to collect premiums while waiting for the market to turn bullish again. However, if the index drops below 6872, it’s time to reconsider this strategy. A more cautious approach would be to wait for a clear breakout above the 7000 mark. A sustained movement above this point would confirm the beginning of the next upward trend. At that time, buying call options or setting up bull call spreads could take advantage of the expected increase in prices. The broader economic context from late 2025, especially the solid ISM Services reading of 54.4, supports growth. While the forecast for 2026 looks positive, we should remain mindful of the potential for volatility. This scenario favors bullish strategies with defined risks. Create your live VT Markets account and start trading now.

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Japan’s stock market is struggling largely because of China’s restrictions on exports that are beneficial for military use in Japan. While crude oil prices have fallen significantly, cutting Japan’s energy import costs, the yen hasn’t responded much. President Trump announced that Venezuela will send between 30 to 50 billion barrels of oil to the US, benefiting Venezuela while being under US control. This indicates that Trump will actively pursue Venezuelan oil.

Growing China-Japan Tensions

Tensions between China and Japan are rising, which may lead the Bank of Japan (BoJ) to be cautious about changing interest rates. China’s export controls, especially on rare earth materials, could hurt Japan’s automotive industry. Additionally, an anti-dumping investigation into Japan’s dichlorosilane exports may worsen these tensions. These issues could further strain their relationship in the upcoming weeks. Despite slight decreases in yields in the US, UK, and Germany, Japan’s long-term government bonds (JGBs) are seeing upward pressure on yields. Investors are feeling anxious ahead of the 30-year JGB auction. Previous auctions after Liberation Day had mixed results, but December’s strong auction made it clear that investors might be attracted to these yields. Ongoing inflation, relaxed monetary policies, and increased spending create a challenging economic environment, likely causing the yen to remain weak. Upcoming wage data could affect the yen’s volatility, as rising wages support the BoJ’s goals for price stability. With tensions with China rising, we see risks for Japanese equities in the short term. The possibility of export restrictions on rare earths is especially alarming for Japan’s automotive and technology sectors, since China processes around 90% of the global supply. Traders might want to consider buying put options on the Nikkei 225 to protect against a potential market drop in the coming weeks.

Weak Yen Forecast

The yen is expected to stay weak against the dollar, currently hovering around the 155 mark. The risk that the Bank of Japan may delay another interest rate increase due to these geopolitical tensions supports this outlook, similar to the cautious policy we observed throughout much of 2025. We suggest considering USD/JPY call options as a way to manage the risk of further yen underperformance. In the bond market, we anticipate continued pressure on long-term Japanese Government Bonds (JGBs). With 30-year JGB yields reaching 2.15% yesterday—levels not seen in over a decade—the market is clearly on edge ahead of tomorrow’s auction. Shorting JGB futures might be a direct approach to profit from the expectation that persistent inflation and government spending will raise long-term yields. Volatility will be key, especially with tonight’s wage data expected to show a growth rate of around 2.2%. Though this indicates a slight slowdown, it is still strong enough to keep the BoJ concerned, potentially causing significant movements in both the yen and JGBs. This situation suggests that option strategies designed to benefit from large price fluctuations, regardless of direction, could be advantageous. Create your live VT Markets account and start trading now.

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Germany’s 10-year bond auction yield went up from 2.67% to 2.83%. This increase shows changes in the market and how the economy is viewed, affecting bond markets. The EUR/USD is now trading below 1.1700. This is due to weak inflation numbers from the Eurozone and fluctuations in the US Dollar after the ADP report. At the same time, GBP/USD has dropped close to daily lows, sitting just under 1.3500.

Gold Prices

Gold prices have fallen to about $4,430 per troy ounce, reaching a two-day low. This drop is happening because of a slightly stronger US Dollar and decreasing US Treasury yields. In the world of cryptocurrencies, Bitcoin has fallen below $93,000 after a rally earlier this year that peaked at $94,789. Ethereum and Ripple are also experiencing ups and downs due to mixed ETF flows and uncertain market feelings. Forecasts for 2026 suggest ongoing economic changes, and it’s unlikely that the shocks from last year will just reverse. Market participants should remain cautious as these changes take shape. Aave (AAVE) is trading around $172, showing potential for a bullish breakout if it can get past its current technical resistance levels. Monitoring market trends and data closely will be essential for this breakout opportunity.

Bond Auction Warning

The recent German 10-year bond auction serves as a warning, with yields rising to 2.83%. This indicates that the bond market is anticipating higher interest rates, even though inflation numbers were softer at the end of 2025. It may be a good idea to buy medium-term call options on the Euro, hoping that it will eventually rise with the yields. In the US, the weak ADP employment report, which showed only 41,000 jobs added in December 2025, has put the US Dollar in a vulnerable spot. This creates a very low expectation for the upcoming Non-Farm Payrolls data. Another disappointing report could lead to a significant sell-off. This is an opportunity to buy put options on the US Dollar Index (DXY) as protection against a slow down in the US economy. The calm we experienced throughout 2025 seems to be coming to an end, as conflicting signals create uncertainty. This environment is perfect for increased market volatility following a quiet period. Therefore, we suggest buying derivatives that benefit from market swings, such as VIX or VSTOXX call options, to guard against sudden moves. We are also seeing traders taking profits from riskier assets, with Bitcoin retreating from nearly $95,000 and Gold dropping from $4,500. This indicates a short-term decrease in risk appetite. For traders holding these assets, selling covered calls could generate income during this potential consolidation phase. Create your live VT Markets account and start trading now.

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The Indian Rupee climbed against the US Dollar, causing the USD/INR pair to drop by nearly 0.5% to about 89.80. This increase happened after the Reserve Bank of India took steps to reduce strong movements favoring the USD/INR. After several actions in December 2025, the Reserve Bank of India intervened again in 2026 when USD/INR reached a high of 91.55. Still, ongoing trade tensions between the US and India, along with Foreign Institutional Investors selling off Indian stocks, are expected to keep pressure on the Rupee.

US-India Trade Tensions

US President Donald Trump raised tariffs on India due to its purchase of Russian oil, which already faced high tariffs of 50%. These trade tensions could lower India’s GDP by about 0.3% to 0.5% and negatively impact investor sentiment, leading to capital outflows. In 2025, Foreign Institutional Investors withdrew Rs. 3,06,418.88 crore from Indian markets. In January, selling slowed slightly to Rs. 3,122.68 crore, with sales of Rs. 143.88 crore on consecutive days. Upcoming US reports, like ADP Employment Change, ISM Services PMI, and JOLTS Job Openings, will shape expectations about the Federal Reserve’s policies. The USD/INR pair remains cautious around the key level of 90.00, with indicators suggesting potential further declines if momentum doesn’t bounce back.

RBI Intervention and Market Implications

The recent move by the Reserve Bank of India to push USD/INR below 90.00 is an important signal for the short term. This mirrors their actions from December 2025, when the pair hit 91.55, indicating a strong resistance level from the central bank. Selling out-of-the-money call options above 91.00 could be a good strategy to take advantage of this perceived upper limit. However, we can’t overlook the pressure on the Rupee from ongoing foreign investor exits, which totaled over Rs. 3 lakh crore in 2025. Combined with the trade tensions with the US, this suggests that RBI’s support may only last for a short time. This creates uncertainty, especially with vital US job data coming soon. The major factor will be the US jobs report, especially the Nonfarm Payrolls (NFP) coming this Friday. The Federal Reserve made three interest rate cuts in 2025 due to a weakening job market; any significant change in this data could prompt a strong reaction in the US Dollar. Historically, NFP results that differ by more than 50K from expected numbers have led to an average 0.4% shift in the Dollar Index in the first hour after release. Given these mixed signals, it might be wise to buy volatility before Friday’s data. A long strangle options strategy—buying both an out-of-the-money call and a put that expire in the coming weeks—could be beneficial for capitalizing on a big price movement in either direction. This would allow us to gain whether the US data strengthens the Dollar or confirms its recent weakness. Create your live VT Markets account and start trading now.

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In December, the Core Harmonized Index of Consumer Prices in the Eurozone rose to 0.3% from a previous -0.5%. This change affects currency movements, especially as markets look to upcoming US employment data. The EUR/USD is trading below 1.1700 due to a weak US Dollar and lower inflation in the Eurozone. Similarly, the GBP/USD dropped near 1.3480 after the US ADP employment data was released, reflecting a slight gain in the Greenback.

Gold Market Overview

Gold is currently at a two-day low of about $4,430 after gaining for three days. It faces resistance around $4,500. The slight rise of the US Dollar and falling US Treasury yields may limit further declines in gold prices. Cryptocurrencies like Bitcoin and Ethereum are correcting. Bitcoin has fallen below $93,000. Market sentiment is mixed, with altcoins facing challenges as ETF flows fluctuate. Looking ahead to 2026, the economic outlook appears more stable compared to the disruptions of 2025. In the crypto market, Aave (AAVE) is close to breaking out, trading around $172, offering potential opportunities for investors. The rise in Eurozone core inflation to 0.3% month-over-month marks a big change from -0.5% previously. This shift raises questions about the European Central Bank’s next steps. While one data point doesn’t set a trend, it challenges the disinflation narrative that has influenced markets since late 2025. We should expect more volatility in EUR options as the timing of any ECB rate changes becomes less predictable.

US Employment Report and Economic Outlook

This European data sharply contrasts with the US, where the recent ADP employment report indicated only 41,000 new jobs added. This weak labor data suggests that the Federal Reserve may be closer to easing than the ECB. Currently, Fed funds futures show over a 60% chance of a rate cut by the third quarter of 2026, a significant increase from a month ago. The differing policies of a more aggressive Bank of Japan and a hesitant ECB make shorting the EUR/JPY pair an attractive strategy. In 2024, early signs of normalization from the BoJ led to sustained Yen strength against currencies from central banks that had stopped raising rates. Now, traders are employing put options on EUR/JPY to prepare for a potential revisit of the lows from the fourth quarter of 2025. As the calm of 2025 fades, conflicting signals from major economies suggest we should brace for more volatile markets. The weak US jobs data is keeping US Treasury yields low, which usually supports assets like gold. However, gold is struggling to maintain its gains. This indecision indicates that traders might consider strategies that benefit from rising volatility itself, such as purchasing call options on volatility indexes ahead of the official US employment data release. Create your live VT Markets account and start trading now.

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The Eurozone’s flash Harmonized Index of Consumer Prices (HICP) rose by 2% annually in December, slightly down from November’s 2.1%. Monthly inflation increased by 0.2% after falling by 0.3% the month before. Core HICP, which excludes food, energy, alcohol, and tobacco, grew at a slower annual rate of 2.3%, down from 2.4% last month. In December, core HICP went up by 0.3% compared to the previous month.

Exchange Rate Movements

After the data release, the EUR/USD exchange rate climbed to nearly 1.1690. The Euro gained strength against major currencies, especially the Canadian Dollar. Eurostat will later release the initial Eurozone HICP data for December. It is expected that annual Eurozone HICP inflation will drop to 2.0% from November’s 2.1%. Core inflation is predicted to remain at 2.4%. If the Eurozone’s HICP data is stronger than expected, it could influence the EUR/USD pair. However, the pair is still subdued, affected by a 1.1% annual rise in Germany’s November Retail Sales, along with a 0.6% monthly decline. The US Dollar’s recovery continues to influence the EUR/USD pair, which is trading around 1.1680. Technical indicators suggest a potential bearish trend, as the pair is below the 50-day EMA, hinting at possible further downward pressure.

Economic Indicators and Market Implications

The December inflation data shows a cooling price trend in the Eurozone, with the headline rate now at the European Central Bank’s (ECB) target. Core inflation, which the ECB closely monitors, has decreased to 2.3%. This release reduces the need for the central bank to consider a more aggressive approach in the first quarter. This data supports the recent cautious statements from ECB officials, who have adopted a “wait-and-see” strategy. Unlike the aggressive tightening seen in 2023, the central bank appears comfortable keeping rates steady after a minor adjustment in late 2025. Currently, the Eurozone’s unemployment rate stands at 6.5%, which provides little urgency for swift action. On the other hand, the US economy looks stronger, with the ISM Services PMI for December coming in at a solid 53.8. This highlights the policy divergence between a cautious ECB and a Federal Reserve that may maintain higher rates for a longer time. This fundamental difference is a key factor for the Euro in the coming weeks. For derivatives traders, this situation strengthens the case for bearish positions on the EUR/USD. The pair’s technical weakness below the 50-day moving average, combined with the broader economic context, is significant. Implied volatility on three-month EUR/USD options is decreasing to 6.4%, indicating that the market does not expect any sharp upside surprises. As a result, strategies that benefit from a declining or stable EUR/USD are recommended. Buying put options or creating bear put spreads aiming for the December 2025 low of 1.1589 is appealing. Another strategy is selling out-of-the-money calls above the 1.1800 resistance level to take advantage of limited upside potential. Regarding interest rate derivatives, this inflation report is likely to temper expectations for an ECB rate hike in the first half of the year. Earlier, the market anticipated a more aggressive approach. Now, positioning for a flatter Eurozone yield curve or receiving fixed rates on interest rate swaps might be effective. Create your live VT Markets account and start trading now.

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Italy’s Consumer Price Index (CPI) for December, following EU standards, rose by 0.2% compared to the previous month, which had declined by 0.2%. The CPI tracks price changes that consumers face in Italy. This change reflects how the costs of goods and services are shifting, which affects overall economic assessments.

Why Monitoring CPI Matters

Keeping an eye on the CPI is important for understanding inflation trends in Italy. This information can impact government financial policies and guide economic strategies. As part of the larger European economy, Italy’s CPI gives a glimpse into regional conditions. While December’s 0.2% increase may seem small, it can impact various sectors like retail and manufacturing. CPI data is essential for economic forecasting and decision-making. It helps us understand consumers’ purchasing power and provides insight into the overall economic climate. In summary, the movement of Italy’s Consumer Price Index is a key indicator for tracking economic shifts. It supports planning and resource allocation, and Italy’s policies may change in response to this data.

Effects of Inflation on Markets

Italy’s consumer price data for December 2025 showed a significant change, moving from a 0.2% monthly decrease to a 0.2% increase. This shift in a leading Eurozone economy indicates that the decreasing inflation trend from last year may be slowing down, forcing us to rethink the assumption that inflation will continue to fall steadily. This data comes shortly after the preliminary estimate for Eurozone inflation in December, which was reported at 2.1%. This figure exceeded expectations and rose above the European Central Bank’s (ECB) target, creating challenges ahead of its meeting on January 22nd. As a result, the market, which expected rate cuts by mid-2026, is now reevaluating those predictions. For interest rate traders, this implies that rates may stay high longer. We see potential in trading EURIBOR futures options that could profit if the market scales back its expectations for rate cuts this year. Looking back at 2022, we can see how quickly sentiment can change when inflation data surprises the market. In foreign exchange, this unexpected inflation strengthens the Euro. We expect more market volatility, as the one-month implied volatility on EUR/USD options rose from 5.8% to 6.5% in the past week. A strategy of buying EUR call options offers a low-risk opportunity to benefit from increased Euro strength against the dollar. This situation may negatively impact European government bond prices, especially Italian bonds. Traders should consider selling BTP futures, as the gap in yields between Italian and German 10-year bonds, currently 140 basis points, is likely to widen. A larger gap indicates a heightened perception of risk for Italian bonds if the ECB is forced to keep a firm stance on rates. Create your live VT Markets account and start trading now.

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In December, Italy’s Consumer Price Index (CPI) rose by 1.2% compared to a year ago. This was a bit higher than the expected 1.1%. This number helps us understand what’s happening in the Italian economy and gives clues about inflation trends in Europe. Currency traders will keep a close eye on how this news affects the Euro. Changes in currency pairs like EUR/CHF and EUR/USD may occur as the market processes this data, along with US employment figures. There are updates on various currency pairs, highlighting EUR/JPY, which is experiencing a downturn, and GBP/USD, which is staying close to its low for the day. In the commodities market, Gold has reached a two-day low, while Bitcoin, Ethereum, and XRP have paused their gains due to mixed ETF flows. The article wraps up with insights on brokerage evaluations for 2026. It lists important factors for trading currency pairs and commodities to help traders refine their strategies. The inflation rate of 1.2% from Italy serves as a small warning. We thought inflation was going down, but this number suggests prices might be more stubborn than expected. This could lead us to rethink how quickly the European Central Bank (ECB) will cut interest rates this year. This situation in Italy matches a broader trend we saw in Europe last month. The preliminary Eurozone inflation estimate for December 2025 rose to 2.9% from 2.4% in November, breaking the cooling trend observed earlier in the year. This change indicates that futures pricing on EURIBOR might reflect fewer interest rate cuts from the ECB in the first half of 2026 than we initially thought. With uncertainty surrounding the ECB’s direction, implied volatility for the Euro is likely to increase. We might want to consider strategies like buying straddles or strangles on EUR/USD to benefit from significant price swings in either direction. This approach is particularly relevant with the upcoming US employment report, which can significantly impact currency markets. For stock markets, ongoing inflation presents challenges. A cautious ECB means higher borrowing costs for a longer period, which can squeeze corporate profits and affect stock prices. We should consider purchasing put options on the Euro Stoxx 50 index to protect against potential declines in European stocks over the next few weeks. We also need to keep an eye on Italian government bond futures. In 2025, whenever inflation concerns resurfaced, the gap between Italian and German bond yields widened. This new data could trigger a similar response, making short positions on BTP futures a potentially attractive trade. The mixed signals from central banks offer opportunities in cross-currency pairs. The Bank of Japan is hinting at a more aggressive approach, while the future of the ECB appears uncertain. This difference could increase volatility in pairs like EUR/JPY, making options a valuable tool to trade on potential sudden moves.

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Italy’s Consumer Price Index (CPI) for December matched expectations, showing a small monthly increase of 0.2%. This steady CPI indicates how Italy’s economy performed at the end of 2025. The ADP Research Institute is set to publish its December Employment Change Report. It’s expected to show that the U.S. economy added 45,000 jobs, rebounding after a loss of 32,000 in November. This important data will help us understand the future of the country’s labor market.

Financial Markets Overview

In the financial markets, Aave is priced at approximately $172. If it breaks through its current technical pattern, it might increase further. Meanwhile, gold is facing some pressure, trading below $4,500 after earlier highs. Investors are focused on upcoming U.S. employment and PMI data. The market is anxious, especially for the EUR/USD and GBP/USD currency pairs, as critical U.S. economic data is on the horizon. These figures could shape Federal Reserve policy and influence global market trends. Overall, sentiment is uncertain, with upcoming economic reports likely to affect both local and international markets. Participants should remain cautious as these indicators may increase volatility in currencies and commodities. After last year’s anticipation, the U.S. labor data for December did show a recovery. The ADP report, released on January 2nd, revealed a stronger-than-expected addition of 60,000 jobs. This was backed by the official Non-Farm Payrolls report, which showed an increase of 85,000 jobs. This confirmed that the employment decline noted in November 2025 was only temporary.

Impact on Federal Reserve Policy

This economic improvement has changed our outlook on Federal Reserve policy for the upcoming weeks. The chances of an interest rate cut in the first quarter have dropped significantly, with futures markets now indicating less than a 20% probability of such a move before April. Traders may want to adjust their positions in interest rate futures to align with a more patient Federal Reserve. The stronger U.S. Dollar has shifted key currency pairs below last month’s levels. The EUR/USD has fallen below 1.0500, while the GBP/USD is testing support around 1.2200. Options traders should be alert for potential volatility as we approach the next inflation report, which will be crucial for the dollar’s movements. Gold has reacted predictably to the stronger dollar and firm interest rate outlook, losing its early 2026 gains. It is currently trading near $4,420, significantly lower than the $4,500 level it struggled to maintain a week ago. Traders with long positions might consider buying puts to guard against a drop toward the $4,400 support level. The political situation in Venezuela continues to impact the energy sector following Nicolás Maduro’s removal last month. While our forecasts remain unchanged, this event briefly drove WTI crude oil prices above $95 per barrel, though they have since stabilized around $92. Oil derivative traders should stay hedged against sudden supply announcements from the new government. In the crypto market, Aave (AAVE) has successfully broken out of the falling channel pattern we identified in late December. The price has risen from $172 to over $195, confirming a bullish trend. Traders who purchased call options during the breakout have enjoyed significant profits, and now the focus is on maintaining this momentum. Create your live VT Markets account and start trading now.

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Eurozone Inflation Overview

Italy’s Consumer Price Index (CPI) for December is at 1.2% year-on-year, matching expectations. This stability is consistent with trends seen in other Eurozone countries, despite varying economic conditions. This CPI data could influence future decisions by the European Central Bank regarding monetary policy, as they keep an eye on inflation. Analysts will watch how this data interacts with other economic indicators throughout the year, particularly with upcoming interest rate decisions. In another development, the upcoming ADP Employment Report is generating interest, as it suggests a moderate rise in US job creation. This follows a drop in jobs last month, which could affect market sentiment and the outlook for US employment trends. Overall, Italy’s inflation data reflects broader trends in the Eurozone and sets the stage for changing economic factors in the coming months. The steady 1.2% inflation rate in Italy indicates that the European Central Bank is unlikely to change its interest rate policy soon. This reinforces the “lower for longer” interest rate environment expected to continue into 2025. For traders, this means low volatility in European government bond futures, like the Euro-Bund.

Inflationary Impact on Trading Strategies

Eurozone inflation cooled significantly in the last quarter of 2025, with the Harmonised Index of Consumer Prices settling at 2.3% in November. This stable inflation allows for trading strategies like selling options, such as strangles on the Euro Stoxx 50 index, to earn premiums. Currently, the VSTOXX index, which measures Euro Stoxx 50 volatility, is around 14.5, indicating a calm market. On the other hand, the upcoming US ADP Employment Report brings uncertainty for dollar-denominated assets. Markets reacted sharply when the November 2025 report showed just +103,000 jobs, causing a quick increase in volatility. If there’s a notable rebound, as some expect, it could lead to more aggressive actions by the Federal Reserve. Given the possibility of surprises in US job data, holding protective put options on US indices like the S&P 500 during this release is wise. The CBOE Volatility Index (VIX) has already risen to 13.8 this week, anticipating this data. The contrast between steady European data and potentially volatile US data presents unique opportunities. This difference makes trading derivatives on the EUR/USD currency pair particularly interesting right now. The calm in Europe versus the risk in the US suggests that any significant moves in the pair will likely depend on the dollar. Thus, buying options that could benefit from large fluctuations, such as a long straddle, is a smart way to prepare for upcoming volatility driven by US data. Create your live VT Markets account and start trading now.

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