Chicago PMI for the United States reports 43.5, exceeding expectations of 39.5
The Chicago Purchasing Managers’ Index (PMI) for December was 43.5, which is better than the expected 39.5. This indicates that the manufacturing sector in the region is performing better than anticipated.
The PMI is an important measure of economic activity. A higher PMI means stronger manufacturing output. This improvement can affect various economic decisions and future market strategies.
Société Générale: USD is overpriced compared to other currencies, facing emerging risks in GBP/AUD
Purchasing power parity reveals that the US Dollar (USD) is still overvalued compared to other major currencies, even though the Euro (EUR) has gained 14% this year, and the British Pound (GBP) and Australian Dollar (AUD) have risen by 8%. In contrast, the Chinese Yuan has increased by 4%. Back in 2008, the USD was undervalued against most currencies except the Yuan.
Attention is particularly focused on GBP/AUD due to interest rate differences, especially with the Bank of England expected to cut rates in 2026.
How Commodity Prices Affect Currencies
Commodity prices and pressure from Chinese authorities might influence currency positions, indicating limited potential for GBP/AUD. The FXStreet Insights Team offers expert analysis on market movements, currency trends, and economic indicators. Related topics include struggles in various sectors impacting the DOW, steady movements in EUR/USD, and trends in AUD/USD. Editors have noted how holiday market conditions are affecting GBP/USD and discussed recent changes in gold prices due to margin adjustments. Looking ahead to 2026, the economic environment may support positive performance after a volatile 2025 shaped by regulatory changes, digital assets, and technological growth. Readers are advised to conduct their own research before making financial decisions, as market investments involve risk. As we approach the end of 2025, the USD remains expensive against most currencies, according to purchasing power parity. Despite the euro rising 14% and the pound by 8% this year, the dollar’s premium persists. This long-term overvaluation suggests limited potential for further gains.The Impact of Inflation and Interest Rates
Recent data backs this outlook, with US inflation for November 2025 reported at 2.8%, leading the Federal Reserve to maintain its position for now. This strong inflation keeps the dollar’s high valuation intact but leaves it vulnerable as other economies’ conditions change. The GBP/AUD pair looks especially interesting in the coming weeks. It has approached the 2.00 level, largely due to higher UK interest rates. However, this support now seems fragile as we move into 2026. In the UK, inflation has decreased faster than expected, with the November 2025 figure dropping to 2.5%. This situation puts pressure on the Bank of England to cut rates early in the new year. Markets are anticipating at least two rate cuts before July 2026, which could weaken the pound. On the other hand, Australia’s economy shows stronger inflation trends, with commodity prices, like iron ore, providing support. Consequently, the Reserve Bank of Australia is expected to keep its rates steady longer than the Bank of England. This divergence in monetary policy should benefit the Australian dollar. For derivative traders, this setup suggests a strategy of shorting GBP/AUD in the upcoming weeks, taking advantage of the weakening 2-year rate differential between the UK and Australia. Additionally, buying put options on GBP/AUD could be a good way to profit from a potential decline as the market prices in expected rate cuts from the Bank of England. Create your live VT Markets account and start trading now.As the year ends, BNY’s economists notice that investors are reducing their exposure to the US equity market.
Investors are pulling back from US stocks, according to BNY economists. In 2025, US portfolio weightings dropped from 68% to just over 64%.
Europe had its best performance in late Q1 and early Q2. This improvement was due to moving away from the dollar after the ‘Liberation Day’ tariffs. European investments rose to over 11% of portfolios, but they have since decreased. Nonetheless, they remain higher than at the start of the year, indicating ongoing support for reinvesting in Europe.
Emerging Markets and FX Gains
While US and Eurozone markets finished the year lower, emerging markets gained strength. This trend is likely to continue into 2026. Although investments in these markets are lighter, it doesn’t mean a significant cut in investments in developed markets. However, FX gains might be limited because yield differences favor higher hedge ratios, and pressures on export competitiveness could limit appreciation. As large investors cut their US equity exposure from 68% to 64% of their portfolios, it might be wise to consider downside protection. Buying put options on the S&P 500 or Nasdaq 100 indices for February 2026 could help guard against a drop early in the year. This cautious approach is backed by the recent preliminary US Q4 GDP figures, which showed a growth of 1.9%, falling short of the 2.2% expected and raising concerns about a slowdown. This uncertainty is visible in the derivatives market, where the VIX rose to 17.5 after spending much of Q4 below 15. For traders who think the market may stay flat or decline, selling out-of-the-money call spreads on major US indices could be a good strategy for generating income. This aligns with the trend of investors using recent market strength as a chance to sell, as evidenced by $15 billion in net outflows from US stock ETFs this month. In Europe, where holdings have softened from Q2 highs, the initial excitement from the post-Liberation Day tariff shifts appears to be stabilizing. Although confidence has waned, holdings still sit above early 2025 levels, indicating a neutral stance rather than a bearish one. Implementing collar strategies—buying a protective put and selling a call against a long position—on European indices could help secure some of this year’s gains while sacrificing some upside.Emerging Markets Opportunities
The shift toward emerging markets offers a strong opportunity in the coming weeks, similar to the 2003-2007 period when a weaker dollar spurred a multi-year rally in these markets. With positioning still light, there’s room for ongoing momentum into early 2026. This perspective is supported by robust Manufacturing PMI data from countries like India, which recently recorded a figure of 58.5, while the US ISM index has struggled to stay above 50. We suggest considering long positions through call options on broad emerging market ETFs to take advantage of potential upside with controlled risk. Addressing currency risk is crucial, as yield differences still favor the dollar. Traders might want to hedge their currency exposure by shorting emerging market currency futures against their long equity positions to isolate their focus on stock performance. Create your live VT Markets account and start trading now.US housing price index exceeds expectations with a 0.4% increase instead of 0.1%
In October, the U.S. Housing Price Index increased by 0.4%, much higher than the expected 0.1%. This change shows a strong trend in the housing market, with the actual rise being four times larger than anticipated.
Several financial market events are happening alongside this news. The Dow Jones Industrial Average dipped slightly during the holiday season. At the same time, currency pairs like NZD/USD and GBP/USD are fluctuating due to factors such as global tensions and shifting policy expectations.
Expectations For The Economy
Economists have solid expectations for advanced countries in 2026-2027. Influential factors from 2025 are expected to continue impacting economic performance in 2026. Discussions about the crypto market for 2026 are also underway, following a year of volatility and optimism for growth due to regulatory changes and technological progress. A trading guide for 2025 identifies top brokers based on various criteria. It specifically highlights options for cost-conscious traders, gold trading, and regional selections, detailing the pros and cons of different brokers. It’s essential for investors to do thorough research and understand the risks involved. All investments in financial markets come with the risk of loss. Due to low trading volumes during the holidays, markets are moving sideways as we approach the New Year. The biggest news this week was the U.S. Housing Price Index for October, which significantly exceeded expectations at 0.4%. This indicates that underlying inflation may be more persistent than many anticipated as we move toward 2026. This housing information conflicts with what the market expects from the Federal Reserve. In 2025, we noticed a strong housing trend, with the S&P Case-Shiller Index showing year-over-year increases of more than 5%, even with higher borrowing costs. In contrast, the derivatives market, specifically the CME FedWatch Tool, is suggesting several interest rate cuts for 2026.A Disconnect In Market Expectations
This disconnect makes the upcoming Fed minutes from the December meeting crucial. We need to keep an eye on interest rate futures, as a strict approach in those minutes could quickly change expectations for rate cuts. Any indication of persistent inflation related to the housing market may lead to significant market shifts. This uncertainty also creates opportunities in foreign exchange options, especially with differing stances from central banks. The Reserve Bank of Australia has taken a strict view, while the Bank of England is approaching easing cautiously. If the Fed takes a surprisingly firm stance, this could strengthen the U.S. Dollar, making put options on GBP/USD appealing, while call options on AUD/USD could be worthwhile if the Fed indicates a pivot sooner than expected. We should also consider volatility in the weeks ahead. The CBOE Volatility Index (VIX) is currently low, trading near multi-year lows around 13 during this holiday season. This suggests options are relatively inexpensive, providing a cost-effective way to prepare for market surprises in early January when trading volumes return to normal. Create your live VT Markets account and start trading now.In October, US home price indices exceeded forecasts, increasing by 1.3% year-on-year.
The S&P/Case-Shiller Home Price Indices in the United States reported a 1.3% increase in home prices for October, exceeding the expected 1.1%. This shows a stronger performance in the housing market than anticipated.
Market Developments
Recent economic updates highlight fluctuations in the Dow Jones Industrial Average, primarily due to the holiday slowdown. Currency movements are influenced by various factors, like tensions in Taiwan affecting the NZD/USD pair and uncertainty from the Federal Reserve impacting currencies like GBP/USD and AUD/USD. The gold market is seeing ups and downs as prices aim to recover after a significant decline caused by higher margin requirements from the Chicago Mercantile Exchange Group. In the cryptocurrency world, Tron Inc. is experiencing investment activity, as Justin Sun invests $18 million, helping stabilize Tron (TRX) above $0.2800. Looking ahead, the economic outlook for advanced countries in 2026-2027 is positive, expecting a strong year after global resilience in 2025. The crypto market also anticipates growth amid regulatory changes and increased technology adoption, according to updates from the FXStreet team. The recent S&P/Case-Shiller report highlighted a 1.3% year-over-year rise in home prices for October, beating expectations of 1.1%. This aligns with last week’s National Association of Realtors data, which showed a slight 0.7% increase in existing home sales for November 2025, hinting that the housing market might be stabilizing. Derivative traders should note this as a potential indicator for increased volatility in homebuilder ETFs, as the market remains unsure if this trend will carry into 2026.Trading Conditions
Holiday trading conditions are evident, with major currency pairs like EUR/USD and GBP/USD showing little movement. This quiet market could be an opportunity to prepare for the new year, especially with the Federal Reserve’s December minutes set to be released soon. The November 2025 core inflation rate remained steady at 2.8%, leading futures markets to now only price a 20% chance of a Fed rate cut in March 2026, a significant drop from the 50% chance seen two months ago. Some view the US Dollar as overvalued against other currencies, yet it remains strong amid global uncertainties. The Australian dollar, however, is gaining momentum, influenced by the Reserve Bank of Australia’s hawkish stance. This creates opportunities for pair trades, such as going long on AUD/USD, potentially using options to mitigate risks while waiting for clearer guidance on Fed policy. Gold prices are trying to recover to $4,400 an ounce after a notable decline. This drop was caused by increased margin requirements for futures, a scenario we previously witnessed during the bull runs of 2011 and 2020, often preceding further rallies. With this historical context, traders might consider call options on gold miners or bull call spreads to capitalize on a potential rebound. Create your live VT Markets account and start trading now.The Redbook Index in the United States increased to 7.6% year-on-year, rising from 7.2%
The United States Redbook Index, which tracks sales growth year-over-year, reached 7.6% on December 26. This is an improvement from the earlier figure of 7.2%.
Redbook Index Growth
The Redbook Index for the last week of December 2025 shows a rise to 7.6%. This means consumer spending was stronger than expected during the busy holiday shopping period. These numbers hint at a healthy economic outlook as we move into the new year. Strong consumer spending could lead to positive sentiment for stocks in the consumer discretionary and retail sectors. Traders might want to look into short-term call options on retail-focused ETFs, as this kind of data often predicts solid sales reports and positive surprises in earnings. This trend is backed by the final University of Michigan consumer sentiment survey for December 2025, which recorded a six-month high of 71.2, reflecting improved consumer confidence. However, high spending levels might raise concerns about inflation and could delay any expected interest rate cuts from the Federal Reserve in 2026. The CME FedWatch Tool now indicates that the market sees only a 45% chance of a rate cut by June 2026, a drop from 60% last month. This could lead to increased pressure on Treasury yields, making put options on bond futures a potentially interesting strategy for hedging or speculation.Comparison to Early 2023
We can compare this situation to early 2023 when strong consumer data postponed a shift in Fed policy. Back then, while the stock market initially reacted positively, concerns about interest rates became more important over time. Traders should keep an eye on the upcoming Consumer Price Index data for December 2025 to confirm any inflation trends. Create your live VT Markets account and start trading now.Market trends stay steady in Q1 2026, with increased sensitivity as past concerns are addressed.
Inflation is stable, the Federal Reserve isn’t aggressively tightening policies, and worries about a recession have eased in Q1 2026.
What remains unclear is how much growth we will see, how patient policies will be, and how markets will react once we account for relief.
Market Transitions and Optimism
We are currently focusing on changes in the market rather than trying to find its peak. We’re looking at realistic optimism and spotting new risks. The big picture has shifted from preventing a crisis to observing secondary effects, with specific attention on a possible reversal in the yen carry trade. Concerns about this situation may be exaggerated since there are no strong signs of a major unwind. The price movements show cautious optimism, while there is increased sensitivity to funding risks that haven’t yet shown up. Japanese bond yields are rising, reaching levels not seen in over a decade. This change moves beyond previous yield suppression, making borrowing in yen more expensive. Traders are paying close attention to this shift. However, history suggests that destabilization only happens with rapid and chaotic yield changes, especially concerning US yields.Risk Sensitivity and Market Participation
This situation doesn’t indicate an immediate crisis. Instead, it shows a lower tolerance for excessive borrowing, with adjustments in risk-taking happening before any potential unwind. This suggests a careful yet optimistic approach, where participation is reasonable but requires vigilance. As we move into early 2026, the environment seems to support a cautiously positive view on risk assets. The Federal Reserve kept interest rates steady in December 2025, and core inflation has moderated to 2.8%, meaning the toughest challenges are possibly behind us. Derivative traders might consider strategies that take advantage of continued, yet measured, growth in equity indices. However, a key risk is quietly growing around a possible unwind of the yen carry trade. The Japanese 10-year government bond yield has reached 1.25%, which is a level not seen in more than ten years, gradually increasing the cost of global trade funding. While this isn’t a crisis yet, it signals that the market is becoming more sensitive to changes in global funding conditions. Given this, buying protective put options on the S&P 500 or Nasdaq 100 for late Q1 2026 is a smart move. The VIX index is currently around a low 14, making insurance cheaper compared to previous years of uncertainty. This strategy allows traders to remain invested while protecting against sudden market drops if funding stress arises. To maintain positive market exposure, we suggest using bull call spreads instead of outright buying calls. This method clearly defines your risk and reduces entry costs. It reflects the belief that while the trend is good, large, unrestrained gains are less likely. This allows traders to participate in an ongoing rally without excessive exposure to rising volatility. Traders should also use derivatives on the USD/JPY currency pair as a key indicator of equity market risk. We’ve observed the yen strengthening through the latter part of 2025, and a quick acceleration of this trend could indicate a carry trade unwind is starting. Using options to position for further yen strength could directly hedge against this macro risk. Create your live VT Markets account and start trading now.Amid ongoing geopolitical tensions, WTI US oil rises to about $58.20, up by 0.90%
Concerns About Production Increases
There is growing worry about oversupply in the oil market. OPEC+ plans to raise production by 137,000 barrels per day beginning in December. If demand decreases, this increase could lead to even greater oversupply fears. The market is also anticipating the upcoming US Crude Oil stockpiles report from the American Petroleum Institute (API) to better understand demand trends. Changes in inventory can indicate shifts in supply and demand, which can impact oil prices. West Texas Intermediate (WTI) Oil is an important benchmark in the global oil market, recognized for its “light” and “sweet” qualities. Several factors influence its price, including global economic conditions, political unrest, OPEC’s decisions, and the US Dollar’s value. Inventory reports and OPEC’s actions play a significant role in WTI pricing. Looking back, WTI crude was priced at $58.20 during a different market environment. Today, as oil trades around $84.15 a barrel, the geopolitical risk premium has become a constant factor. Traders should expect volatility, as ongoing tensions result in unpredictable price changes.Geopolitical Factors Affecting Oil Prices
The war in Ukraine has transitioned from hopes for a quick solution to a prolonged conflict that endangers vital energy resources. Recently, drone strikes on Black Sea port facilities caused WTI prices to jump over 3% in a single day. This trend suggests that traders might benefit from buying call options or bull call spreads if tensions escalate. While US-Iran relations were once the main focus, we are now also concerned about instability in other Middle Eastern countries, adding more uncertainty to supply. OPEC+ is now facing a tighter market. Their important meeting in January 2026 could lead to significant price fluctuations due to internal debates about whether to continue with production cuts. On the demand front, inventory data is crucial. Last week’s EIA report showed an unexpected draw of 3.1 million barrels, much higher than the 1.5 million expected, providing short-term support for prices. However, this is tempered by continued inflation in the US, which was at 3.5% according to the latest CPI report, and mixed manufacturing data from China that hints at a possible slowdown in global demand for 2026. Given these mixed signals—positive supply risks versus negative demand concerns—we believe the market is set for sharp price movements in either direction. This environment is not ideal for straightforward directional bets and favors strategies that take advantage of volatility. We are considering straddles and strangles on WTI futures, especially around critical levels like the $82 support and $87 resistance, to profit from expected price fluctuations in the first quarter of 2026. Create your live VT Markets account and start trading now.Elliott Wave analysis shows a rally in impulse structure on SPY’s hourly charts following a low.
The analysis looks at the 1-hour Elliott Wave Charts of SPY starting from November 21, 2025. The rally formed an impulse structure, indicating potential for higher prices. Members were advised not to sell and to think about buying during dips of 3, 7, or 11 swings in specific areas known as blue box zones.
On December 17, 2025, the chart showed a pullback in wave ((ii)), ending in a zigzag pattern. Buyers were expected to step in at lower levels, creating chances for a rebound. By December 30, 2025, SPY reacted positively after the pullback within the blue box area, setting up a risk-free position and reaching new highs between $712.96 and $722.81. Investors were looking for profit-taking and further pullbacks in 3, 7, or 11 swings.
Disclaimer and Risks
This document is from the Elliott Wave Forecast Team and includes a disclaimer about the risks of market investments. It advises doing thorough research and indicates that no personalized recommendations are provided. The author is not responsible for the accuracy or timeliness of the information. The recent dip in SPY was expected as part of a larger upward trend. This pullback reached the projected bottom in the $673-$649 zone. The following rally confirms this was a classic buying opportunity as the main trend continues upward. This technical strength aligns with favorable market conditions as the year comes to a close. Historically, the “Santa Claus Rally” period often boosts stocks, a trend seen in over 78% of years since 1950. The latest CPI figures from December 2025 show core inflation easing to 2.8%, prompting market sentiment to lean towards the Federal Reserve keeping rates steady in their January 2026 meeting.Market Outlook and Strategy
Based on this outlook, we believe traders should prepare for further upside into early 2026. Consider buying call options with expiration dates in late January or February to take advantage of the expected move toward the $712 target. Selling out-of-the-money put spreads is another way to express this bullish outlook while earning premium. As the price approaches the $712 – $722 target, it may be wise to take profits since the analysis indicates that another pullback is likely. The CBOE Volatility Index (VIX) has been near yearly lows around 14, making long-option strategies more affordable for now. We will keep an eye out for the next corrective pattern after this upward move completes. Create your live VT Markets account and start trading now.The Royal Bank of Canada expects its stock price to rise to 187.25 or higher.
Royal Bank of Canada, known as RY on the NYSE, operates globally across various financial services. The bank expects its stock price to rise to $187.25 or higher, starting from a low point in April 2025.
Since the low in March 2020, we’ve seen significant changes. The stock reached a high of $119.41 in January 2022 and dropped to $77.90 in October 2023. Recently, after ending at $106.10 in April 2025, the stock has shown positive movement.
After holding steady in April 2025, the stock is climbing towards $134.26. During this phase, it broke through important price channels and reached $149.26 in the initial wave. The forecast shows further growth into the $165.02 to $178.54 range, with a brief pause before continuing upward.
Overall, the stock is expected to rise to $187.25, comprising nine rally phases. After this climb, a corrective phase will offer new buying opportunities. Pullbacks in three, seven, or eleven swings are good chances for investors to buy, helping ensure ongoing growth.
Looking ahead to the end of 2025, the outlook for Royal Bank of Canada (RY) is very positive as we enter the new year. We expect the stock’s rally, which began in April 2025, to continue, with a clear target of $187.25 or more. This optimistic forecast is backed by the resilience of the Canadian banking sector, which saw nearly an 8% year-over-year revenue growth in the third quarter of 2025.
For those trading derivatives, any short-term weakness should be viewed as a great buying opportunity. It’s wise to sell cash-secured puts on dips to earn premiums or use bull put spreads below recent support levels, like $143. This strategy aligns with the strong performance following the company’s Q4 2025 earnings report, which exceeded expectations due to growth in its wealth management division.
The stock’s reliable dividend, consistently paid for over 150 years, adds security to bullish investments. With a current dividend yield around 3.8%, owning shares through a put option makes sense for long-term investors. This steady return helps stabilize the stock during minor pullbacks.
Reflecting on the trends as we near the end of 2025, the major lows from March 2020 and October 2023 created a strong foundation for this upward trend. The current rally is part of a larger cycle, suggesting that today’s momentum is likely to be sustained.
We foresee a move into the $165.02—$178.54 range soon, before a significant correction. Implied volatility for RY options has recently dipped to a 52-week low of 16%. This makes long calls or call spreads an effective way to position for the expected upside. We recommend using any pullbacks in the upcoming weeks to establish bullish positions, as long as the momentum remains strong.
