Eurostoxx futures fell by 0.5% in early European trading, following a cautious mood after a drop on Wall Street.
German DAX futures decreased by 0.6%, while French CAC 40 futures fell by 0.3%. The UK FTSE futures saw a slight dip of 0.1%.
US Market Trends
US futures are also down, with S&P 500 futures sliding by 0.3% and Nasdaq futures decreasing by 0.4% for the day.
The market atmosphere is more cautious. Investors are closely watching the Jackson Hole meeting later this week, where Fed Chair Powell might avoid making strong commitments for September.
Today’s mood is defensive, indicating a lower opening for both European and US futures. This caution is building ahead of the Federal Reserve’s symposium at Jackson Hole, suggesting uncertainty in the market.
Implied volatility is rising, with the VIX index inching up towards 18 from summer lows around 13. This indicates real concern after the recent US inflation report for July 2025 showed core inflation stubbornly at 3.6%, complicating the Fed’s decisions. The market is anticipating increased instability.
Investment Strategies and Historical Context
For derivative traders, this situation makes buying protection appealing. It’s wise to consider buying puts on major indices like the S&P 500 or Eurostoxx 50 to guard against a downturn if Powell sounds more aggressive than expected. These positions can help protect portfolios from a sharp negative reaction.
We recall how Powell’s hawkish speech at Jackson Hole in 2022 led to a big market sell-off for weeks. There’s a fear of a repeat, especially if he prioritizes fighting inflation over supporting economic growth. History shows this risk should be taken seriously.
The same cautious sentiment exists across the Atlantic, where recent data revealed a surprising 1.2% drop in German factory orders last month. This weakness, along with the European Central Bank’s inflation challenges, is why German DAX futures are underperforming. Traders are using options on European indices to brace for continued regional weakness.
In the upcoming days, we expect options premiums to stay high as traders prepare for the event. This suggests that strategies benefiting from the increased cost of insurance, like selling covered calls on current stock positions, could provide income while awaiting clearer market direction. It’s a time for managing risk rather than pursuing aggressive gains.
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In July, Germany’s Producer Price Index (PPI) dropped by 0.1%. This was unexpected, as many anticipated a 0.1% rise. The data was released by Destatis on August 20, 2025.
Energy prices had a significant impact. When energy costs were excluded, producer prices actually fell by 0.2% for the month. Compared to the previous year, producer prices decreased by 1.5%, mainly due to falling energy prices.
Producer Prices Without Energy Costs
Excluding energy costs, producer prices increased by 1.0% compared to July of last year.
The surprising decline in German producer prices indicates that inflation is slowing down quicker than expected. This may reduce the pressure on the European Central Bank (ECB) to increase interest rates. This trend aligns with the recent Ifo Business Climate index, which fell to 89.5—a level not seen since late 2024. This suggests increasing pessimism. As a result, futures tied to the Euribor are likely to reflect a lower chance of further rate hikes this year.
This signal of disinflation makes German government bonds, known as Bunds, more attractive. The yields on the 10-year Bund, currently at 2.45%, are likely to come under downward pressure. We might consider purchasing call options on Bund futures, as this could profit if bond prices rise and yields fall.
Impact on the German DAX Index
For the German DAX index, this news indicates weakening demand rather than just lower input costs, which is a negative sign for corporate earnings. With industrial production figures from last week showing a 0.5% contraction, it might be wise to buy protective put options on the DAX. This would hedge against a possible market decline due to recession fears.
A less aggressive ECB stance could negatively affect the Euro, especially as the US Federal Reserve maintains a strong position. The interest rate gap is widening in favor of the US dollar, with fed funds futures indicating a 50% chance of one more American rate hike. This strengthens the outlook for the EUR/USD currency pair, which may test and possibly break below its recent support level around 1.0750.
We saw a similar situation from 2014 to 2016 when falling producer prices preceded significant ECB stimulus. The growing uncertainty between slowed growth and central bank actions could lead to higher market volatility. Therefore, it could be wise to establish long positions in VSTOXX futures or options to guard against larger market fluctuations.
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UK inflation rose to 3.8% in July, higher than the expected 3.7%. This unexpected jump supports the Bank of England’s likely decision to pause interest rate changes in September.
Financial markets already saw a 94% chance of this pause, so significant changes in investor behavior are not expected. Therefore, there’s little chance for the sterling to rise, with GBP/USD stable at 1.3490 and major option expiries noted at 1.3500.
Services Inflation and Core Inflation
Services inflation held steady at 5.2% annually in July. Meanwhile, core inflation climbed from 4.7% in June to 5.0% in July. These trends signal that the Bank of England faces persistent stagflation concerns.
The rise in July’s inflation was mainly driven by transport prices, particularly due to increased airfares during the school summer holidays. This seasonal spike heavily influenced the inflation rate.
July’s inflation figure of 3.8% was slightly above expectations and marks a significant jump from 2.1% in May 2025. However, this change does not alter our outlook on the Bank of England’s decision in September, where a pause in rate hikes is almost certain. It suggests that the rate hike cycle that began in late 2021 has likely reached its peak.
For derivative traders, this situation limits the pound’s potential for growth in the short term. The concentration of option expiries around the 1.3500 level in GBP/USD is likely to act as a stabilizing force, reducing volatility over the next few weeks. Strategies that profit from range-bound trading, like selling straddles or iron condors, may be suitable.
The Worrying Picture of Stagflation
The details of the situation paint a troubling picture of stagflation. Core services inflation is still high, while recent data shows UK GDP growth for the second quarter of 2025 at a mere 0.1%. This is similar to the weakness seen during the technical recession of late 2023. The combination of persistent inflation and nearly zero growth signals long-term weakness for the sterling once the market moves beyond the immediate central bank decisions.
We should take the headline spike from transport prices with caution, as it mainly results from seasonal airfare increases. The key concern remains the enduring core services inflation. This figure will likely prevent the Bank of England from considering rate cuts and will be essential for currency positioning in the last quarter of the year.
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On August 20, FX option expiries will take place at 10 AM New York time. Key levels to watch are EUR/USD at 1.1600 and 1.1650, as the pair has recently dropped due to a stronger dollar. These expiries may limit price changes during European trading since there are no major news events expected.
Potential Impact Of UK CPI Report
Additionally, GBP/USD expiries at the 1.3500 level are close to the 200-hour moving average of 1.3504. The upcoming UK CPI report could have an effect here. However, traders expect a 94% chance that the Bank of England will keep rates steady in September, which limits the pound’s potential movements. As a result, these expiries may cap any significant gains during the session.
We’re observing a similar trend today, where large option expiries can stabilize price action in a quiet summer market. Remembering how levels like 1.1600 in EUR/USD attracted price action in previous years is helpful for today’s context. The current focus is on the slight policy differences between the Fed and the ECB, especially with the Jackson Hole event approaching.
For EUR/USD, a large amount of options will expire at the 1.1000 strike later today, likely keeping the pair within a narrow range. The euro has struggled to gain traction after data revealed that eurozone industrial production fell by 0.5% last month, highlighting the ECB’s cautious approach. After the high volatility of 2022 and 2023, traders are using these large expiries to establish short-term trading boundaries.
In GBP/USD, there is a significant expiry at the 1.2800 level, which may act as support for now. This is following UK retail sales data from last week, which showed an unexpected 0.8% decline, impacting the pound’s outlook. Markets see only a 15% chance of a rate cut by the BOE in September, but the weak data is limiting any rallies toward 1.2900.
Strategic Use Of Options
In the coming weeks, traders should think about using options to manage risks around key data points instead of chasing breakouts. This summer slowdown, similar to markets before 2022, presents an opportunity to prepare for a potential rise in volatility as the late August Jackson Hole symposium approaches. Currently, low implied volatility makes it relatively inexpensive to buy protection for future events.
Thus, we are looking for chances to use short-dated options to navigate the range-bound trading caused by these expiries. Longer-term strategies will likely wait for clearer signals from central bank representatives next week. The key is to stay patient, as the market appears balanced until a new catalyst arises.
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The FX markets experienced significant movement as the Reserve Bank of New Zealand (RBNZ) took a dovish approach, putting pressure on the New Zealand Dollar (NZD).
Risk sentiment, which turned negative the day before, continued into the Asia-Pacific session. This affected stocks and high beta currencies while boosting safe haven currencies. The RBNZ lowered the Official Cash Rate (OCR) to 2.5% and hinted at further cuts due to worries about growth, output, and the labor market, even though inflation is expected to be higher than it was in May.
Market Reaction to RBNZ Decision
The bank’s minutes showed that some members discussed a potential 50 basis point cut, leading to an immediate drop in the NZD. The NZD/USD fell to 0.85200, its lowest level since April.
In other news, the market remained calm as focus shifted to the upcoming Jackson Hole symposium. Key events to watch for include the UK’s Consumer Price Index (CPI) early in the EU session, Europe’s final Harmonized Index of Consumer Prices (HICP) data, and the FOMC meeting minutes in the US later.
The RBNZ’s dovish shift indicates we can expect continued weakness in the NZD. Concerns about domestic growth now outweigh inflation worries for the central bank. This suggests that the best strategy is to prepare for further declines in the currency.
Given the discussion of a possible 50 basis point cut, traders might consider buying NZD/USD put options. This is a risk-defined way to profit if the pair drops below the recent 0.85200 lows observed during the Asia-Pacific session. The market expects at least two more cuts, creating a strong bearish bias.
This perspective aligns with recent economic data. New Zealand’s quarterly GDP growth has slowed to just 0.1%, and the unemployment rate has risen to 4.4%. These factors support the RBNZ’s concerns, providing a solid reason for the bank to prioritize growth over tackling an inflation rate that has already cooled to 3.5%.
Global Monetary Policy Expectations
The broader risk-off sentiment supports this trade, as high-beta currencies like the NZD usually perform poorly when investors seek safety. Pairing short NZD positions against safe havens like the Japanese Yen or the US Dollar could be wise. The nervousness in equities is a strong indicator of this type of currency shift.
All eyes are on this Friday’s Jackson Hole symposium for insights on global monetary policy. The 2022 symposium caused significant market shifts, so we must be cautious ahead of potential hawkish tones from the Federal Reserve or European Central Bank. The upcoming FOMC minutes will offer a crucial look into the Fed’s thinking.
On the flip side, the direction of the US dollar will be important. With the US core CPI stabilizing around 3.1%, the Federal Reserve faces less pressure to be aggressive. Analysts will closely examine the FOMC minutes for any signs of a shift from hawkish to more neutral stances, which could limit the dollar’s strength.
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Ethereum might be on the verge of a bullish reversal, potentially reaching new all-time highs. The OrderFlow Intel method uses AI to help traders spot market trends. Right now, the prediction score is +4 out of 10, suggesting a moderately bullish outlook.
Ethereum futures dipped to 4070, in the key watch zone of 4072–4095. Prices have since climbed past important levels like the Value Area Low at 4084 and VWAP at 4111, indicating a possible bottom. The next hurdle is the resistance level between 4188 and 4200, which sellers are actively defending.
Keeping prices above 4130 and 4119 suggests an upward trend. If Ethereum breaks through 4188–4200, potential targets could be 4209.5 and 4220–4230. On the flip side, dropping below 4130 and 4119 might lead prices back to 4095 or 4070.
Key tools like VWAP, POC, and delta analysis show buyer strength when prices stay above certain levels. OrderFlow Intel combines AI and market profile data to help traders identify important price points, offering insights into possible market movements without making exact predictions.
We are seeing a bullish setup in Ethereum, thanks to a significant low around $4070 on August 8th. Since then, prices have risen above key areas like $4119 and $4130, signaling that buyers are absorbing selling pressure. This price action supports a moderately bullish outlook for the upcoming weeks, provided these levels hold.
Recent on-chain data backs this technical view, with the total staked Ether now over 48 million ETH, reducing supply on exchanges. Additionally, positive market sentiment has grown following news that several US regional banks are beginning to offer crypto custody services to high-net-worth clients. These factors create a favorable backdrop for the price movement we’re seeing.
For derivative traders, this presents a chance to position for a potential breakout using call options. If Ethereum can hold above the key $4188–$4200 resistance zone, it could trigger more upside. Buying calls with strike prices slightly above this range, like $4250 or $4300, may offer a good risk-to-reward ratio for a move toward new highs.
The current market structure has similarities to what we saw in early 2024 before a significant price rise. Back then, a period of absorption at a crucial support level led to a multi-week rally. If history repeats itself, breaking through the resistance at $4200 could spark a similar price surge.
However, caution is essential until the $4188–$4200 level is surpassed. If the market shows strong selling volume at this level, traders might consider buying puts to protect against a decline. A decisive drop below the $4130 support level would indicate a failing bullish outlook and could bring the $4070 lows back into focus.
A practical approach could be to use bull call spreads, which limit potential losses while still allowing for upside if the breakout happens. Monitoring the behavior around the $4188–$4200 price zone is crucial in the coming weeks; this level will likely determine if we are gearing up for a new rally or just a short-term bounce.
Stocks have dropped, benefiting the dollar. Wall Street faced a downturn, especially in tech stocks and small companies, stopping the recent upward trend as investors wait for news later in the week.
The Nasdaq fell by 1.5%, erasing last week’s gains and dropping below its 100-hour moving average of 21,333, but staying above the 200-hour moving average of 21,123. It hasn’t been below both levels since April.
Market Anticipation
As the week progresses, market sentiment is cautious. S&P 500 futures decreased by 0.3%, Nasdaq futures dropped by 0.4%, and Dow futures fell by 0.2%, after a flat close in the previous trading session.
European stocks are taking a defensive approach, with Eurostoxx and DAX futures both down by 0.6% as they prepare for today’s trading. In the foreign exchange market, the dollar remains stable, with minor fluctuations except for a drop in the New Zealand dollar due to a more dovish stance from the RBNZ.
Important events today include the UK CPI and Fed minutes, but everyone is watching for Fed Chair Powell’s speech at Jackson Hole.
With caution settling in, we see signs that the recent upward momentum is slowing down. The Nasdaq falling below its 100-hour moving average signals a technical warning. This suggests that in the coming weeks, we should think about hedging long positions or bracing for a possible downturn.
Fed’s Stance and Market Reaction
Market jitters are understandable, as new US CPI data showed inflation rose to 3.4%, slightly above expectations. This adds pressure on the Federal Reserve, making Chair Powell’s upcoming speech at Jackson Hole crucial for market direction. We are preparing for the possibility that he may indicate a “higher for longer” approach to interest rates.
Due to this uncertainty, implied volatility is increasing, with the VIX rising to 19.5, its highest in three months. This situation is perfect for strategies that benefit from large price changes, like buying straddles or strangles on indices such as the SPX. These strategies can profit whether the market moves sharply up or down after the Fed’s announcement.
For those with significant tech investments, the Nasdaq’s decline is concerning. We are purchasing put options on the QQQ ETF as a direct hedge against further drops in tech stocks, which provides clear downside protection if the market reacts negatively to Powell’s remarks.
The dollar’s strength is another noteworthy trend, serving as a safe haven during market uncertainty. We are considering call options on dollar-tracking ETFs like UUP to take advantage of the ongoing risk-off sentiment. A hawkish tone from the Fed could speed up this trend.
We recall how Chair Powell’s brief and straightforward speech in August 2022 led to a sharp market sell-off by reaffirming the Fed’s commitment to fighting inflation. The memory of that event keeps us cautious. We believe it’s wise to prepare for a similar reaction this time.
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Ahead of the UK CPI data, we have the implied volatility support and resistance levels for several GBP pairs.
For GBPUSD, the resistance is at 1.3540, and the support is at 1.3430. For EURGBP, resistance is at 0.8650 and support at 0.8600. GBPJPY has its resistance at 200.00 and support at 198.00.
Short Term Exhaustion
GBPNZD shows resistance at 2.2945 and support at 2.2810. After the RBNZ announcement, GBPNZD is trading above the third standard deviation implied volatility high, indicating caution for short-term exhaustion as the pair may continue to rise.
These levels are based on 1-month implied volatility, providing market-driven support and resistance. By pairing these levels with technical analysis tools, traders can better determine entry, take-profit, or stop-loss points.
Implied volatility offers an objective price range that enhances subjective technical analysis. This helps traders create a detailed strategy when assessing GBP pairs in light of economic data releases like the UK CPI.
Market Reaction
With the UK’s July inflation data now out, the market has reacted to the unexpected figure. The Consumer Price Index came in at 2.3%, a bit above the expected 2.1%. This surprise has sparked speculation about the Bank of England’s future actions and has pushed the pound beyond some previous price expectations.
For GBPUSD, the pair moved past the 1.3540 resistance level following the news. Prices are now stabilizing around 1.3580, indicating that traders expect a more hawkish Bank of England in contrast to a neutral US Federal Reserve. This policy divergence hasn’t been as pronounced since late 2023, presenting new opportunities.
Derivative traders should be aware that implied volatility may remain high leading up to the Bank of England’s September meeting. The market is now estimating nearly a 50% chance of a rate hike, a marked increase from last week. This situation makes strategies like buying straddles or strangles appealing, as they can profit from significant price moves regardless of direction.
For GBPJPY, the pair is nearing its 200.00 resistance level. This strength reflects the widening interest rate gap between the UK and Japan. We remember the sharp uptrends this pair experienced in 2023 under similar circumstances, suggesting further increases could happen if the BoE remains hawkish.
The main point for the coming weeks is that the established volatility ranges are resetting. Old resistance levels, such as 1.3540 for GBPUSD, should now be seen as potential support zones during dips. Using these data-driven levels for setting entries or stop-losses is a smart approach.
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US Treasury Secretary Bessent believes that stablecoins will become an important source of demand for US government bonds in the future. This optimism is connected to the US government’s efforts to increase demand for Treasuries, especially as new government debt continues to be issued.
Bessent is in talks with major stablecoin companies like Tether and Circle. The discussions are about ways to boost sales of short-term Treasury bills, making stablecoins a reliable avenue for new demand for Treasuries.
Concerns About Demand for US Debt
Sources say that Treasury officials have voiced growing worries about the demand for US debt. This concern has emerged in recent conversations with the financial sector.
For full details, see the complete report.
The Treasury Secretary’s focus on stablecoins addresses concerns about who will purchase all this US debt. These developments might indicate shifts in the short end of the yield curve, which could affect futures contracts for 2-year and 5-year notes. A new, significant buyer entering the market could lower short-term yields.
These worries are justified, evident from last week’s 2-year note auction, which had a bid-to-cover ratio of only 2.3. This was the weakest demand since the debt ceiling talks in 2023 and helps explain why the MOVE index, which measures bond market volatility, has risen above 115. Traders should expect ongoing volatility in interest rate-sensitive instruments until future demand becomes clearer.
Stablecoins Seeking Regulatory Approval
Engaging with stablecoin issuers is a logical and innovative response given the size of that market. The total market value of dollar-pegged stablecoins has grown to over $250 billion this year, a significant increase from about $160 billion a year ago in mid-2024. This substantial pool of capital is mainly invested in short-term government securities and cash equivalents.
For the crypto industry, this shift signals strong regulatory acceptance from the highest government levels. This implicit approval could encourage trading in long-dated call options on Bitcoin and Ethereum futures. Over time, this might also help reduce the extreme implied volatility typically associated with crypto derivatives.
The effect on the US dollar, however, is less clear and presents an intriguing opportunity for currency traders. If this initiative successfully boosts demand for US debt, it would support the dollar. But, if the market interprets it as a sign of desperation, it could harm the dollar. This makes options strategies that benefit from significant moves in either direction on the Dollar Index (DXY) especially relevant in the coming weeks.
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Bessent is changing its strategy for issuing Treasury securities, focusing more on short-term bills. They expect stablecoins to become significant buyers of U.S. government debt. This shift stems from the belief that stablecoins will boost demand for U.S. Treasuries, especially short-term bills.
With the new July ‘Genius Act’, stablecoins must be supported by highly secure, liquid assets like Treasury bills. This law is likely to promote stablecoin growth and, in turn, increase interest in short-dated Treasuries. However, the total issuance will still consider general market feedback.
Stablecoins’ Role in the Treasury Market
Stablecoins strive to keep a $1 value by investing in high-quality short-term debt. Currently, the stablecoin market is about $250 billion, while the Treasury market is around $29 trillion. Bessent informed Congress that the stablecoin market could grow to about $2 trillion in the next few years.
Since January, the Treasury has been more involved in the market, expressing greater concern about the demand for debt. Stablecoins are expected to play a crucial role in meeting this demand, aligning with the Treasury’s overall market strategy.
We should expect a drop in front-end yields as Treasury tailors its issuance to attract this new major buyer. This strategy will create a steady, price-insensitive demand for T-bills from the expanding stablecoin market. The primary outcome will be a stabilizing effect on short-term rates, even amid varying market pressures.
This anticipated demand is already evident in the numbers. The stablecoin market cap has risen to over $340 billion as of August 15, 2025, marking a nearly 40% increase since the “Genius Act” was enacted last year. This growth is reflected in auction outcomes, with the bid-to-cover ratio for the 3-month bill on August 18, 2025, reaching 3.4, significantly above the 2.9 average from the first half of the year.
Impact on Yield Curve and Strategies
The clearest strategy here is to create a yield curve flattener, likely by going long on 2-year Treasury note futures (ZT) while shorting 10-year note futures (ZN). This approach will benefit as the strong demand for bills keeps short-term yields low compared to long-term ones. We predict the 2s/10s spread, currently at 45 basis points, will narrow sharply soon.
Additionally, we can position ourselves for lower-than-expected policy rates using Secured Overnight Financing Rate (SOFR) futures. Market expectations currently show a 65% chance of another Fed rate hike by November 2025, aimed at addressing ongoing wage inflation. However, the significant new demand for bills could do some of the Fed’s work for them, which may lead the central bank to pause.
This situation resembles a targeted, private-sector version of the quantitative easing programs from the 2010s. Back then, consistent central bank purchases reduced bond market volatility. We might see a similar trend now, which could make selling volatility on short-term rate options appealing, though it carries risks.
The main risk here is if stablecoin growth falls short of the Treasury’s ambitious $2 trillion target or if inflation rises unexpectedly. A sharp increase in core CPI would force the Fed to raise rates aggressively, potentially outpacing stablecoin demand. Therefore, we must closely monitor upcoming inflation reports for any signs of a rebound.
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