The USD/CHF pair has risen to about 0.7915, despite a bearish outlook due to expected interest rate cuts by the Fed. The pair climbed from a three-month low of 0.7860, even though the Federal Reserve is predicted to lower rates by at least 50 basis points in 2026. According to the CME FedWatch tool, there is a 73.3% chance this rate cut will occur. The Fed predicts the Federal Funds Rate will hit 3.4% by the end of 2026. Leadership changes at the Fed may also push for a more aggressive easing policy in 2026.

Swiss Franc Movement

At the start of the week, the Swiss Franc has slightly decreased. The USD/CHF pair trades higher near 0.7915, close to its low of 0.7830 from three months ago. The 20-day Exponential Moving Average (EMA) at 0.7966 is providing resistance, making it hard for prices to rebound. The 14-day Relative Strength Index (RSI) is at 31, indicating weak momentum. If prices stay under the 20-day EMA, bearish momentum will continue. A close below the September 17 low of 0.7830 could add more pressure to the downside. The current rise in USD/CHF toward 0.7900 appears to be a small correction within a larger downtrend. The Fed’s dovish approach is the main influence, with strong expectations for significant rate cuts in 2026. This situation makes it difficult to be optimistic about the US Dollar compared to the Swiss Franc. The Fed’s stance is supported by the latest US Personal Consumption Expenditures (PCE) data from November 2025, showing an annual rate of 2.6%, which is comfortably within range. This data backs the market’s belief in over a 70% chance of at least 50 basis points in cuts next year. Meanwhile, the Swiss National Bank, one of the first central banks to cut rates back in 2024, now faces less pressure to ease aggressively.

Derivatives Trading Strategies

For those trading derivatives, this suggests strategies that profit from a falling or stable USD/CHF price. Consider buying put options or setting up bear call spreads, using the 20-day EMA around 0.7966 as a key resistance level for your strike prices. The low trading volume typical of the year’s end might offer good premiums, but be wary of sudden price shifts. A consistent break below the September 2025 low of 0.7830 would confirm the bearish trend and could lead to further declines. While the RSI is close to oversold at 31, hinting at possible short-term bounce opportunities, any strength is likely just a chance to sell as long as we stay below that key average. This weak momentum strengthens our bearish outlook as we enter the first weeks of 2026. Create your live VT Markets account and start trading now.

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The EUR/GBP currency pair began the week slightly down, trading at about 0.8715 on Monday. The Pound Sterling is supported by expectations of gradual interest rate cuts from the Bank of England (BoE). Meanwhile, the Euro’s decline is limited due to the nearing end of the European Central Bank’s (ECB) rate-cutting cycle. BoE Governor Andrew Bailey recently said that future interest rate cuts will be small, leaving limited room for further reductions. UK inflation dropped to 3.2% in November, still above the BoE’s target of 2%. Additionally, GDP grew by 0.1% in the third quarter, which matches forecasts.

ECB’s Monetary Policy Outlook

In contrast, the ECB has maintained steady rates, suggesting that major cuts may be over. Money markets show there is less than a 10% chance of a 25-basis-point cut by the ECB in February, indicating potential stability for the Euro in the short term. As New Year celebrations approach, trading conditions are likely to remain stable due to lower market liquidity. The EUR/GBP pair might hold steady, supported by a consistent Eurozone monetary policy and the BoE’s cautious easing. Considering the current situation, we expect the Pound Sterling to stay strong since the BoE is likely to cut interest rates only gradually in 2026. Recent data shows UK core inflation at 4.1% in November, considerably above the 2% target. The Bank’s careful strategy, having recently reduced the policy rate to 3.75%, indicates they are still addressing inflation. The Euro is also seeing support from the idea that the ECB may have finished its rate-cutting cycle for now. The latest Eurostat estimate showed Eurozone inflation steady at 2.4% in December 2025, giving the ECB reason to pause and evaluate. Thus, money markets are pricing in less than a 10% chance of a rate cut in February 2026, which helps bolster the Euro.

Trading Environment and Strategies

For derivative traders, the low trading volume as we head into the New Year suggests a period of low volatility for EUR/GBP. The one-month implied volatility for the pair has dipped to about 4.8%, indicating expectations for calm market conditions. This scenario could make short-range strategies, like selling strangles with strikes outside of an expected 0.8680-0.8750 range, attractive for the first week of January 2026. However, the underlying pressures favor the Pound, suggesting a slow decline in the EUR/GBP pair. In the options market, one-month risk reversals show a slight advantage for GBP calls against the Euro, indicating a subtle preference for Sterling strength. Traders may consider buying puts on EUR/GBP or setting up bearish call spreads to position for a decline towards the 0.8650 level in the upcoming weeks. This perspective is reinforced by positioning data from the week ending December 23, 2025, which revealed a slight increase in speculative net-long positions on Sterling. This indicates that traders are growing more confident in the Pound’s strength. Therefore, any short-term rallies in EUR/GBP could be viewed as chances to establish positions that profit from a stronger Pound in early 2026. Create your live VT Markets account and start trading now.

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The Pound Sterling is stable against major currencies, trading around 1.3500 against the US Dollar as the year wraps up. It remains steady because people expect the Bank of England to start moderate interest rate cuts in 2026. The Bank of England is not likely to cut interest rates significantly since UK inflation is still above the 2% target. In November, inflation decreased to 3.2% year-on-year, down from 3.8% in the July-September period.

Current Trade Outlook

The Pound Sterling has a flat trade outlook, with low trading activity expected due to the upcoming New Year holiday. Today, the GBP is performing strongest against the New Zealand Dollar. People believe the Federal Reserve will cut interest rates by 50 basis points in 2026, contrary to earlier predictions of only one cut. This raise in expectations suggests a more lenient monetary policy with the Fed’s new leadership. In technical terms, GBP/USD is above the 20-day Exponential Moving Average at 1.3488, signaling an upward trend. A break above the 61.8% retracement at 1.3495 could push the price toward 1.3626. As of December 29, 2025, the Pound is stable against the Dollar at around 1.3500. Current trading is thin due to holiday conditions, leading to low liquidity. This quiet period can be misleading, as minor trades could lead to larger price movements.

Monetary Policy Expectations

The Bank of England has a clear outlook, with expectations of only moderate rate cuts in 2026. With inflation at 3.2% in November 2025, the central bank is likely to be cautious, as observed during the 2023-2024 timeframe when UK inflation was more persistent than in other G7 countries. This steady approach from the BoE should support the Sterling. The biggest opportunity lies with the US Dollar, where there’s a significant gap between what the market expects and the official stance. The market is anticipating at least two rate cuts by the Federal Reserve in 2026, while the Fed projects just one. This discrepancy is likely to fuel trends and is currently putting pressure on the Dollar. Given the expected rise in GBP/USD but uncertainty around timing, buying call options makes sense. This strategy allows us to benefit from a possible move above the key 1.3500 level while limiting risk to the premium paid. With quiet year-end markets, implied volatility on these options may offer a good entry point. We need to be cautious about liquidity during the week between Christmas and New Year’s. Historically, this time can see sudden price changes on low volume, similar to the currency “flash crash” in early January 2019. Any leveraged positions should be managed carefully until trading volumes normalize. Everyone is watching for this Tuesday’s FOMC minutes. These notes will give us the first real indication of whether the Fed aligns more with the market’s dovish view or its own hawkish forecasts. A dovish tone could drive GBP/USD towards the 1.3626 target. Create your live VT Markets account and start trading now.

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The US Dollar dropped slightly against the Japanese Yen, staying above 156.00 after the Bank of Japan released its Summary of Opinions. The Yen gained strength following the bank’s meeting minutes, which showed that policymakers are cautious about monetary policy and its economic effects. In December, the Bank of Japan raised its benchmark interest rate by 0.25% to 0.75% but may consider rate cuts in 2026. Concerns remain that the Japanese Prime Minister’s stimulus measures could worsen the fiscal deficit and debt crisis, which would hurt the Yen’s recovery.

Federal Reserve Rate Cuts

The US Dollar is under pressure as the Federal Reserve is expected to cut rates in 2026, even though it initially planned just one cut. The upcoming release of the December meeting minutes might shape the USD/JPY exchange rate in the short term. The Bank of Japan aims for 2% inflation and has maintained a very loose monetary policy since 2013. This approach involved Quantitative and Qualitative Easing and controlling bond yields until March 2024, when rates began to rise. The Yen’s depreciation was mainly due to differing policies with other central banks until this change. Currently, the USD/JPY pair remains supported above the 156.00 level, presenting a delicate balance for the next few weeks. The Bank of Japan is indicating a tighter policy, but concerns about government finances are overshadowing this positive signal for the Yen. This creates uncertainty, making sharp price movements possible in either direction. The recent rate hike to 0.75% by the Bank of Japan is a crucial move, responding to persistent inflation, with Japan’s core CPI for November 2025 staying at 2.8%. This continues the slow normalization process that began in March 2024. However, some Bank of Japan members are calling for caution, making the path to higher rates in 2026 unclear.

Impact of Policy Divergence

Meanwhile, the US Dollar faces challenges as we expect the Federal Reserve to cut rates at least twice in 2026. This is supported by recent data showing that US Core PCE inflation dropped to 2.4% in November 2025, moving closer to the Fed’s target. The upcoming Fed meeting minutes will be crucial for confirming this dovish outlook. The difference in policies, with a tightening Bank of Japan and a loosening Federal Reserve, would usually strengthen the Yen. However, Japan’s fiscal policy complicates this. With Japan’s debt-to-GDP ratio exceeding 265%, Prime Minister Takaichi’s stimulus plans may overshadow the Bank of Japan’s efforts and keep the Yen weak. This situation suggests that traders should prepare for volatility and consider using options strategies to take advantage of price swings instead of betting on a clear direction. It’s important to remember that Japanese authorities intervened in currency markets during 2022 and 2024 when the Yen weakened significantly. Now that we are trading above 156.00, we are in a range that has caught official attention in the past, adding risk for those holding long USD/JPY positions. The potential for intervention creates a cap on the pair, making range-trading or volatility-based derivatives more appealing. Create your live VT Markets account and start trading now.

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US Dollar Index and Fed Effects

The US Dollar Index is stable at approximately 98.00 as markets await the FOMC minutes. The Fed recently cut interest rates by 25 basis points and hinted at one more cut in 2026. However, the CME FedWatch tool indicates a 73.3% chance of a 50 basis point cut. The Australian Dollar (AUD) is influenced by RBA interest rates, China’s economy, and Iron Ore prices. Higher RBA rates tend to boost the AUD, while the health of China’s economy and Iron Ore prices also play a role. Additionally, Australia’s Trade Balance affects the AUD; a positive balance strengthens the currency by increasing foreign demand.

Commodity Exports and Trade Balance

The AUD’s drop to 0.6700 should not be seen as a change in trend but rather as a brief pause in an overall upward movement. This profit-taking creates a good opportunity for traders expecting further gains. Our analysis focuses on the differing monetary policies between a strict Reserve Bank of Australia (RBA) and a more flexible US Federal Reserve. We think the market’s belief in a firm RBA is reasonable. Recent inflation data shows that monthly CPI for November was 3.8%, with persistent service inflation above 4%. This ongoing pressure increases the chances of another RBA rate hike in 2026, which should support the AUD. On the other hand, the US Dollar’s potential appears limited, making the AUD/USD pair more appealing. Although the Fed has indicated just one rate cut for 2026, recent US economic reports, like slowing job growth in the last Non-Farm Payrolls, support the idea of quicker rate easing. According to the CME FedWatch Tool, there are strong expectations for at least two rate cuts next year, creating a disconnect between market expectations and Fed guidance, which weighs on the US Dollar. Australia’s essential commodity exports also strengthen the AUD. For instance, Iron ore futures have remained strong, trading above $135 per tonne in late 2025 due to steady demand from China’s infrastructure projects. This boosts Australia’s trade balance and, subsequently, the AUD. The upcoming release of the FOMC minutes is crucial and may create short-term volatility. Traders might consider buying short-dated options straddles to benefit from a significant market move in either direction without needing to predict the outcome. If the minutes indicate greater concern about economic slowdown, this could accelerate the AUD/USD upward beyond recent highs. For those with a preferred direction, purchasing AUD/USD call options is a smart choice. Buying calls with a strike price near 0.6800 for late January 2026 allows traders to take advantage of the expected uptrend. This strategy offers considerable upside potential while keeping the risk limited to the premium paid in case the current stabilization lasts longer than anticipated. Create your live VT Markets account and start trading now.

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India’s manufacturing sector saw output jump from 1.8% to 8% in November. This growth shows a revival in industrial activity and gives a positive outlook despite global economic issues. Manufacturing is vital to India’s economy, contributing to GDP and creating many jobs. Analysts believe that the increase in output is driven by stronger domestic demand and better export performance.

Impact on Economic Growth Projections

A steady rise in manufacturing could change India’s economic growth outlook in the upcoming months. Market experts and policymakers are paying close attention to these trends to gauge the overall health of the economy. The increase in manufacturing is encouraging, especially when other sectors are struggling. It may prompt the government to rethink its fiscal and monetary policies to continue supporting the manufacturing sector. With the strong manufacturing output in November 2025, we view the Indian market positively as we approach the new year. The 8% growth well exceeds expectations, suggesting that the economy is on solid ground. This has led us to explore potential profit opportunities, especially in index derivatives.

Strategy for the Indian Market

We believe there is value in buying Nifty 50 index call options or taking long futures positions for January 2026. The S&P Global India Manufacturing PMI for November was confirmed at 57.5, which supports this optimistic outlook. This data indicates that leading industrial and banking stocks in the index are likely to perform well. In addition to the index, we are looking at call options for specific stocks in the capital goods and automotive sectors. These companies will likely benefit directly from increased industrial activity and consumer demand. In the past, strong manufacturing growth periods, like we saw in late 2023, have led to significant gains in these sectors. This economic strength should also help the Indian Rupee. Foreign institutional investors became net buyers of over $2 billion in the last two weeks of December, and we expect further appreciation of the currency. Therefore, shorting USD/INR futures or buying INR call options for the near term seems like a smart strategy. However, we should keep an eye on possible inflation, as the Consumer Price Index (CPI) increased slightly to 5.1% in November. While this is within the Reserve Bank of India’s acceptable range, sustained high growth might lead them to adopt a harsher stance in their February 2026 meeting. This adds a risk factor, so it’s wise to use options to manage risk or apply tight stop-losses on futures positions. Create your live VT Markets account and start trading now.

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India’s industrial output jumped to 6.7% in November, a significant increase from the previous month’s 0.4%. This growth highlights a rebound in the manufacturing sector, showing positive economic progress as the country moves past pandemic-related challenges. This rise is likely to create more jobs and boost consumer spending, which can further benefit the economy. Market watchers will be keen to see upcoming economic data to assess how sustainable this trend is.

Market Insights And Observations

FXStreet provides expert analysis and market insights, with subscription options for updates. It covers trends in currency, gold, and crypto markets. While the information is valuable, readers are reminded of the associated risks and are encouraged to take personal responsibility in their investment choices. The industrial output surge to 6.7% for November indicates strong economic growth as we approach the new year. This trend supports the bullish movement seen in the Nifty 50 index, which recently crossed the 26,000 mark. As a result, traders might look into buying call options on the index or selling put spreads to benefit from the anticipated upward movement. Given this strong economic data, an interest rate cut by the Reserve Bank of India seems less likely in their upcoming meeting, especially with inflation slightly above 4.5% recently. A stable or hawkish monetary policy should help strengthen the Indian Rupee. The USD/INR exchange rate could test support levels from early 2025, potentially falling below 82.50 soon.

Manufacturing Sector Indicators

This growth is backed by the manufacturing PMI, which has remained above 57 for the past two months. This strength suggests considering investments in specific industrial and manufacturing stocks, especially in the automotive and capital goods sectors. Implied volatility might increase ahead of earnings announcements, presenting opportunities for strategies like selling cash-secured puts on solid companies. While the momentum appears positive, we need to monitor the upcoming CPI inflation data for December to see if this growth is leading to rising prices. Any surprises in this data could shift market sentiment quickly. Additionally, anticipation is growing for the Union Budget in February, which will likely influence volatility and direction in the next quarter. Create your live VT Markets account and start trading now.

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Gold prices have dipped from a peak of $4,550 to about $4,445. This decrease is partly due to a stronger US Dollar and growing hopes for a peace deal in Ukraine.

Gold Technical Analysis

Gold is currently correcting after being overbought. On the 4-hour chart, the price is at $4,472.78, indicating bearish momentum. Support levels are between $4,430 and $4,445, with a potential drop down to $4,350. Resistance is at $4,550, and if this level is breached, we could see an increase to $4,580. Should these resistance points be surpassed, the 127.2% Fibonacci extension may aim for $4,616. Gold is considered a safe haven, especially during uncertain times and is often used as a hedge against inflation. In 2022, central banks bought 1,136 tonnes of gold worth $70 billion, the highest annual total. Significant buyers include China, India, and Turkey. Gold prices usually move in the opposite direction of the US Dollar and risk assets. Economic struggles and lower interest rates can boost gold prices, while a strong US Dollar or rising interest rates might push prices down. Geopolitical issues and interest rates also affect gold’s value. Gold’s pullback from its peak of $4,550 creates a strategic opportunity amid the quiet year-end market. The decline toward the $4,445 support seems to be influenced by news about a possible Ukraine peace agreement and a slightly stronger US dollar. Traders should be cautious, as low trading volumes during the holiday season can amplify price movements and lead to sudden reversals.

Gold Market Fundamentals

This drop from overbought levels could provide a chance to prepare for future shifts, but taking long positions may be risky. The Relative Strength Index (RSI) has fallen from above 80 to neutral, indicating potential downward movement towards the channel’s lower end at $4,415. Traders might want to buy put options to protect their long positions or to bet on a further decline to the $4,350 support area. Fundamentally, the outlook for gold is still strong despite the current correction. The most recent US Consumer Price Index for November 2025 showed persistent inflation at 2.9%, still above the Federal Reserve’s target. This ongoing inflation makes gold an attractive option for portfolio protection as we approach the new year. Institutional demand has remained robust, supporting gold prices throughout 2025. Following record central bank purchases in 2022 and 2023, the World Gold Council indicates that this trend continued with an additional 800 tonnes added to reserves in the third quarter of 2025. This demand helps limit how much prices can fall. The main challenge for gold is the stronger US dollar, which has gained traction since the Federal Reserve’s last meeting in mid-December. The Fed indicated that interest rates, currently at 3.75%, may not decrease as quickly in 2026 as previously expected. This uncertainty creates a tug-of-war for gold, balancing its safe-haven appeal against the higher opportunity cost of holding a non-yielding asset. Given these mixed signals, trading within a range might be the best strategy for the upcoming weeks. The technical chart shows strong support from $4,415 to $4,445, with notable resistance at the recent $4,550 high. Selling option spreads outside of this range could be a good way to earn premiums while waiting for clearer market direction in early 2026. Create your live VT Markets account and start trading now.

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The US Dollar rose on Monday, impacting the NZD/USD pair. The New Zealand Dollar is trading around 0.5810, down by 0.40% for the day. This is the third consecutive day of losses as the US Dollar strengthens after a recent dip.

Possible Changes in Monetary Policy

All eyes are on the Federal Reserve’s December meeting minutes to gauge potential monetary policy changes. There is a possibility of more rate cuts by the Fed in 2026, which could affect the strength of the US Dollar. The CME FedWatch tool shows an 82% chance that rates will remain the same at the Fed’s January meeting. On the other hand, the New Zealand Dollar is getting support from expectations of a rate hike by the Reserve Bank of New Zealand (RBNZ). Economic data from New Zealand indicates a recovery in Q3 activity. The RBNZ governor has mentioned that rates are likely to stay steady for now, but they may change if economic conditions keep improving. In the short term, the NZD/USD pair will be influenced by the US central bank’s signals, while the RBNZ’s outlook may provide a solid foundation for the New Zealand Dollar. Currently, the NZD/USD pair faces pressure as it trades around 0.5810 due to the US Dollar gaining strength. The market is eagerly awaiting the release of the Federal Reserve’s December meeting minutes tomorrow. This release will be crucial in shaping our expectations for monetary policy in early 2026.

The Fed’s Dovish Approach

The Fed’s dovish stance is a key theme, having already cut rates by 75 basis points throughout 2025. This decision was backed by easing inflation, with the November 2025 Consumer Price Index (CPI) showing a rate of just 3.1%. However, recent job market data has shown unexpected strength, adding uncertainty and contributing to the Dollar’s short-term rebound. In contrast, the Reserve Bank of New Zealand’s outlook provides strong support for the Kiwi dollar. New Zealand’s inflation remains high, recently reported at 4.7%, keeping the central bank cautious. This difference in policy between a Fed that is cutting rates and a potentially rising RBNZ lies at the heart of our trading strategy. With potential market volatility from the Fed minutes, traders should consider hedging. Buying short-dated put options on the NZD/USD can guard against a surprise hawkish tone in the minutes that may boost the US Dollar further. This strategy can help manage downside risk in the upcoming days. Looking ahead to January, if the Fed minutes confirm their commitment to a relaxed monetary policy, it would strengthen the case for the NZD/USD to rise. We could then consider building long positions, perhaps through call options expiring in the next quarter, to benefit from the growing interest rate difference. We recall a similar situation in late 2023, which led to a significant decline in the Dollar against other currencies. Create your live VT Markets account and start trading now.

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The Indian Rupee started lower against the US Dollar, with the USD/INR rate nearing 90.35. This comes after a surge in demand for US Dollars from Indian importers following a sell-off in mid-December caused by the Reserve Bank of India’s (RBI) actions. The RBI sold a significant amount of US Dollars to stabilize the Rupee, which had dropped to record lows of about 91.55. This year, the Indian currency has fallen over 6% against the US Dollar, making it the poorest performer among Asian currencies, despite the US Dollar Index decreasing by nearly 9.5%.

Foreign Investor Withdrawal Impact

In December, Foreign Institutional Investors (FIIs) withdrew Rs. 24,148.33 crore from Indian equities. This decision was driven by high stock valuations compared to those in China and Taiwan. This week, attention will turn to the Federal Fiscal Deficit data for November. The daily chart for USD/INR shows the pair at 90.3515, above the 20-day Exponential Moving Average, indicating a short-term upward trend. With a Relative Strength Index of 55, momentum appears steady. If the price stays above 90.1934, it may support a rise towards the all-time high of 91.50. The FOMC Minutes will discuss US monetary policy, potentially impacting the direction of the US Dollar. These details are crucial for anticipating interest rate changes. As of December 29th, 2025, the Rupee’s recent strength from the RBI’s intervention is fading, with the USD/INR climbing back towards 90.35. This is largely due to ongoing US Dollar demand from Indian importers, exacerbated by India’s trade deficit widening to $30 billion in November 2025. This persistent demand suggests the USD/INR pair may continue to rise.

Rupee Weakness and Investor Behavior

This year, the Rupee has shown substantial weakness, depreciating over 6% even while the US Dollar Index decreased. This decline is mainly due to foreign investors selling Indian assets, with FIIs withdrawing nearly $20 billion from Indian equities in 2025—one of the largest outflows since the 2013 taper tantrum. This selling pressure is likely to persist into the new year. From a technical standpoint, the pair holding above its 20-day moving average at about 90.19 indicates that the short-term upward trend remains intact. Dips towards this level may offer buying opportunities for traders. Thus, buying call options or using bull call spreads could be a smart strategy to take advantage of a potential retest of the all-time highs near 91.50. We shouldn’t expect the RBI to intervene as strongly as it did in mid-December. Protecting the currency has been expensive, with reports showing India’s foreign exchange reserves have decreased by over $40 billion in the last quarter of 2025. This reduction in reserves suggests the RBI might permit a more gradual depreciation, potentially increasing market volatility. Looking ahead, the upcoming US Federal Fiscal Deficit data this week and the FOMC minutes in the coming weeks will be crucial. Any signals of a more aggressive approach from the US Federal Reserve regarding interest rate policy for 2026 could further strengthen the US Dollar. This would increase upward pressure on the USD/INR exchange rate. Create your live VT Markets account and start trading now.

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