ECB executive board member Isabel Schnabel shares her thoughts on the current monetary policy. She believes in a steady approach, warning that inflation risks are starting to increase. Factors driving inflation include tariffs, services, food, and fiscal policy, with tariffs likely adding to supply chain inflation. The euro area’s economic growth is expected to exceed potential growth rates. However, the influence of a stronger euro is likely to be minimal. Schnabel’s comments reflect ECB President Lagarde’s recent remarks that risk levels are now more balanced, moving away from previous concerns about economic downturns.

Possibility of Rate Changes

The European Central Bank seems to indicate that interest rates will stay the same for a while. However, the key takeaway is that the next change is more likely to be an increase, not a decrease. This means the market’s expectations for rate cuts in late 2025 or early 2026 may be misguided. This outlook is based on growing inflation risks. August 2025 inflation data for the Euro area came in at a stubborn 2.4%, with the services sector still above 4%. These figures suggest that the battle against inflation is far from over. Moreover, new tariffs from ongoing trade disputes could raise business costs. The Eurozone economy grew faster than expected in the second quarter of 2025, at 0.5%, leaving little reason for the bank to consider cutting rates. Given this environment, holding long positions in the euro could be advantageous compared to currencies from central banks with more lenient policies.

Similarities to Prior Economic Conditions

This situation mirrors what we experienced in late 2021 when officials hinted at a pause before needing to tackle persistent inflation later on. Right now, the market is only anticipating a slight chance of a rate hike by next spring, which seems too low given the current data and commentary. Thus, it makes sense to prepare for higher interest rates for a longer period. This might involve selling futures contracts on the Euro Interbank Offered Rate (Euribor) set for mid-2026. At the same time, bond market volatility is expected to increase, so buying options like straddles on German bund futures could be a smart strategy to navigate this uncertainty. Create your live VT Markets account and start trading now.

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On September 15, 2025, during the European morning session, there were notable market updates. Nvidia’s shares fell by about 1.6% after China claimed the company violated antitrust laws. Kazimir from the European Central Bank mentioned that policy should stay the same unless inflation significantly deviates from the target. Germany’s wholesale price index for August dropped by 0.6%, compared to the previous month’s 0.1%. Meanwhile, the Eurozone’s trade balance for July rose to €12.4 billion from €7.0 billion. In market movements, the GBP was strong while the USD lagged. European equities increased, and S&P 500 futures gained 0.2%. The US 10-year yields stayed stable at 4.068%, while gold remained unchanged at $3,644.19. WTI crude oil ticked up by 0.4% to $62.81, and Bitcoin slipped by 0.3% to $114,907.

Forex Market Update

In the forex market, GBP/USD rose by 0.4%, crossing above 1.3600, and EUR/USD increased by 0.2% to 1.1758. USD/JPY decreased by 0.2% to 147.35, while AUD/USD went up by 0.2% to 0.6660. Traders are closely watching the upcoming Federal Reserve decision, with speculation around a possible rate cut. The main focus this week is the Fed’s decision on Wednesday. Many expect a rate cut, but the important question is whether it will be 25 or 50 basis points. This uncertainty could lead to volatility across different asset classes. Given the current market conditions, we should look for strategies that benefit from significant price swings in either direction. Referring to the volatility spikes during the Fed’s policy changes in 2023, straddles on the S&P 500 might be a good choice. Implied volatility on short-dated options is likely to increase as we near Wednesday’s announcement.

Potential Market Volatility

The dollar is trending down ahead of the news, setting the stage for potential big movements. Historically, the Dollar Index has often moved over 1% on surprise Fed announcements, creating chances in FX options. A 50 basis point cut could lead to a sharp drop, while unexpected hawkishness could cause a significant short squeeze. We need to keep a close eye on the tech sector, especially with the China investigation into Nvidia, which adds specific risks. This situation is similar to the sector-specific shocks during the 2018-2019 trade disputes. It might be wise to consider put options on the Nasdaq 100 as protection against rising US-China tensions that could affect more than just one company. Gold is near its record high, and a dovish Fed could ignite another rally. Historically, periods of Fed easing have been positive for gold. For instance, gold saw substantial gains following the rate cuts that began in mid-2019. Buying call options might be a good way to capitalize on a possible breakout above the current level. There’s a noticeable divergence between the hawkish European Central Bank and the Fed, which is expected to cut rates. This policy gap, along with an improving Eurozone trade balance, strengthens the case for a higher EUR/USD. Buying calls on the Euro could be a way to take advantage of this clear macro trend as the pair tests its range. Create your live VT Markets account and start trading now.

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The Federal Reserve’s Expected Decisions

The Federal Reserve is expected to lower rates by 25 basis points and hint at two more cuts later this year. The Bank of England (BoE) is likely to keep its bank rate steady. Recent UK data shows surprising CPI numbers and strong, though mixed, Flash PMIs, indicating ongoing inflation. In technical analysis, GBPUSD shows buyers targeting 1.3789 if it stays above 1.3589. Conversely, if it drops below 1.3589, sellers may push it down towards 1.3368. Key upcoming data includes UK employment figures, US retail sales, UK CPI, the FOMC’s policy announcement, BoE’s rate decision, and US jobless claims. These releases will shape market movements this week. GBPUSD is facing a crucial resistance level, offering a chance to act based on the differing policies of the US and the UK. With the US dollar weakening due to expectations of rate cuts, we might see a breakout soon. This situation favors strategies that profit from rising prices and increased market volatility. We are considering buying call options with strike prices above 1.3600, with a first target around 1.3750. Recent data from the CME indicates rising interest in call options around 1.3700, hinting at institutional interest in a rally. This strategy provides a way to manage risk while capturing potential gains if momentum builds.

High Event Risk Ahead

The upcoming FOMC and BoE meetings, along with key inflation data, create a week of high event risk. History shows that weeks with announcements from two central banks often lead to increased volatility. Traders uncertain of direction but expecting a significant price move could consider long straddles or strangles. The market expects the Fed to cut rates by 25 basis points this Wednesday, with Fed Fund futures indicating an 88% chance, according to the CME FedWatch Tool. This supports the dovish outlook for the USD that has been developing since the weak jobless claims report from early September 2025. If the Fed surprises us with a hawkish tone, it could disrupt the bullish outlook for the currency pair. On the flip side, the BoE is predicted to maintain its stance, which supports the pound. UK core inflation recently came in at 3.1% in August 2025, well above the BoE’s target, limiting room for any dovish signals. This difference between a cutting Fed and a holding BoE drives our bullish perspective. Our main risk is a ‘false breakout.’ If the price fails to stay above 1.3590 and drops lower, we may need to adjust. To protect our long positions, we can buy put options with a strike price just below 1.3550. If the price decisively breaks below this level after the news, these puts could become our primary bearish position. Create your live VT Markets account and start trading now.

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Societe Generale thinks the Fed will cut interest rates by 50 basis points this week. This prediction is different from what the market expects, which is mainly a 25 basis point cut. The only other brokerage predicting a 50 basis point cut is Standard Chartered. Right now, traders believe there’s only a 4% chance of this larger decrease happening.

Moderately Restrictive Approach

Societe Generale argues that the Fed’s current moderately restrictive strategy is outdated. They believe a strong adjustment is needed even with ongoing inflation concerns, especially since the Fed is starting to focus more on employment issues. With the market almost fully anticipating a 25 basis point cut this week, there’s a clear chance for a surprising 50 basis point cut. Many believe that the Fed’s strict policies have gone too far, and a bold change is needed. This creates a significant gap between general expectations and what might happen. Support for a larger cut comes from the recent shift in economic risks towards employment. The August 2025 jobs report showed a significant slowdown, with only 160,000 jobs added and the unemployment rate rising to 4.2%. This gives the Fed a reason to act strongly, even while core inflation remains stubborn at 3.3% annualized in August.

Classic Options Play

For traders, this low-probability situation offers a classic options play. With fed funds futures only showing a 4% chance of a 50 basis point cut, volatility is inexpensive. Traders should consider buying out-of-the-money call options on Treasury futures or put options on the U.S. dollar, which could yield significant returns if the Fed surprises the market. The Fed has made bold moves unexpectedly before when it felt it erred in its policy. For example, in late 2018, the market pressured the Fed to switch from raising to cutting rates much faster than expected. This historical example suggests that when the central bank realizes it has gone too far, its response could be much more dramatic than current estimates indicate. Create your live VT Markets account and start trading now.

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The EURUSD pair is currently testing a key resistance zone around 1.1745 due to a weak US dollar as we approach the FOMC decision. The dollar faced pressure after a US CPI report and a surprising spike in initial jobless claims, which reached their highest level since 2021. The jobless claims rose sharply in Texas, but overall, they support expectations of three rate cuts by the end of the year. Although the US dollar remains stable, increasing dovish expectations have affected it, suggesting that bearish positioning may be at its peak.

Future Economic Activity

If upcoming rate cuts boost economic activity, the 2026 rate cuts could be reassessed, which would likely support the dollar. However, the current trend is still downward, and strong data is needed for a turnaround. The ECB has kept its rates steady, with only minor easing expected by 2026. On the daily chart, the EURUSD faced resistance near 1.1789 and has stayed within range; a spike might lead to sellers targeting a drop to the 1.16 support. Buyers are looking to break through to 1.1831. Similar patterns are visible on shorter-term charts, with sellers active near 1.1745 and aiming for lower levels while buyers seek upward movement. Next week brings important events, including US Retail Sales data, the FOMC policy announcement, and US Jobless Claims figures. The EURUSD is pushing against a significant resistance zone near 1.1745 as we await the FOMC decision this week. Last week, the dollar’s weakness intensified when initial jobless claims unexpectedly jumped to 415,000, a level not seen since late 2021 during the post-pandemic recovery. This data, combined with a CPI report showing manageable inflation at 2.8%, has strengthened expectations of further easing from the Federal Reserve. This difference in monetary policy is driving current market dynamics. Traders are fully expecting a third 25-basis-point cut at this week’s meeting, which would lower the Fed Funds Rate to a target range of 4.50-4.75%. Meanwhile, the European Central Bank has kept its main rate steady at 3.50% for three meetings, indicating the end of its easing cycle that began earlier this year.

Trading Strategies

For derivative traders, the current range offers a clear strategy. Sellers are stepping in near the 1.1745-1.1789 resistance, a tactic that has worked as the pair has risen from the 1.10 levels seen at the beginning of 2025. This strategy aims for a move back toward the 1.1600 support, betting that the dollar’s bearish sentiment may be stretched. Traders should also prepare for a potential breakout if upcoming US data or the FOMC announcement is more dovish than expected. A decisive move above 1.1789 would signal buyers to target the next resistance level around 1.1831. The Fed signaling a faster pace of cuts for the rest of the year would be a key factor. Options can be a good way to handle this event risk. Buying EUR/USD put options with a strike price below 1.1700 allows for defined risk while positioning for a drop back to the 1.1600 support. On the other hand, traders expecting a dovish surprise from the Fed could buy call options with a strike above 1.1800 to benefit from a breakout. All attention will be on tomorrow’s US Retail Sales figures and the FOMC policy announcement on Wednesday. These events will likely decide if the pair remains range-bound or if the upward trend picks up speed. We will also monitor the weekly jobless claims data on Thursday to determine if last week’s spike was an anomaly. Create your live VT Markets account and start trading now.

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The Eurozone’s trade balance for July 2025 increased to €12.4 billion, up from €7.0 billion in June. This data from Eurostat shows an improvement in trade performance. Year-to-date numbers show a steady growth in the trade surplus for the Eurozone, indicating stronger economic output.

Trade Balance Dynamics

The rise in trade balance might indicate higher exports or lower imports, both of which can affect the economy. These trade changes can shape economic strategies within the Eurozone. These figures help us understand the Eurozone’s trade dynamics and economic direction. Ongoing growth suggests shifts in global trade patterns. Eurostat’s data allows for month-to-month analysis of Europe’s economic performance. Monitoring these numbers can assist in predicting future conditions. The Eurozone’s trade surplus of €12.4 billion in July is a notable improvement from last month. This suggests that demand for exports is stronger than expected, which may support the Euro in the coming weeks. This is a positive sign for the region’s economic health.

Financial Market Implications

This strong trade data adds complexity to the outlook for the European Central Bank, especially after the stubbornly high inflation rate of 2.8% in August. A strong economy may lessen the ECB’s need to cut rates soon. Therefore, we can expect interest rate futures to reflect a lower chance of such cuts. For currency derivatives, this data supports a positive outlook on the Euro, especially against the US dollar. Recent US job data shows slower growth, leading to a clear policy difference in favor of the Euro. We should think about buying near-term call options on the EUR/USD pair to benefit from this potential rise. The underlying strength seems to come from the manufacturing sector, especially in Germany, which had a surprising 1.5% increase in factory orders last month. This suggests that European industrial stocks, particularly major exporters, are in a good position. We can take advantage of this trend through call options on indices like the DAX or the Euro Stoxx 50. We have seen similar trends in the past, particularly after 2014, when strong exports helped the Eurozone despite weaker domestic demand. However, we must stay alert to any global growth slowdowns, which pose the biggest risk. Strategies should account for this risk, possibly by setting clear profit targets on long positions. Create your live VT Markets account and start trading now.

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An ECB policymaker emphasizes that while there has been some improvement in inflation, it’s crucial to stay alert. The ECB’s interest rates are now at a neutral level, but inflation risks are still present. The policymaker stated that the ECB will not change its policy due to small changes in the inflation target. Any further rate cuts would need strong justification.

Market Pricing And Economic Indicators

Currently, the market expects only a slight easing of 4 basis points by the end of the year and a total of 11 basis points by the end of 2026, consistent with the ECB’s current position. With the European Central Bank indicating a firm pause, we anticipate that interest rates will remain stable for the foreseeable future. There are noticeable risks of inflation rising, and the monetary policy will stay flexible but inactive unless there is a significant economic shift. This means that small fluctuations from the 2% inflation target won’t lead to more rate cuts. This approach is backed by recent data from late August 2025, showing that Eurozone core inflation remains steady at 2.2%. Even though overall economic activity is slow, with German industrial production showing little growth last quarter, the ongoing inflation allows the ECB to hold off on any action. The market has recognized this, with almost no pricing for future cuts expected by the end of the year.

Strategies For Derivative Traders

For derivative traders, this situation suggests strategies that take advantage of low volatility in the coming weeks. Opportunities can be found in selling short-dated options on Euribor futures, as the central bank’s strong position is likely to keep short-term rates stable within a narrow range. The volatility index for euro-denominated rates has dropped to its lowest point since early 2024, indicating that this trend is already underway. We’ve seen similar situations before, especially during the US Federal Reserve’s extended pause throughout much of 2024, when the market repeatedly anticipated cuts that did not occur. The main risk here is a sudden spike in energy prices as winter approaches, which could raise inflation concerns. Therefore, if you hold short volatility positions, it’s important to size them cautiously to handle any sudden shifts in market sentiment. Create your live VT Markets account and start trading now.

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China started an antitrust investigation into Nvidia in December 2024 for allegedly breaking anti-monopoly laws. This is seen as a reaction to US restrictions on chip technology. The country’s market regulator has confirmed that the investigation is still in progress. As a result of this news, Nvidia’s shares dropped about 2% in pre-market trading. We believe this antitrust investigation will cause more ups and downs in Nvidia’s stock in the coming weeks. The implied volatility for near-term options has already risen, with the 30-day IV going over 55%. This increase makes both puts and calls more expensive. In this situation, strategies that profit from price fluctuations, instead of just movement direction, should be considered. Due to the uncertainty, we are looking to buy put options to protect our long positions or to bet on further declines. China has historically contributed around 15-20% of Nvidia’s revenue, even with US restrictions that grew stricter in 2023. If this investigation causes more issues, it could significantly affect future earnings and how investors feel about the company. For those who think this is just a temporary overreaction, selling out-of-the-money put credit spreads might be a good strategy. This allows us to earn premiums from the higher volatility while betting that the stock won’t drop much more. After a strong performance in late 2024 and early 2025, many may see a small pullback as a chance to buy. It’s important to note that similar investigations into big tech companies usually take years to resolve. This means that, while the initial shock may lessen, Nvidia’s stock could still be impacted by news for months. This might lead to sideways trading instead of a clear upward or downward trend, making strategies like iron condors more potentially profitable.

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Sight deposits at the Swiss National Bank stood at CHF 468.5 billion for the week ending 12 September, a decrease from CHF 471.9 billion the week before. Domestic sight deposits saw a slight drop to CHF 441.7 billion, down from CHF 442.0 billion previously.

Recent Trends in Sight Deposits

This decrease in sight deposits is consistent with recent trends. New data on Swiss sight deposits indicates a small decline, suggesting that the Swiss National Bank (SNB) is maintaining a hands-off approach in the currency markets. Their lack of intervention indicates they are not actively opposing the franc’s current strength. This suggests that their policies will remain steady and predictable for now. We are looking forward to the SNB’s monetary policy decision next week, making this data especially important. The small drop in liquidity supports our belief that a surprise interest rate cut is very unlikely. Traders should prepare for the SNB to either keep rates steady or confirm a hawkish position. This view is supported by recent inflation reports. The August 2025 Swiss CPI indicated inflation at 2.1%, still above the central bank’s target of 2%. Given this ongoing inflation, the SNB has little reason to consider loosening its policy anytime soon.

Market Impact on Franc Volatility

For derivatives, this suggests that implied volatility on Swiss Franc options is likely to remain strong as we approach the SNB’s meeting. While the market is not expecting major changes, the potential for a hawkish surprise keeps volatility elevated. Selling short-dated franc volatility appears risky at this moment. Looking back, this trend is part of a long normalization process that started after the significant balance sheet expansions of the early 2020s. The gradual decline in sight deposits since 2024 indicates a commitment to reducing liquidity over time. This reduces the likelihood of a sudden, large-scale intervention to weaken the franc compared to previous years. Consequently, strategies focused on the EUR/CHF pair should concentrate more on the relative policies of the SNB and the ECB. With the European Central Bank also maintaining its stance but facing its own economic issues, there may be limited movement in the cross-rate until one of the banks signals a different direction. This suggests that range-trading strategies using options may be effective in the coming weeks. Create your live VT Markets account and start trading now.

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The upcoming week is packed with important economic events. It starts with the U.S. Empire State Manufacturing Index on Monday. On Tuesday, the U.K. will share employment data, while Canada will focus on inflation figures and the U.S. will release retail sales data. On Wednesday, we will see the U.K. inflation data and anticipate monetary policy announcements from the Bank of Canada (BoC) and the Federal Open Market Committee (FOMC). Thursday features New Zealand’s GDP and Australia’s employment numbers, along with the Bank of England (BoE) meeting, U.S. unemployment claims, and the Philly Fed Manufacturing Index. Finally, Friday will wrap up with the Bank of Japan (BoJ) announcement and retail sales data from the U.K. and Canada.

The US Retail Sales Forecast

In the U.S., retail sales are expected to grow by 0.2% month-over-month, with core sales at 0.4%. Retail sales are holding steady due to strong demand in various sectors, though spending on home improvement and dining out is weaker. Analysts predict that growth in August will slow to 0.4%, with spending likely decelerating by the end of the year due to economic challenges. The BoC may keep rates unchanged despite speculation of a rate cut. Canada’s economy shrank by 1.6% in Q2, but signs in Q3 look more stable. Inflation data may show the Consumer Price Index (CPI) rising to 2.1%, which will affect the BoC’s decisions. The Fed is likely to restart rate cuts, targeting a range of 4.00%–4.25%. Even with steady inflation and employment levels, the Fed might reconsider its long-term growth and employment goals, basing decisions on new data. New Zealand’s GDP is forecasted to decline by 0.3% this quarter due to technical factors. Growth momentum has slowed, indicating a complex trend. In Australia, August is expected to see an employment rise of 15,000, with the unemployment rate slightly increasing to 4.3%. The BoE is predicted to hold rates steady and focus on future policy signals, paying close attention to labor and inflation data. Inflation is expected to show food prices climbing over 5%, but service costs may begin to ease.

The Bank Of Japan Decision

The BoJ is expected to keep rates at 0.50%. Political changes have pushed back expected rate hikes until early 2026, with the economic situation supporting higher rates, despite modest price growth. The key event this week is Wednesday’s Federal Reserve meeting, where a rate cut is already priced into the market. Following the August jobs report, which revealed a slight cooling in hiring to 187,000 and steady core inflation at 3.5%, expectations for this move are high. Traders should watch for surprises in the Fed’s dot plot, as volatility in index futures could rise if the Fed hints at more future cuts than anticipated. The Bank of Canada’s decision adds uncertainty this week, with mixed market views on a potential rate cut. All eyes will focus on Tuesday’s inflation figures, especially after the economy officially contracted by 1.6% in Q2 2025. This uncertain scenario suggests significant movement in the Canadian dollar, making options straddles on USD/CAD an appealing strategy. For the Bank of England, we expect rates to remain unchanged on Thursday, with a shift in focus to guidance for the November meeting. Recent wage growth data is stable around 6.0%, and persistent service inflation could motivate policymakers to wait. Traders may find value in longer-dated options on GBP/USD, anticipating a possible rate cut later this year rather than immediate volatility. Attention will also be on Australian employment data on Thursday, a crucial indicator for the Reserve Bank of Australia’s future stance. We’ll be watching closely for the unemployment rate to rise to the expected 4.3%, as a higher number could increase expectations for a later rate cut. Traders should prepare for short-term volatility in the AUD/USD pair after the release. The Bank of Japan is likely to maintain current rates this Friday due to recent political instability. With inflation easing to about 2.5% last month and the yen remaining weak, there is little urgency for immediate changes. This outlook suggests that yen volatility might stay low, making strategies like selling out-of-the-money options on USD/JPY appealing for income generation. Create your live VT Markets account and start trading now.

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