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Sources indicate that the ECB might consider rate cuts in 2025 if economic conditions deteriorate.
The European Central Bank (ECB) is likely to keep interest rates steady in September, with a chance of cuts if the economy worsens. Christine Lagarde expressed confidence in maintaining the key rate at 2%, after a year of reductions. This decision comes as the eurozone economy shows strength and keeps inflation stable at 2%.
U.S. tariffs on EU imports, set at 15%, align with the ECB’s expectations, lowering the need for quick rate cuts. However, the ECB suggests that another cut might be necessary in the future, with talks planned for October and December, especially if U.S. tariffs affect exports or the Ukraine conflict continues.
A lighter economic calendar shifts focus to Powell’s comments from Jackson Hole and their impact on Asian markets.
The economic calendar in Asia for Monday, August 25, 2025, has few data releases. New Zealand will share some information, but the main focus is on the impact of Powell’s comments from Jackson Hole last Friday.
Powell’s statements have sparked interest in riskier assets, drawing attention to the economic shifts in the region.
Trading on Risk Sentiment
With a light data calendar in Asia, we will trade based on the positive sentiment from the Jackson Hole speech. The market sees the Fed Chair’s remarks as indicating the end of the tightening cycle. This suggests that, in the coming weeks, stocks are likely to trend upward. The background for these comments has been building, giving them trustworthiness that has been missing for some time. July’s core CPI data, released in August, was at 2.5%, which is closer to the Fed’s goal. Additionally, a recent non-farm payrolls report showed job growth slowing to below 150,000, allowing the Fed to take a more balanced approach. In this context, selling volatility seems like a smart strategy. After Friday’s rise, the VIX likely dropped below 15, which means we can expect fewer price swings in the S&P 500. We might consider selling out-of-the-money puts or using put credit spreads on major indices to earn premium. The comments have also weakened the US dollar, with the DXY index falling below 100 on Friday. This opens up chances in the foreign exchange markets, especially for risk-sensitive currencies. We see value in buying call options on the Australian Dollar and the Euro against the dollar, preparing for further gains.Interest Rate Implications
This shift towards a softer stance has important effects on interest rate markets. We can expect government bond yields to keep declining as the market anticipates potential rate cuts in late 2025 or early 2026. Using options on Secured Overnight Financing Rate (SOFR) futures or purchasing calls on treasury bond ETFs can effectively position us for lower rates. However, we should be wary of the market’s previous excitement for rate cuts back in late 2023, which quickly changed due to stubborn inflation data in early 2024. While the current data is more positive, any unexpected strength in upcoming reports could quickly reverse this softer positioning. Therefore, we should remain cautious with our investments. Create your live VT Markets account and start trading now.Low market liquidity early on may lead to price fluctuations in various currency pairs.
ForexLive warns traders about the low market liquidity that often happens on Monday mornings. Caution is advised, as prices may change until more Asian markets are open.
Here are the current exchange rates as the trading week begins:
– EUR/USD: 1.1720
– USD/JPY: 146.85
– GBP/USD: 1.3518
– USD/CHF: 0.8015
– USD/CAD: 1.3825
– AUD/USD: 0.6488
– NZD/USD: 0.5858
Forex Market Updates
More updates and weekend news will be shared soon. Since liquidity is low, we must be careful with any early trades this week. The main trend shows US dollar weakness against European currencies, with EUR/USD going above 1.17 and GBP/USD exceeding 1.35. This comes after the Federal Reserve shifted to a rate-cutting stance earlier this year, responding to stabilized US inflation. The last core CPI report for July 2025 showed inflation at 2.5%. Even with the general softness of the dollar, the USD/JPY rate stays strong near 147. This recalls the trends from late 2023. The interest rate difference is key here, as the Bank of Japan has been slow to adjust its policy. This encourages many traders to focus on carry trades, which benefit from this ongoing rate gap. The Euro seems to be gaining strength due to a stronger continental economy than expected. Recent economic sentiment data from Germany shows improvement, and the European Central Bank has indicated it is not in a hurry to cut rates like the Fed. This difference suggests that buying dips in EUR/USD will likely remain a popular approach in the coming weeks.Commodity Currencies Outlook
In contrast, commodity currencies such as the Australian and New Zealand dollars are having a tough time. This is mainly due to ongoing signs of a slowdown in China, with last month’s disappointing Caixin Manufacturing PMI data. Until Chinese demand shows a significant rebound, call options on the AUD/USD are likely to struggle. With these mixed signals, we can expect increased volatility as central bank policies vary. Given the strong trends, derivative traders might consider strategies that limit risk, like bull call spreads on EUR/USD, to take advantage of Euro strength while minimizing potential losses. The key data to watch for will be the next set of inflation and employment figures from the US and Europe. Create your live VT Markets account and start trading now.Upcoming economic events: US PCE, Australian CPI, Canadian GDP, and Nvidia earnings
The coming week will showcase important economic updates, including data on the US PCE, Australian and Tokyo CPI, and minutes from the ECB and RBA meetings. Other key releases include Canada’s GDP and Japanese activity data.
On Monday, the PBoC will keep the Loan Prime Rates steady, with RBA and Riksbank minutes set for Tuesday. Reports suggest that the RBA may cut rates by 25 basis points, forecasting a moderation in inflation. Many will closely watch the Riksbank minutes for insights on inflation as well.
Wednesday Highlights
On Wednesday, Australian CPI data is anticipated to rise, which might influence RBA easing expectations. That same day, Nvidia will announce its quarterly earnings, although risks related to China could sway its guidance. Thursday will bring the ECB minutes, which are expected to reflect a data-driven approach while maintaining current rates. On Friday, Tokyo’s CPI may reveal a slowdown in inflation to 2.6%. The US PCE data coming out on Friday is crucial for evaluating inflation pressures, especially following recent CPI and PPI readings. Canada’s Q2 GDP is predicted to show slight growth, with the Bank of Canada considering future actions amid mixed signals from economic activity and inflation. The overall economic outlook remains cautious, with potential policy changes hinging on upcoming data. Looking ahead to August 24, 2025, the week ahead offers several opportunities based on central bank movements and key data releases. We anticipate the People’s Bank of China maintaining its cautious stance, with the market expecting no changes to the MLF rate. Given that China’s July manufacturing PMI was 49.8, indicating four months of contraction, the upside for China-exposed assets appears limited, making it a good time to think about selling call options on relevant equity ETFs. The Reserve Bank of Australia recently signaled a dovish outlook with its rate cut, putting pressure on the Australian dollar. Futures markets predict another 40 basis points of cuts from the RBA by late 2025. Wednesday’s CPI report is key; if inflation surprises to the upside, it could lead to a quick rally in the AUD as rate cut expectations adjust.Nvidia Earnings and Market Strategies
All attention will be on NVIDIA’s earnings this Wednesday, particularly the company’s guidance on China revenue. The stock has surged over 90% this year, so any cautious remarks from management could trigger a notable decline. With implied volatility for weekly options expiring after the report exceeding 120%, the market is preparing for significant price movement, making buying option straddles a viable strategy to profit from a big shift in either direction. We don’t expect any surprises in the European Central Bank’s minutes on Thursday, as the bank seems to be in a holding pattern. The latest Eurozone inflation data for July fell to 1.8%, providing policymakers little reason to change their data-driven approach. This stable outlook suggests that range-trading strategies on EUR/USD, such as selling out-of-the-money puts and calls for premium, will likely remain effective. The most crucial data this week will be the US PCE inflation report on Friday, which will play a key role in the Federal Reserve’s decision next month. We recall the late 2024 market volatility when high inflation reports caused the Fed to delay its easing cycle. Currently, fed funds futures show a 65% chance of a rate cut in September. If the core PCE figure exceeds the expected monthly increase of 0.26%, those odds could decrease, likely strengthening the US dollar and putting pressure on equity index futures. In Canada, Friday’s Q2 GDP data will be closely monitored after signs of an economic slowdown in spring. With Bank of Canada meeting minutes revealing debates on needing more support, a weak GDP reading would likely confirm expectations for a rate cut later this year. Traders should prepare for increased volatility in the Canadian dollar, as a contraction would probably weaken it against the US dollar. Create your live VT Markets account and start trading now.Itai Levitan recommends hedging Nvidia stock holdings before earnings to reduce risks during uncertainty.
**Nvidia’s Earnings Report Approaches**
As Nvidia’s earnings release on Wednesday, August 27th, approaches, it’s a critical time for investors. If you’re thinking about short overlays, they can help protect against possible drops caused by earnings reports. To manage risk, set stop-loss and target levels in advance. Beginners should steer clear of complicated strategies like premium selling, as they involve higher risks from potential price swings. It’s essential to plan your exit strategy before investing and ensure your hedging matches your risk tolerance. This way, your portfolio can handle the volatility that often comes with earnings announcements.
Nvidia’s stock is currently valued high due to sky-high expectations. Even an outstanding earnings report might not drive the stock higher. Therefore, focusing on risk management is key in the coming weeks, rather than trying to predict the earnings outcome.
We’ve seen similar situations before. For example, the stock’s rise leading to the 10-for-1 split last June showed us how volatile things can get. In May 2024, the options market anticipated an 8.5% move, but the stock surged over 9% the next day. This history highlights the importance of being ready for big price swings.
For those holding shares, the easiest option is to buy insurance for the week. A protective put limits losses if earnings disappoint, allowing you to maintain your long-term investment without stress. Although there’s a cost for this safety, it helps you avoid worrying about sudden drops in price.
**Strategic Approaches Post Earnings Announcement**
With options currently expensive due to high implied volatility, considering a collar strategy is wise. By selling an out-of-the-money call option, you can use the premium earned to cover most or all of the cost of the protective put. While this limits your potential gains for the week, it creates a defined price range for the stock during the event.
If you think the stock will either rise or remain stable, selling a covered call could be a good approach. This strategy provides immediate income from high option premiums, offering a buffer against a slight price dip. Just be prepared for the possibility that your shares may be sold if the stock rallies past your chosen strike price.
After the earnings announcement, the biggest opportunities for derivative traders will arise. Implied volatility often falls sharply—a situation known as “IV crush”—resulting in cheaper options. This is an excellent time to consider selling cash-secured puts or put spreads on any decline, allowing you to collect premiums or buy more shares at a favorable price while benefiting from the lower volatility.
Create your live VT Markets account and start trading now.
Jerome Powell’s speech boosts markets as expectations rise for possible interest rate cuts
US Federal Reserve Chair Jerome Powell spoke at the Jackson Hole symposium and hinted at a potential rate cut in September. He pointed out that labor demand and supply have both slowed, even though inflation from tariffs is causing temporary pressure. Powell also expressed concerns about the labor market, emphasizing that the Fed will rely on data to make decisions in response to outside pressures. Following his remarks, markets reacted strongly, pricing in a 90% chance of a rate cut in September.
Fed official Hammack expressed a different view, focusing on controlling inflation. She highlighted ongoing inflation issues and emphasized that policies should remain mostly restrictive. While she acknowledged the need to consider new data, she insisted that major weakness in unemployment is necessary before changing policy, due to worries about inflation continuing.
Market Performance
US stocks rallied, with the NASDAQ moving above important moving averages and closing higher, although weekly results were mixed. The NASDAQ dropped 0.58%, while the Dow gained 1.53% and the S&P rose by 0.27%. The small-cap Russell 2000 surged 3.86% today, finishing a week up 3.298%. European markets also closed higher, with all major indices making gains, and Southern Europe reaching new highs. US yields fell, particularly in the short term, as traders expected Fed cuts. This led to a significant drop in the US dollar against other major currencies. The Fed is signaling a potential rate cut in September, and markets are adjusting rapidly. We recommend positioning for further increases in stocks, especially in rate-sensitive areas like the NASDAQ and Russell 2000. Buying call options or setting up bullish spreads could take advantage of this strong momentum. This dovish shift follows recent economic reports, including early August 2025 jobs data, which showed a rise in unemployment to 3.9% despite solid overall numbers. This gives the Fed reason to focus more on employment. In the coming weeks, it seems likely that stock prices will rise while front-end bond yields will fall.Market Strategy
The bond market’s reaction, with a nearly 10 basis point drop in the 2-year yield, indicates that traders are betting on lower policy rates. We can take advantage of this by investing in short-term interest rate futures or options that will gain from falling yields ahead of the September meeting. We observed a similar trend in late 2023, when the markets anticipated the Fed’s eventual shift, resulting in a strong rally in fixed income. However, with a 90% chance of a cut already factored in, the market is susceptible to strong data that might challenge this expectation. The July 2025 CPI report showed core inflation at a stubborn 3.2%, which more hawkish members like Hammack will take seriously. To manage the risk of a hawkish surprise in the next inflation report, it’s wise to hedge long equity positions by purchasing inexpensive, out-of-the-money put options. The US dollar has sharply declined against all major currencies, and we expect this trend to continue as rate differences close. We should look to short the dollar against currencies from stronger economies, like the Euro, especially as European indices hit multi-year highs. The Australian dollar’s 1.07% rise also indicates strength in commodity-linked currencies as global growth fears diminish. The remarkable 3.86% rally in the Russell 2000 signals a significant return to risk assets. Small-cap companies are highly affected by interest rates, so we should explore trades that could benefit from their continued outperformance. Using options on the IWM ETF could give us leveraged exposure to this trend as the market anticipates a more favorable credit environment. Create your live VT Markets account and start trading now.US stock indices surged, with Russell 2000 leading the gains and Dow reaching a record close.
US stock indices saw significant gains recently. The Russell 2000 led the charge with a 3.86% rise, its largest jump since April 9. The Dow Jones Industrial Average increased by 846.24 points, or 1.89%, marking its highest close since May 12. The S&P 500 gained 96.74 points, or 1.52%, the biggest jump since May 27. The NASDAQ also saw a 1.88% increase, its largest one-day gain since August 4.
Sector performance within the S&P 500 varied. The Consumer Discretionary sector experienced the most significant gain at 3.19%, while Consumer Staples fell by 0.35%. Energy increased by 1.99%, Communication Services rose by 1.87%, and Materials improved by 1.70%. Financials, Industrials, and Real Estate each climbed over 1.60%, while Information Technology went up by 1.32%. Health Care rose 0.82%, and Utilities increased by 0.53%.
Weekly Performance Highlights
This week, the NASDAQ’s gains couldn’t fully offset previous declines, but the S&P and Dow closed positively. The Russell 2000 was the standout performer, rising by 3.298%. The Dow increased by 1.53%, and the S&P saw a 0.27% uptick, while the NASDAQ dropped by 0.58%. The market’s reaction to the Fed’s comments indicates a shift toward less aggressive monetary policy, which we’ve been expecting. This has created a strong risk-on sentiment, pushing the Dow to a new record. We should prepare for continued bullish momentum, as concerns about further rate hikes seem to be easing. Implied volatility is expected to decrease in the coming weeks, despite the rally. The CBOE Volatility Index (VIX) fell over 15% yesterday, closing below 18 as event risk diminished, making it cheaper to buy options. This environment is favorable for purchasing calls or using bull call spreads on major indices to capture upside potential with defined risk.Russell 2000 Surge Signals Opportunity
The rise in the Russell 2000 is significant, as small-cap stocks are very sensitive to the domestic economic outlook and borrowing costs. The July 2025 CPI report showed inflation cooling to a 2.8% annual rate, providing a great opportunity for these companies to excel. We recommend increasing exposure to the IWM (Russell 2000 ETF) through options. We are seeing a classic shift from safe stocks to growth, with Consumer Discretionary stocks climbing while defensive Consumer Staples declined. This trend supports strategies that take advantage of the shift, such as selling put credit spreads on strong consumer discretionary stocks. This behavior aligns with market trends observed during earlier easing cycles, like the one in late 2023. While the rally was strong, it’s essential to note that the NASDAQ still ended the week lower, indicating some caution remains in the tech sector. This suggests the rally is more broad-based rather than solely focused on technology for now. Therefore, derivative strategies should emphasize the S&P 500 and Russell 2000 rather than focusing exclusively on the NASDAQ 100. Create your live VT Markets account and start trading now.US receives AA+ rating with a stable outlook, showing confidence in fiscal stability
The United States has an AA+ rating with a Stable outlook from Fitch Ratings and S&P Global Ratings. However, Moody’s Investors Service has downgraded the U.S. to Aa1, citing concerns over debt and fiscal policy.
In comparison, Canada holds an AA+ rating from Fitch and AAA from S&P, while Moody’s rates it Aaa, all with Stable outlooks. The United Kingdom has an AA- from Fitch, AA from S&P, and Aa3 from Moody’s, with each rating labeled as Stable.
European Ratings
Germany is rated AAA by Fitch, S&P, and Moody’s, all with a Stable outlook. France receives an AA- from Fitch, an AA from S&P, and an Aa2 from Moody’s, with Stable outlooks. Italy’s ratings are BBB from both Fitch and S&P and Baa3 from Moody’s, maintaining a Stable outlook. Spain has ratings of A- from Fitch, A from S&P, and Baa1 from Moody’s, all rated as Stable. Japan is rated A by Fitch, A+ by S&P, and A1 by Moody’s, all with Stable outlooks. China holds an A+ rating from both Fitch and S&P, and an A1 from Moody’s, all rated Stable. Australia also maintains AAA ratings from Fitch and S&P, along with an Aaa from Moody’s, ensuring Stability. Moody’s downgrade of the U.S. in May 2025 has highlighted the differences between the ratings agencies. As the U.S. debt-to-GDP ratio rose to 110% in the second quarter of 2025, U.S. assets face ongoing pressure. This separate rating creates uncertainty for derivative traders. We’ve noticed that the cost to insure U.S. debt has increased. The 5-year credit default swap (CDS) spreads widened from 25 to 45 basis points following the downgrade and have remained there. This indicates that traders may want to adopt strategies to take advantage of the heightened perception of risk. Similar volatility followed S&P’s downgrade of the U.S. in 2011, lasting several months.Impact on Market Conditions
This downgrade is likely to result in higher future borrowing costs, leading to an increase in Treasury yields. The 10-year Treasury yield has stayed high around 4.75% since May, and we expect it could rise even further. Traders may consider selling Treasury bond futures or purchasing options that benefit from a climb in yields. Fiscal uncertainty has kept market volatility above normal levels. The VIX index has been fluctuating between 18 and 20, significantly higher than the calmer phases seen in 2024. This environment makes purchasing protective put options on the S&P 500 or call options on the VIX a smart hedging approach against a possible market dip. The U.S. dollar is currently more susceptible compared to currencies from AAA-rated countries like Canada and Australia. The U.S. Dollar Index (DXY) has already dropped 3% since Moody’s downgrade. We anticipate further dollar weakness, making long positions in the Canadian dollar or Australian dollar against the U.S. dollar appealing. As Fitch and S&P keep a stable outlook, all eyes will be on upcoming fiscal data and comments from the Federal Reserve. Any indication of fiscal tightening could swiftly change existing trends, while disappointing deficit reports could hasten them. The varying ratings mean the market will react sharply to any new information that supports one viewpoint over the other. Create your live VT Markets account and start trading now.WTI crude oil futures close at $63.66, up 1.05% for the week in a narrow trading range
WTI crude oil futures ended the day at $63.66, rising by $0.14 or 0.22%. The trading range was narrow, reaching a high of $63.93 and a low of $63.31.
During the week, oil prices dipped to $61.45 on Monday and tested the falling 100-hour moving average. They then fell to $61.67 on Tuesday. Prices later climbed above the 100- and 200-hour moving averages but returned to the 100-hour average on Thursday. Buyers stepped in to support the price, leading to a rally that peaked at $63.93, the week’s highest point.
Buyers Keep Short-Term Control
Over the week, prices increased by 1.05%. They stayed above the 100- and 200-hour moving averages, showing buyers have some control in the short term. However, prices are still below the 100-day moving average at $64.36 and the 38.2% retracement level from the late July high at $64.91. For buyers to regain stronger control, they need to push prices above these levels. The price action indicates that buyers are gaining short-term control, pushing WTI crude oil above hourly moving averages for a small weekly gain. However, significant resistance is present at the 100-day moving average of $64.36 and the Fibonacci level at $64.91. Traders should closely monitor these levels, as a failure to break and remain above could suggest this week’s rally is merely a temporary bounce in a larger downward trend. This technical outlook is affected by mixed fundamental factors. The latest IEA monthly report, released last week, slightly lowered its global demand forecast for Q4 2025. This adjustment followed a surprising dip in China’s manufacturing PMI data, which fell to 49.7. Concerns over demand from this crucial consumer are keeping prices tethered and making consistent breakout harder. On the supply side, last week’s EIA report revealed a surprising U.S. crude inventory reduction of 3.1 million barrels, which fueled rally momentum in the second half of the week. OPEC+ has also signaled it will maintain current production quotas through the third quarter, providing market stability. This situation keeps supply tight, creating a support level around $61.50.Immediate Uncertainty and Risk Premium
Adding to the immediate uncertainty, the National Hurricane Center is monitoring a tropical system in the Atlantic with a 60% chance of affecting the Gulf of Mexico early next month. The potential for disruptions to Gulf Coast production and refining could introduce a risk premium in the days ahead. This situation makes aggressive bearish positions riskier until the storm’s path is clearer. We’ve seen similar scenarios in late summer 2023 when prices fluctuated around key technical levels before broader economic fears triggered a significant drop into the fourth quarter. This history highlights that September can be a volatile month for energy markets. The current setup, with prices squeezed between short-term support and major resistance, suggests increased volatility may be on the horizon. Given these mixed signals, derivative traders might explore strategies that benefit from a range-bound market or a sharp rise in volatility. Selling options premium through iron condors with strikes outside the $61-$66 range could be a good strategy for the coming weeks. Alternatively, traders expecting a breakout from the hurricane threat might consider buying straddles for potential significant price movements in either direction. Create your live VT Markets account and start trading now.Trump responds positively to Canada’s tariff removal and looks forward to further talks with Prime Minister Carney.
Donald Trump welcomed Canada’s decision to drop retaliatory tariffs, expressing hope for better relations. He mentioned an upcoming call with Prime Minister Carney after a productive conversation the day before.
On the topic of Russia, Trump noted that President Putin might go to the World Cup and voiced his concerns about a recent pipeline attack. He predicted that developments regarding Russia and Ukraine would become clearer in two weeks.
