Morgan Stanley recommends being cautious about expectations for a dovish stance in the upcoming Federal Reserve minutes. Attention should be on the split between dovish dissenters and the core Fed views, particularly regarding the labor market and inflation caused by tariffs. Recently, Fed communications have seemed more dovish, but Morgan Stanley believes this sentiment is less than what the market expects. Today’s Fed minutes will reveal the disagreements among policymakers with varying views.

Key Concerns from Morgan Stanley

Morgan Stanley outlines two main concerns. First, how much the Fed values the easing labor market conditions. Second, the Fed’s views on how tariffs affect inflation and potential stagflation. Morgan Stanley expects the Fed minutes will show ongoing disagreements but won’t fully match market hopes for a dovish outcome. This could lead to disappointment if traders lean too much on these events to confirm a rate cut in September. Markets appear overly eager for a strong dovish signal from the upcoming Federal Reserve minutes. There’s clear tension between a few dovish voices and the cautious approach of the core Fed leadership. This disagreement, especially regarding the labor market and tariff-related inflation, creates a risk for disappointment. Current market pricing suggests a 75% chance of a rate cut in September, which is quite optimistic. However, with the July Consumer Price Index showing inflation at 3.4% and last month’s non-farm payrolls adding a robust 190,000 jobs, the Fed has reasons to pause. This scenario recalls the market overestimating the Fed’s actions in 2023, only to face a “higher for longer” reality.

Strategies for Possible Market Surprises

Given this context, it may be wise to consider positions for a potential hawkish surprise using interest rate derivatives. A less dovish tone in the minutes could lead the market to rethink the chance of a September rate cut, resulting in downward pressure on short-term rate futures. Traders could explore strategies to benefit if rates remain higher than currently expected in the coming months. The uncertainty surrounding the minutes release suggests increased market volatility. The VIX, currently near yearly lows of 14, appears underpriced given the potential for a significant market surprise. Buying call options on the VIX or VIX futures could be a smart way to prepare for a spike in volatility if the Fed’s message does not align with market expectations. This situation could also pressure equity markets, which have risen based on expectations for lower rates. We believe it makes sense to acquire some downside protection for major indices. Buying put options on the S&P 500 with a late September expiration could offer a solid hedge against a market downturn. A more cautious Fed would likely support the US dollar. If the Fed indicates it isn’t in a hurry to cut rates, the dollar is expected to strengthen against currencies from more dovish central banks. We see a chance to go long on the US dollar, especially against currencies where rate cuts are more likely. Create your live VT Markets account and start trading now.

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Goldman Sachs thinks that Federal Reserve Chair Powell’s speech will be the highlight of the Jackson Hole Symposium. His address usually has the biggest impact on the market. The firm expects a return to flexible inflation targeting as a key Fed strategy. Investors will mainly look for insights about the US economic outlook and any updates on the Fed’s monetary policy.

Keep an Eye on Side Interviews

The firm recommends watching side interviews for policy clues, especially any unexpected comments from ECB or BOE officials about inflation or policy changes. These unscheduled remarks could affect the markets, particularly Forex, if they diverge from what’s currently expected. ECB President Lagarde and BOE Governor Bailey will also be present at the symposium, joining a panel on Saturday. Their participation is noteworthy as attendees will be eager to learn about their economic views and policy approaches. With Powell’s speech coming up this week, we are getting ready for changes in interest rate expectations. The market will focus on his take on the economic outlook, especially after the modest 1.5% GDP growth seen in the second quarter of 2025. A shift to flexible inflation targeting might mean the Fed will adopt a more patient approach, even while the core CPI remains at 2.8%. This possible policy change introduces uncertainty, which can be an opportunity for options traders. We’re considering positions that could benefit from increased volatility in interest rate futures, as the direction of monetary policy may become less certain. This situation reminds us of the large market fluctuations following Powell’s hawkish Jackson Hole speech in 2022, showing how one speech can influence the market for months.

Market Movement Potential

We believe the main event won’t be the only source of market movement. Unscheduled comments can surprise traders. This year, side interviews with ECB President Lagarde or BOE Governor Bailey are particularly significant. Any unexpected remarks from them about inflation or policy could lead to notable price changes, especially in currency markets. We are specifically monitoring the foreign exchange markets for signs of policy differences. With the Eurozone’s July 2025 manufacturing PMI data showing a decline at 48.5, any dovish signals from Lagarde could push the EUR/USD pair lower. Therefore, considering options like buying puts on the euro might be a smart way to bet on this possible outcome. Create your live VT Markets account and start trading now.

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The Nasdaq saw a decline due to profit-taking and hedging ahead of Fed Chair Powell’s speech at the Jackson Hole Symposium. Initially, the Nasdaq was performing well after the US CPI report met expectations. However, it was impacted by unexpectedly high US PPI data, better jobless claims, and rising inflation predictions.

Speech Speculation and Market Reaction

Traders began to focus on Powell’s upcoming speech. Concerns about possible hawkish signals led to increased selling and hedging, resulting in a more pronounced market pullback. If Powell indicates that a rate cut might happen in September, it could lead to a rally as traders unwind their hedges. The Nasdaq fell back to an important upward trendline on the daily chart, where both buyers and sellers are planning their next moves. Buyers want to push towards new highs, while sellers are looking for a break below the trendline to push prices down to the 22,800 level. On the 4-hour chart, a small upward trendline was broken, which affected sellers’ actions. Ongoing defensive trading caused further declines. The 1-hour chart indicates a minor downward trendline, suggesting bearish momentum. Upcoming economic releases and Powell’s speech are likely to increase market volatility. The Nasdaq’s decline to a critical upward trendline shows that traders are reducing their risk before the Jackson Hole speech. Recent strong data, like the Producer Price Index for July rising 0.6% month-over-month and jobless claims dropping to 205,000, has raised uncertainty about the Fed’s next steps. This nervousness has led traders to take profits and hedge their positions. Market uncertainty is evident in volatility metrics. The CBOE Volatility Index (VIX) has risen from a monthly low of 14 to over 18, indicating that traders expect a larger swing in the Nasdaq in the next 30 days. A higher VIX makes buying options more expensive but also signals an expected significant market movement.

Fed Speech Impact and Trading Strategies

All eyes are on Fed Chair Powell’s speech this Friday, which could result in a swift market move. His tone will be crucial; if he suggests a September rate cut is possible, it could lead to a significant rally. Conversely, if he signals that more time and data are needed before considering a cut, the market could decline. Traders expecting a rally from this trendline might consider buying call options or call spreads on the Nasdaq 100. This strategy allows them to partake in potential gains while managing their risk. It aligns with the belief that dip-buyers will come in at this crucial technical level, anticipating a dovish speech outcome. A move above the short-term downward trendline would also support this strategy. On the other hand, traders who believe the recent high inflation and job data will push Powell toward a hawkish stance might look to buy put options. This offers protection against a break below the major trendline, potentially leading to a slide toward the 22,800 level. Such trades could benefit from increased downside movement after the speech. For traders uncertain of the direction but expecting volatility, a long straddle or strangle could be suitable. This involves buying both a call and a put option, allowing them to profit from significant movements in either direction. This strategy banks on the anticipation that the market’s expectation of a neutral, data-driven speech might not hold true. It’s essential to recall how the market reacted sharply to Powell’s hawkish tone at the Jackson Hole Symposium in August 2022, which led to a significant sell-off. This serves as a reminder that a brief but impactful speech can reset market expectations, highlighting potential downside risks. As we await Powell’s speech on Friday, today’s FOMC meeting minutes and tomorrow’s US Flash PMI and Jobless Claims data are also on our radar. These releases may cause short-term price fluctuations and potentially influence trader positions heading into the main event. Traders should prepare for volatility throughout the week, not just on Friday. Create your live VT Markets account and start trading now.

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The S&P 500 is falling to important levels ahead of Fed Chair Powell’s speech at the Jackson Hole Symposium. Traders are likely cutting back on their positions and setting up protections because of the stronger-than-expected US Producer Price Index (PPI), improving jobless claims, and unexpected inflation expectations from the University of Michigan survey. Before this recent data, the S&P 500 had gained from the US Consumer Price Index (CPI) report meeting forecasts. However, the market mood shifted with concerns about Powell’s speech, leading to a pullback as traders reacted to possible discussions about interest rates.

Possible Rate Decisions

Powell may not announce specific actions, instead choosing to wait for more data. If he hints at a possible rate cut in September, it could lead to a rally as traders unwind their protections. On the other hand, if he limits prospects for a September cut, the stock market could decline further. On the daily chart, the S&P 500 could not hold its rally above a previous high and is now heading toward a significant trendline around the 6,380 level. Buyers might step in below this trendline, while sellers could aim for a further pullback to 6,241. In the 1-hour chart, a slight downward trend suggests bearish momentum, with sellers ready to push for lower prices and buyers looking for a breakout.

Upcoming Events

Key upcoming events include speeches by Fed’s Waller, the FOMC meeting minutes, US PMIs, jobless claims, and Powell’s speech. Create your live VT Markets account and start trading now.

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European trading has been slow this week as market players wait for important news. The New Zealand dollar dropped after the Reserve Bank of New Zealand announced a cautious policy decision, bringing NZD/USD down by 1% to 0.5830. Meanwhile, major currencies like EUR/USD and USD/JPY have shown only slight changes, with each down by 0.1%.

GBP/USD’s Performance

GBP/USD has risen a bit by 0.1% to 1.3502, following the release of inflation data. However, there is pressure from large option expiries at the 1.3500 level. In the broader market, European stocks and US futures are down, reversing some of the previous day’s gains after a decline on Wall Street. Notable upcoming events include earnings reports from Target and Walmart. Traders are waiting for more key updates, including the upcoming Fed minutes and PMI data from both the Eurozone and the US. The weekly report on initial jobless claims in the US is also on the horizon. The most anticipated event is Fed Chair Powell’s speech at the Jackson Hole symposium on Friday. The current market calm indicates potential changes ahead. With the VIX index close to a low of 13, implied volatility is low, making it more affordable to enter options strategies. This offers a chance to prepare for a significant price movement before it occurs. Attention is focused on Fed Chair Powell’s speech this Friday, especially after the recent US inflation data for July 2025 showed a rise to 3.1%. Recall the market downturn following his hawkish remarks at last year’s event to understand the possibility of a sharp reaction. This week’s calm is likely the calm before a storm.

Market Expectations

The tight ranges in EUR/USD and USD/JPY reflect the hesitation as traders wait for signals about future interest rate changes. A long straddle on the dollar index or related currency pairs might be a savvy approach to trading the outcome of Friday’s speech. A clear message from Powell will likely shake these pairs out of their current stagnation. For GBP/USD, the large option expiries at the 1.3500 strike are providing temporary support, but this effect will decrease after today. Similarly, while Walmart’s retail earnings will offer insights into consumer strength, they are not as significant as Powell’s remarks on the economy, which will ultimately influence market direction into September. Create your live VT Markets account and start trading now.

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Eurozone’s final Consumer Price Index (CPI) for July has been confirmed at +2.0% year-on-year, matching preliminary estimates, according to Eurostat data released on August 20, 2025. This is the same as the previous month’s CPI rate of +2.0%. The core CPI, which excludes volatile items, remains at +2.4% year-on-year, unchanged from both the preliminary estimate and last month. These numbers support the European Central Bank’s (ECB) decision to keep its current policy through the summer.

Current Inflation Situation

The most recent inflation data confirms trends we’ve noticed for some time. Headline inflation has reached the ECB’s 2.0% target, but core inflation still remains at 2.4%. This means there’s little reason to expect a quick change in policy. It reinforces the idea that the ECB will likely maintain its key interest rate at 3.75% for the rest of the summer. For traders, this means shifting focus away from betting on immediate rate increases or cuts. There’s low confidence in predicting short-term market movements, as Euribor futures show a high chance of rates staying the same through the September meeting. The real opportunity lies in the growing tension between inflation and slowing economic growth. This tension is becoming clearer, especially after the recent ZEW Economic Sentiment figures for August 2025 showed a decline and preliminary Q2 GDP growth was revised down to only 0.1%. While the ECB remains concerned about persistent core inflation, the weakening growth outlook may lead them to consider easing policies later this year. This difference creates uncertainty, which is often a good environment for strategies based on volatility.

Market Opportunities

Given this landscape, we see potential in positions that could benefit from increased market movement, regardless of the direction. Buying options on indices like the Euro STOXX 50 or on German Bund futures could be a wise strategy in the coming weeks. Implied volatility appears relatively low, considering the potential for sharp market changes following the next significant economic data. Looking ahead to the fourth quarter, the market will aggressively try to predict when the first rate cut might happen. Currently, forward-looking instruments like overnight index swaps suggest about a 40% chance of a 25-basis point cut by December 2025. We expect this probability to change significantly with each new growth or inflation report. We can look back at late 2023 and early 2024 when the US Federal Reserve was also on pause. During that period, major data releases led to significant short-term volatility as traders attempted to anticipate the central bank’s next move. We expect a similar pattern to emerge in European markets as we move into autumn. Create your live VT Markets account and start trading now.

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**Bitcoin Retracement Analysis** Bitcoin has pulled back to an important support level after new data from the US. Traders are now looking ahead to Fed Chair Powell’s speech at the Jackson Hole Symposium. Last week, Bitcoin rose after the US CPI report, but other economic data—like a higher-than-expected US PPI and improved jobless claims—led to profit-taking and hedging. Powell is likely to avoid committing to any specific actions, relying instead on the latest data. If he hints at a rate cut for September, Bitcoin could surge as traders unwind their hedges. On the flip side, if he indicates that the data isn’t strong enough for a rate cut, Bitcoin might drop. On the daily chart, Bitcoin has reached the support level of around 111,900. Buyers might step in here, hoping for a rally to new highs. However, sellers could push the price lower toward the 100,000 mark. The 4-hour chart shows a slight downward trend, indicating bearish momentum. Sellers might continue to act on this trendline, while buyers will aim to break it and boost their bets. On the 1-hour chart, there’s resistance at 114,500 along with a trendline that presents opportunities for sellers. Buyers need to break above this level to change the current trend. Key upcoming events include Fed speeches, FOMC minutes, and US economic reports, culminating in Powell’s speech on Friday. **Current Economic Conditions** Recent economic data has led to a risk-off trend in Bitcoin ahead of the Jackson Hole speech. The Producer Price Index for July 2025 unexpectedly rose by 0.6% month-over-month, and last week’s jobless claims dropped to a six-month low of 205,000. This suggests the economy is still too strong for the Fed’s liking, prompting traders to sell off riskier assets like Bitcoin, which has pushed the price down to a critical support level. We recall the aggressive rate hikes in 2022 and 2023, and the market is very sensitive to any signs of renewed hawkishness from the Federal Reserve. There’s concern that Powell might aim to dispel any hopes for an immediate rate cut, which could strengthen the dollar and hurt cryptocurrencies. This concern has led traders to seek downside protection, causing the 25-delta skew for Bitcoin put options to hit its highest level in three months. From a derivative viewpoint, the pullback to the $111,900 support level is a significant decision point. Open interest has risen as the price dropped, indicating that new short positions are being opened instead of just long-term holders selling. Funding rates for perpetual swaps have also turned negative on several exchanges, showing that traders are willing to pay more to bet on further price declines. **Market Strategy** If Powell implies that a September rate cut is still on the table, we could witness a massive short squeeze. In this scenario, traders would aim to close their short positions and unwind their hedges, potentially thrusting the price back toward recent highs. A good strategy would be to buy call options, allowing you to benefit from this upward momentum while keeping risk well-defined. On the other hand, if Powell rules out a September rate cut, this could trigger a break below the $111,900 support level. This would signal bears to increase their short positions or buy puts, with the next major targets being the psychological and technical level of $100,000. If this crucial support doesn’t hold, we would expect widespread liquidations. In the short term, we are keeping an eye on the minor downward trendline and the resistance zone around $114,500. Aggressive bears might find this area a solid level to initiate short positions, with a tight stop-loss just above the trendline. Meanwhile, bullish traders should wait for a confirmed break above this resistance before considering long positions, as that would indicate a weakening of the bearish momentum. Create your live VT Markets account and start trading now.

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The Euro-Area economy was strong earlier this year, but growth slowed down in the second quarter. Experts predict that this slowdown will continue into the third quarter. Even with a trade agreement with the US, uncertainty remains, as it doesn’t fully address concerns. The market expects only a small reduction of 11 basis points in rates by the end of the year, and there’s less than a 50% chance of that happening.

Data Shows Contraction

The European Central Bank (ECB) is acknowledging recent data trends. Eurostat reported last month that Euro-Area GDP growth was only 0.1% in the second quarter of 2025. The latest flash manufacturing PMI for August has dropped to 49.5, signaling a contraction. This aligns with expectations for a continued slowdown in the third quarter. The ECB is hesitant to indicate a clear easing path due to persistent inflation. Although inflation has significantly decreased from previous highs, the Harmonised Index of Consumer Prices (HICP) for July 2025 was still at 2.4%, above the 2% target. The central bank is cautious after a tough hiking cycle from 2023 to 2024 and does not want to risk changing its policies too soon. This scenario suggests a period of stable markets with low confidence, making it a good time to sell volatility. With the market expecting minimal action from the ECB, implied volatility for Euro Stoxx 50 options may be overestimated. Traders might benefit from strategies that take advantage of time decay and a lack of drastic market movements in the weeks ahead. For those anticipating worse economic data that could push the ECB to act, positioning for lower interest rates could be wise. The current market pricing of just 11 basis points in cuts by year-end seems low if we slip into a technical recession. Using Euribor futures or receiver interest rate swaps allows for a direct bet that the ECB will need to provide more stimulus than expected.

Safe-Haven Assets Rise

The safest way to express this slowdown might be in the government bond market. As growth weakens, demand for safe-haven assets like German Bunds should rise, increasing their prices and lowering yields. Buying call options on Bund futures provides a low-risk approach to benefit from this shift towards safety in the coming weeks. Create your live VT Markets account and start trading now.

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Market Caution Persists

European markets are showing caution today. The Germany DAX is down 0.8%, and the Eurostoxx 600 has dropped 0.6%. This defensive mood is also seen in US futures, which are declining after Wall Street’s downturn yesterday. The market is preparing for Fed Chair Powell’s speech at Jackson Hole later this week. This anxiety is understandable. The July 2025 Consumer Price Index (CPI) report showed an inflation rate of 3.1%, still above the Fed’s goal. With the current Fed Funds Rate at 4.00%, any strong hints from Powell could push back hopes for the next rate cut. We remember how his firm speech in 2022 led to a market drop, and that past event is influencing current trading. The uncertainty is evident in the rising implied volatility, with the VIX index climbing to 17.5 this morning. This indicates that traders expect a bigger move in the S&P 500 over the next month. For us, it makes sense to consider near-term protection, like buying puts on the SPY or VIX calls, to guard against any negative surprises from the Fed.

Economic Divergence Opportunities

In Europe, sluggish growth adds to the issue. The latest German ZEW Economic Sentiment survey reported a negative 5.2. This weak economy helps explain why the DAX is lagging behind US indices. This difference could create trading opportunities, like going long on US indices while shorting European ones, to benefit from contrasting economic trends. Create your live VT Markets account and start trading now.

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The USDJPY is trading in a tight range as traders await Fed Chair Powell’s speech at the Jackson Hole Symposium. The dollar opened the week strong, fueled by expectations of a hawkish Powell, which has created some market tension. Recent data, like improving Jobless Claims and rising inflation, indicates a low chance of a rate cut in September. The market expects around 54 bps of easing by the end of the year.

Japanese Yen Considerations

The yen has gained value due to expectations of a dovish Fed. It could rise further if US data weakens or if Japanese inflation increases, which might lead to higher interest rates. Possible additional fiscal support in Japan could also boost inflation. On the daily chart, the USDJPY is consolidating below 148.50, with this level acting as resistance, while support is around 145.50. If a breakout occurs, buyers may push for a rise toward 151.00. The 4-hour chart shows volatility, with prices fluctuating between resistance at 148.50 and a low at 145.86. All eyes are on Powell’s speech as traders wait patiently. The 1-hour chart reveals a downward trendline, suggesting bearish momentum, with sellers aiming for 145.86 and buyers looking to break above the trendline to challenge resistance at 148.50. Upcoming events include speeches, PMIs, jobless claims, Japanese CPI, and Powell’s address. As the week nears its end, the market stays tense in anticipation of Powell’s speech. The USD/JPY pair is caught in a narrow range, reflecting uncertainty about a hawkish or dovish outcome. This kind of consolidation often happens before major central bank announcements. Powell has little reason to hint at a rate cut soon, especially with the recent data. Core PCE inflation is still high at 2.8%, well above the Fed’s target, and last week’s jobless claims remained low at 212,000, indicating a strong labor market. These figures suggest the Fed will be patient before starting to cut rates.

Market Strategy and Outlook

Currently, the market is expecting about 54 basis points of cuts by the end of the year, which seems overly optimistic. In his 2023 Jackson Hole speech, Powell emphasized tackling inflation, setting a precedent for a hawkish stance. A similar message this Friday could cause the market to push expectations for rate cuts further into the future. For the yen to appreciate significantly, US economic data would likely need to deteriorate sharply. The latest Tokyo CPI rose to 2.5%, but it’s not enough to prompt a more aggressive Bank of Japan. At this stage, the dollar’s movement largely dictates the pair’s direction. With the potential for a significant price shift after Powell’s speech, buying volatility appears to be a smart strategy for derivative traders. A long strangle, which involves purchasing both an out-of-the-money call and put, is worth considering for capitalizing on a large breakout. This approach enables traders to profit from sharp moves without predicting the exact direction. We are closely monitoring the 148.50 level as key resistance and trendline support around 145.50. A break through either of these boundaries after the speech would indicate the next big move for the pair. Setting strike prices for an options strategy outside the current range could position traders well for the anticipated volatility increase. Create your live VT Markets account and start trading now.

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