The S&P 500 and Nasdaq 100 indices have reached new all-time highs, driven by strong expectations of a Federal Reserve interest rate cut. The probability of a rate cut in September has increased to 96% from 38% after recent hawkish comments. A 53% chance of three cuts and a 93% chance of two cuts by year-end are being anticipated, fuelling longer-term stock growth.
The Nasdaq100 is approaching 24,000, having recovered from its early August dip. Its long-term target, based on Fibonacci extension, suggests it could reach 30,000. The S&P 500 shows a similar technical outlook, with an expected target near 7800, following a 50% retracement correction from previous lows.
Surge In Japan’s Nikkei 225
Meanwhile, the Nikkei 225 in Japan has surged over 9.5% since last Monday. Influenced by American market sentiment and delayed Bank of Japan rate hikes, it reflects positive dynamics. The index aims for 50,000 from the current 43,300, amid falling commodity and energy prices.
In currency markets, EUR/USD hits two-week highs above 1.1700, expecting German inflation data. GBP/USD rises above 1.3550, influenced by a weaker US Dollar. Gold struggles for gains despite potential Fed rate cuts, staying within the $3,360 area.
With the market fully pricing in a Federal Reserve rate cut for September, we believe traders should position for continued upward momentum in equities. Given that the VIX (Volatility Index) has recently fallen to a low of 13.5, buying call options on the S&P 500 and Nasdaq 100 is an attractive strategy. This environment suggests that option premiums are relatively cheap for capturing further gains.
The strong technical outlook for US indices, targeting 30,000 on the Nasdaq and 7,800 on the S&P 500, justifies holding long positions through derivatives. We would consider buying longer-dated call options, such as those expiring in December 2025, to ride the expected wave of growth fueled by monetary easing. This view is supported by the recent July 2025 jobs report, which showed solid payroll growth of 215,000 but with wage increases cooling, giving the Fed a clear runway to cut.
Historical Market Reactions
We saw a similar market reaction back in late 2023 and early 2024, when anticipation of a Fed pivot ignited a powerful rally long before the first cut was ever made. That historical period shows that positioning for the *expectation* of cuts can be highly profitable. Therefore, waiting for the actual cut in September may mean missing a significant portion of the move.
In Japan, we see a clear opportunity as the Nikkei 225 shows strong momentum. We recommend buying Nikkei futures or call options to target the 50,000 level. The rally is supported by recent data showing Japan’s core inflation for July 2025 fell to 2.0%, easing pressure on the Bank of Japan to tighten its policy prematurely.
The weakening US Dollar presents a clear signal for currency traders. We should look to buy call options on the EUR/USD and GBP/USD or take long positions in currency futures. This strategy is reinforced by the European Central Bank, which, in its last meeting, signaled a more patient approach to rate cuts compared to the Fed’s dovish stance.
Despite a weaker dollar and pending rate cuts, gold’s struggle suggests that risk appetite is firmly focused on equities. This indicates that capital is flowing out of safe havens, overpowering the typically bullish factors for the metal. For now, we would use options to trade a range-bound strategy, like an iron condor, expecting gold to remain contained near the $3,360 level in the coming weeks.
