In September, the United States saw an increase in housing starts change, improving to -4.6% from the previous -8.5%. This adjustment in the housing market reflects a change over the preceding month, providing insight into market stability.
In related news, the US University of Michigan consumer sentiment index rose to 54 in January, surpassing expectations of 53.5. This might suggest a change in consumer outlook, indicating potential shifts in economic conditions.
Canada’s Labour Market Recovery
Elsewhere, Canada reports uneven labour market recovery, as per an analysis by RBC Economics. Meanwhile, China’s net gold imports from Hong Kong doubled in November, indicating a rise in demand for gold within the region.
The GBP experienced a slight weakening, underperforming compared to other G10 currencies. Furthermore, the EUR/USD exchange rate experienced a slight decline amidst ambiguous economic data, maintaining a low stance after a mixed US labour-market report.
The US dollar appears set to continue its run, boosted by geopolitics and the market’s focus on the upcoming CPI data. We see currencies like the Euro and British Pound underperforming, with GBP/USD now challenging its 200-day moving average. Traders should consider positions that benefit from continued dollar strength, such as buying call options on dollar index funds.
Stubborn inflation remains a primary concern, and we should position accordingly ahead of the next US inflation report. After seeing the Consumer Price Index hover around an unexpectedly high 3.8% in the final quarter of 2025, the Federal Reserve has signaled a pause on any rate cuts. This policy stance provides a strong floor for the dollar and keeps pressure on other central banks.
Gold and Inflation Hedging
Gold is showing significant strength, flirting with yearly highs near $4,500 an ounce, a level not seen since the inflationary pressures of last year. China’s move to double its gold imports suggests a major player is hedging against uncertainty. We think long positions in gold, through futures or options, remain a prudent strategy to hedge against both inflation and market fear.
While the US housing market is still contracting, the slowdown in housing start declines from -8.5% to -4.6% suggests the worst may be behind us. This isn’t a signal to go all-in on a recovery, but it could be an opportunity to sell put options on homebuilder ETFs. This strategy allows us to collect premium while betting that the sector has found a bottom and won’t fall significantly further.
For foreign exchange, we are watching the clear weakness in EUR/USD and GBP/USD. Recent German manufacturing PMI figures from late 2025 showed persistent contraction, giving us little reason to be optimistic about the Euro. Derivative traders could look at buying puts on these pairs to capitalize on the downward momentum.
In contrast to gold, riskier assets like cryptocurrencies are facing headwinds from slowing demand and persistent market fear. Bitcoin and Ethereum are showing signs of further decline as capital rotates into safer havens. We believe shorting crypto futures or buying puts on crypto-linked stocks may be advantageous in the coming weeks.
