European equities are experiencing an uptick, maintaining momentum from Wall Street’s positive performance. The Eurostoxx, Germany’s DAX, and Spain’s IBEX each increased by 0.4%. Meanwhile, France’s CAC 40, the UK’s FTSE, and Italy’s FTSE MIB saw a rise of 0.3%.
There is optimism at session start following Wall Street’s late surge. US futures are stable, with S&P 500 futures advancing by 0.08%. In the foreign exchange market, the dollar is weakening, with the EUR/USD rising 0.3% to 1.1705 due to post-CPI effects influencing European trading.
Optimism Fueled by Inflation Reports
The optimistic open in European markets is a direct reaction to yesterday’s softer-than-expected inflation reports from both sides of the Atlantic. We believe this suggests a path for buying near-term call options on major indices like the Germany DAX or the Eurostoxx 50. The goal is to ride this current wave of positive sentiment for the coming weeks.
Recent data showed Eurozone HICP inflation falling to 1.9%, just below the 2.1% that analysts had forecast. This eases pressure on the European Central Bank to resume any hawkish policy this year. This reinforces the current appetite for risk-on assets we are seeing this morning.
In the currency market, the dollar’s weakness is the main story, pushing EUR/USD firmly above the 1.1700 handle. This move is fueled by the belief that the Federal Reserve can maintain its policy pause. We see this as an opportunity to buy EUR call options, targeting a potential move towards the 1.18 level.
Market Volatility Trends
With the key inflation data now in the rearview mirror, we have seen a significant drop in market volatility. The Euro Stoxx 50 Volatility Index (VSTOXX) has fallen to near 14, its lowest point in over three months. This makes selling out-of-the-money puts an attractive strategy to collect premium, betting on continued market stability.
From our perspective in 2025, this market behaviour is very similar to what we witnessed back in late 2023. At that time, the first signs of peaking inflation sparked major equity rallies as traders began to price in a central bank pivot. The current environment feels very familiar, suggesting this positive momentum could persist.
