Market liquidity starts off thin on Monday mornings, stabilising as more Asian markets open. Current rates show minor changes from late Friday with EUR/USD at 1.1735 and USD/JPY at 147.78, among others.
Top events include potential US tariffs on EU goods, which could affect EUR/USD rates. The US and China recently had trade talks, with anticipated updates. Also featured are pivotal analyses and forecasts for S&P 500 futures and major economic events this week.
Risk Warnings
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We should be cautious with the thin liquidity at the start of the week, as prices can be erratic. The proposed 15-20% tariff on all EU goods is a major risk, likely to push EUR/USD lower and increase volatility. We can hedge this by looking at put options on the Euro, especially as recent Q2 2025 data showed EU exports to the US at a five-year high, making the threat more potent.
Central Bank Meetings
A significant week of central bank meetings lies ahead, including the FOMC, BoE, and BoJ. With the latest US Core PCE inflation data from July 2025 still hovering above 3%, the market is pricing in a hawkish stance from the Fed. This means derivatives tied to interest rates, like SOFR futures, will see significant activity as traders position for the Fed’s announcement.
In the equity markets, the S&P 500’s failure to break above the 6600 level suggests a potential ceiling. We have seen a notable 25% increase in open interest for SPX put options with a 6500 strike for October 2025, indicating that many are preparing for a pullback. This brings back memories of the sharp sell-off we saw in late 2023 when similar resistance levels were met with aggressive selling.
The weekend’s US-China trade talks add another layer of uncertainty, particularly for commodity currencies like the Australian Dollar. Any negative news could pressure AUD/USD below its recent 0.6600 support level. Traders are using option straddles to position for a significant move in the pair, as any outcome from these talks is likely to cause a sharp reaction.
