The US Services PMI is anticipated to demonstrate substantial stability in September, reflecting resilience in the sector. Concurrently, the US Dollar has been declining amidst persistent uncertainty concerning the economic effects of the US shutdown.
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The ongoing US government shutdown is creating significant market uncertainty, which is a key driver for our strategy in the coming weeks. We’ve seen similar situations before, like the 2018-2019 shutdown which caused the VIX volatility index to spike above 30, and options premiums are elevated again. Traders should consider strategies like straddles on major indices to profit from this expected volatility, regardless of the direction.
Gold Heading Toward Record Highs
Gold is pushing toward record highs near $3,870 an ounce, acting as the primary safe haven from the dollar’s weakness. This price action is reminiscent of past crises, where uncertainty drove capital into hard assets. We believe using call options on gold futures or ETFs offers a way to capture further upside potential while defining and limiting risk.
The weakness in the US dollar presents opportunities in currency pairs, but we must be cautious about weakness elsewhere. For instance, the slowdown in Italian retail sales to just 0.5% growth confirms a broader trend, with recent data showing Germany’s manufacturing PMI also in contraction at 48.5. This suggests that while EUR/USD may climb on dollar weakness, any rally could be fragile, making options a better tool than spot trading to manage this two-sided risk.