In December, Tokyo’s Consumer Price Index excluding fresh food rose by 2.3% year-on-year. This was below the forecast increase of 2.5%.
The USD/CAD traded near five-month lows, influenced by policy divergence between Bank of Canada and the Federal Reserve. Gold retreated from its record highs and traded below $4,500 as profit-taking emerged.
Forex and Cryptocurrency Highlights
The EUR/USD struggled to find direction, moving sideways below 1.1800. Meanwhile, GBP/USD remained around 1.3500 amid subdued holiday trading activities.
Bitcoin dropped below $87,000 with intensified ETF outflows, marking a decline in whale participation. Economic forecasts for 2026 suggest potential solid performance in advanced countries.
Avalanche traded near $12 following a filing by Grayscale to convert its Avalanche Trust into an ETF. Various articles discuss the best brokers for 2025, recommending options for different trading needs and regions.
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With the Tokyo CPI for December coming in below expectations at 2.3%, we see the Bank of Japan’s path to raising interest rates as less certain. This renewed sign of disinflation may delay any policy tightening, suggesting renewed weakness for the Japanese Yen. We should consider using options to position for a higher USD/JPY exchange rate going into the first quarter of 2026.
Economic Outlook and Trading Strategies
The consistent theme remains the expectation of the Federal Reserve easing its policy, which is weighing on the US Dollar and supporting gold prices. Gold’s recent dip below $4,500 from its all-time highs looks like temporary profit-taking in a thin holiday market. Given that futures markets are pricing in over a 75% chance of a Fed rate cut by March 2026, we view this pullback as an opportunity to buy call options on gold.
This dovish Fed outlook, combined with a resilient economy, supports a positive view on US equities for the coming year. The latest economic data from the third quarter of 2025 showed solid GDP growth of 2.1%, reinforcing the “soft landing” narrative that allows for rate cuts. We should look at buying S&P 500 call options expiring in early 2026 to capitalize on this expected market strength.
Finally, we must acknowledge the extremely low volatility typical of the holiday period. The VIX index is currently trading near its 52-week low, a pattern we also observed in late 2023 and 2024 before activity resumed in January. This presents a cheap opportunity to buy VIX call options or other long-volatility instruments in anticipation of markets returning to full force next month.
