Insights 
VT 
The Baker Hughes US oil rig count has reached 420, exceeding the forecast of 416. This data reflects the current activities in the US oil industry.
The EUR/USD is trading around 1.1600, with recent CPI data not impacting the Federal Reserve’s stance. In the stock market, the Dow Jones Industrial Average achieved a record high due to softer inflation data.
British Pound Weakness
The British Pound weakened below 1.3300, marking its sixth consecutive drop amid a strong US Dollar. Gold rebounded above $4,100 per troy ounce with market participants observing US-China trade talks and US shutdown developments.
Cryptocurrencies like Bitcoin, trading over $111,000, and altcoins such as Ethereum and Ripple, are experiencing uptake in demand. JPMorgan is planning to introduce Bitcoin and Ethereum-backed loans for institutional clients by the year’s end.
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With the Federal Reserve widely expected to cut interest rates next week, we are preparing for a spike in volatility. The ongoing government shutdown means this decision will be made with incomplete economic data, making the outcome and the Fed’s forward guidance highly uncertain. Options pricing shows this, with implied volatility on S&P 500 options for the coming weeks trading at a premium compared to later expiries.
Hedging Strategy
Given that the Dow Jones is sitting at a record high, hedging long equity portfolios seems prudent. Buying protective puts on major indices can guard against a “sell the news” reaction if the Fed’s guidance isn’t as dovish as the market hopes. We have seen similar pullbacks in the past, such as during the 2019 rate-cutting cycle, where initial market euphoria gave way to profit-taking.
Gold’s rally above $4,100 is directly tied to these rate cut bets, which lower the opportunity cost of holding the non-yielding metal. We see this trend continuing, making long positions through gold futures or call options on gold ETFs an attractive play. The dollar’s softness should provide an additional tailwind for precious metals in the near term.
In the energy markets, the small rise in the oil rig count to 420 suggests that US production remains responsive to prices. This is likely to put a cap on any significant crude oil rallies in the coming weeks as supply can ramp up quickly. Looking back at historical data, periods of rising rig counts, even minor ones, have often preceded a consolidation in oil prices.
The US Dollar is likely to remain under pressure leading into the Fed meeting, benefiting currencies like the Euro. At the same time, the British Pound is weakening on bets that the Bank of England will also cut rates, creating potential for trades that are long EUR/GBP. We are watching these currency pairs closely for breakouts.
