The US Energy Information Administration reported a crude oil stock change of 6.413 million barrels, surpassing the expected 2 million. This figure was recorded on 7th November, revealing a larger increase in stocks than forecasted.
The financial markets have seen various shifts, with the Dow Jones Industrial Average falling by 850 points. Meanwhile, EUR/USD has hit a two-week high above 1.1650 as the US Dollar weakens.
Gold And Ethereum Updates
Gold has dropped to $4,150 per ounce, despite pressure from rising US Treasury yields. Ethereum saw a 7% fall, with notable profit and loss realisations recorded.
Ripple remains slightly below $2.50, buoyed by risk-on sentiment. The Bank of Japan is speculated to reconsider interest rate hikes with the current rate at 0.5%.
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We saw a significant build in crude oil inventories last week, coming in at over 6.4 million barrels when only 2 million was expected. This suggests that demand is softening more than anticipated, a trend we’ve seen periodically since the post-pandemic slowdowns of 2023 and 2024. We are therefore looking at buying put options on WTI crude futures to profit from a further slide in prices toward the lower end of their recent range.
Markets On The Move
The US dollar is showing clear weakness, with the Euro pushing past 1.1650 for the first time in many months. This appears to be a reaction to the economic uncertainty caused by the recent 43-day government shutdown, which historically creates volatility and can weaken the dollar. We are considering call options on the Euro or put options on the Dollar Index (DXY) to play this continued slide.
The sharp 850-point drop in the Dow signals that fear is returning to the equity markets. This move has likely pushed the VIX, the market’s fear gauge, well above its recent average of around 17 that we saw for much of 2024. Buying VIX call options or purchasing puts on the S&P 500 could be a prudent strategy to protect portfolios from further declines.
Gold is in a confusing spot, falling to $4,150 an ounce even as the dollar weakens. This is being driven by rising Treasury yields, which make non-yielding gold less attractive, a dynamic we saw play out during the aggressive rate-hiking cycle of 2022-2023. It may be best to use options to create a straddle, betting on a large move in either direction once the market decides which factor is more important.
With the Bank of Japan still hesitant to raise its 0.5% interest rate, the yen’s strength against the dollar appears to be driven by dollar weakness rather than its own appeal. The USD/JPY pair dipping to 154.50 is a major move, breaking levels not seen since the intervention scares of two years ago. We see an opportunity in options that bet on volatility in the yen, as the market is torn between the weak dollar and the Bank of Japan’s inaction.
