The US Dollar Index (DXY) stayed lower after giving up early gains near 98.30 during European trading on Monday, ahead of the US market open. The US Dollar eased as risk appetite improved amid reports of Iran’s readiness to end the war with the US soon.

Asian shares closed higher and European shares were up at the time of writing, while S&P 500 futures were flat before the US session. This followed a shift towards riskier assets.

Iran Proposal And Hormuz Developments

Axios reported that Iran, via Pakistani mediators, sent the US a new proposal on reopening the Strait of Hormuz and ending the war. The Strait of Hormuz is a key route for almost 20% of global energy supply, and nuclear talks were set aside for later.

The report also said US President Donald Trump cancelled a planned visit by US envoys to Islamabad over the weekend. Axios said Trump called it a waste of time, saying the counteroffer from Iranian foreign minister Seyed Abbas Araghchi was not sufficient.

Attention is also on the Federal Reserve decision due Wednesday. The Fed is expected to keep rates at 3.50%–3.75% for a third straight meeting and to warn about upside inflation risks linked to higher energy prices and supply shocks.

The US Dollar Index is currently showing weakness, trading around 106.50 after a recent surge driven by geopolitical tensions surrounding OPEC+ production. This shift follows unconfirmed reports of a potential emergency meeting to stabilize oil prices, which has calmed markets and spurred a risk-on appetite. WTI crude has already pulled back from over $95 to the $89 level on this news.

We saw a similar pattern in 2025 during the brief Strait of Hormuz standoff, where a sudden de-escalation caused a rapid unwinding of safe-haven dollar positions. That event showed how quickly sentiment can reverse when major energy supply fears are taken off the table. The dollar fell sharply against the euro and yen in the days that followed.

Derivatives Market Signals

This shift is visible in the derivatives market, with the CBOE Volatility Index (VIX) dropping from a high of 22 to below 18 in the last day. Traders should consider that selling volatility may become a popular strategy if these geopolitical tensions continue to ease. The falling premium on S&P 500 puts is the clearest indicator of this changing sentiment.

With the dollar potentially weakening, traders could look at options on major currency pairs like EUR/USD. Buying near-term euro calls or selling dollar calls offers a direct way to position for a continued risk-on move. Implied volatility on G7 currency options has fallen, making these strategies cheaper than just a week ago.

Finally, we must consider the upcoming Federal Reserve meeting in early May. A pullback in energy prices could ease inflationary pressures, potentially softening the Fed’s hawkish stance. Fed funds futures have already adjusted, with the market now pricing a 55% chance of a rate hike, down from 70% yesterday morning.

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The Australian Dollar rose against the US Dollar on Monday, reaching 10-day highs near 0.7190 after rebounding from around 0.7100 last week. The move comes as the US Dollar weakened and AUD/USD traded close to 0.7200.

Axios reported that Tehran sent a peace proposal to the US, offering to end the war and reopen the Strait of Hormuz. The report also said nuclear talks would be delayed to a later stage.

Central Bank And Inflation Focus

Markets are also focused on central bank meetings and inflation. The US Federal Reserve is expected to keep rates unchanged at 3.50%–3.75% after the FOMC meeting on Wednesday.

Futures pricing in the CME FedWatch Tool shows a 66% chance that policy will still be on hold by year-end. Before the war, markets priced between one and two rate cuts.

Australian CPI data is due before the Reserve Bank of Australia decision next week. Inflation is expected to have risen in the first month of the US–Iran war, which has increased expectations of a third consecutive rate rise in May.

We remember when the Aussie dollar rallied towards 0.7200 in 2025, driven by hopes of a peace proposal in the Iran conflict and an aggressive Reserve Bank of Australia. That period was defined by a hawkish RBA outlook while the US Federal Reserve was expected to hold steady. The market dynamics today, on April 27, 2026, are substantially different.

Rate Differentials And Trading Implications

The interest rate advantage that benefited the Aussie last year has since narrowed considerably. While the RBA did hike its cash rate to its current 4.60%, the Federal Reserve also resumed tightening later in 2025, bringing the Fed Funds Rate to a 4.25-4.50% range. This convergence of policy has capped the AUD/USD, which is now trading near 0.6750.

Inflationary pressures have eased from their wartime peaks, but remain a key focus. Australia’s latest quarterly CPI reading was 3.1%, still above the RBA’s target, while the most recent US CPI came in at a sticky 3.4%. This suggests neither central bank is in a hurry to cut rates, creating a potential stalemate for the currency pair.

For derivative traders, this environment of high but stable interest rates and reduced central bank divergence points towards range-bound price action. Selling volatility could be a viable strategy in the coming weeks. Establishing short strangles by selling out-of-the-money call options above 0.6900 and put options below 0.6600 could capitalize on this expected lack of a strong directional trend.

The key events to watch will be the next Australian quarterly CPI release and the upcoming FOMC meeting in May. Any surprises in that data, particularly a sharp deviation in inflation for either country, could break the current range. Until then, implied volatility in AUD/USD options remains subdued compared to the levels seen during the conflict last year.

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The US dollar is trading weaker as markets react to hopes of a Gulf peace deal and news that a US Department of Justice probe into Federal Reserve Chair Jerome Powell has ended. The probe related to the Federal Reserve building refurbishment.

Two conflict outcomes are shaping expectations for the dollar. A quick end to the conflict could leave the dollar lagging other major currencies.

Oil Disruption And Currency Divergence

If oil flows remain disrupted for longer, energy-importing economies may be harmed more than energy-exporting economies. In that case, the US and other exporters could fare better than importers.

The report also links the end of the DoJ probe to the prospect of Kevin Warsh being confirmed as the next Fed Chair. It says this could lead to more Treasury and Fed co-operation and lower interest rates.

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Looking back, the analysis from 2025 correctly identified the key risks to the dollar’s softness. The market was hoping for a quick resolution in the Gulf, but that complacency proved costly for some. We now know the disruption to oil flows lasted longer than anticipated.

Market Impact And Trading Implications

That prolonged conflict was a net positive for the US dollar, just as predicted. As WTI crude prices spiked to over $95 a barrel in the final quarter of 2025, the economies of major energy importers like Japan and Germany faltered. In response, the US Dollar Index (DXY) strengthened significantly, climbing from the low 100s to a peak of 107 before settling where it is today.

We also saw the predicted change in Fed leadership after the probe into Chair Powell concluded. Kevin Warsh’s confirmation did initially lead to market hopes for lower interest rates and a weaker dollar. However, reality has been more complicated, as sticky inflation prevented the kind of deep cuts the previous administration wanted.

With core inflation still holding above the Fed’s target at 3.1% year-over-year, the path for interest rates remains uncertain. This creates a tense standoff between political pressure for lower rates and the Fed’s mandate for price stability. This uncertainty is the key element for traders to focus on now.

Therefore, derivative strategies should focus on this unresolved tension. Volatility in currency markets, particularly for the EUR/USD and USD/JPY pairs, is likely to increase as we get closer to the next Fed meeting. Buying options like straddles or strangles could be a prudent way to profit from a large price swing in either direction, without betting on which way it will go.

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EUR/USD trades near 1.1740 on Monday, up 0.21% on the day, extending Friday’s rebound from around 1.1670. The pair rises even as the Eurozone macro backdrop appears weaker.

Germany’s GfK consumer confidence index falls to -33.3 in May from -28.1, the lowest level in more than three years and below expectations. The Euro shows limited reaction as attention shifts to factors outside the Eurozone.

Dollar Demand And Middle East Risks

Middle East developments are affecting demand for the US Dollar, with reports of a new proposal from Tehran that includes reopening the Strait of Hormuz. Talks remain stalled, while supply risks keep crude prices near $100 per barrel, which may weigh on global growth.

The US Dollar Index (DXY) is falling, reflecting broad weakness in the currency. This comes as markets expect the Federal Reserve to keep rates unchanged in the near term, with the chance of a more dovish tone later.

Focus now turns to central bank decisions, with the Fed due on Wednesday and the European Central Bank on Thursday. The ECB is also expected to keep rates steady, but it may point to future tightening due to inflation pressures linked to energy prices.

A year ago, in April 2025, we saw EUR/USD holding strong around 1.1740, largely due to a softer US Dollar amid hopes for a dovish Fed. Despite concerning German consumer confidence data, the market’s focus was on geopolitics and the possibility of a hawkish turn from the European Central Bank. The landscape today is markedly different, and our strategies must adapt accordingly.

Policy Divergence And Trading Approach

The European Central Bank did deliver that firm message in mid-2025, but the subsequent rate hikes have significantly slowed the Eurozone economy. We now see headline inflation down to 2.5%, prompting discussions of rate cuts by the third quarter of this year. This contrasts sharply with the US, where a resilient labor market and stickier inflation at 3.1% keep the Fed firmly on hold.

With the pair now trading near 1.0750, a full ten cents lower than in April 2025, the primary play for us is the policy divergence between the two central banks. Three-month implied volatility has risen to 7.5%, suggesting traders are pricing in larger-than-usual moves around upcoming policy meetings. We see value in buying long-dated puts on EUR/USD to hedge against or speculate on a further decline driven by the ECB cutting rates before the Fed.

The geopolitical risks that kept oil near $100 per barrel in early 2025 have since subsided, with crude oil now trading closer to $85. This has eased some pressure on the European economy but has not been enough to alter the underlying weak growth narrative. Therefore, we should also consider strategies that benefit from a low-growth, low-volatility environment in Europe, such as selling covered calls against long Euro positions in other crosses.

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Gold (XAU/USD) started the week in a narrow range near $4,700, with doji candles on the daily chart. The US Dollar Index (DXY) was weaker on Monday amid cautious moves linked to possible steps towards a US-Iran deal.

The Strait of Hormuz remains closed and a second round of peace talks has been cancelled. Risk appetite stayed muted and precious metals were little changed.

Markets Await Fed Decision

Markets are watching central bank decisions, including the Federal Reserve on Wednesday. The Fed is widely expected to keep rates on hold, and Jerome Powell may be replaced by former Governor Kevin Warsh.

Gold is trading inside a broader horizontal channel, with support around $4,600. On the 4-hour chart, RSI is near 45 and MACD is positive but faces resistance.

Price dips have held above about $4,660, while a break below $4,600 could open the way towards the March 26 low near $4,350. Resistance sits between $4,745 and $4,770, with the channel top near $4,885.

Central banks added 1,136 tonnes of gold worth around $70 billion in 2022, the highest annual total on record. Gold often moves opposite to the US Dollar and US Treasuries, and tends to rise when rates fall.

Volatility Strategies In Focus

Given the market’s indecision around the $4,700 level, we see the current tight range as a build-up of energy for a larger move. This week’s Federal Reserve meeting is the likely catalyst, so holding positions that profit from a spike in volatility, such as a long straddle, could be a prudent strategy. This involves buying both a call and a put option with the same strike price and expiration date.

The geopolitical situation with the US-Iran conflict remains a key variable, creating a nervous floor under the price. While optimism about a deal has weakened the US Dollar Index, the recent cancellation of peace talks and continued closure of the Strait of Hormuz suggest this optimism is fragile. A definitive breakdown in negotiations would likely trigger a flight to safety, breaking gold above the stiff resistance near $4,770.

For those leaning bearish, a break below the $4,600 support level would be a critical signal to act. We would consider buying put options or initiating short futures positions, targeting the March 26 low around $4,350. This view is supported by recent US inflation data from March 2026, which showed a stubborn 3.1% reading that may force the Fed to maintain a more hawkish tone than expected.

Conversely, any hint from the Fed of a dovish pivot, or confirmation of Kevin Warsh’s more accommodative stance, would be a major tailwind for gold. A confirmed break above the $4,770 resistance area would be our trigger for long call options, anticipating a move toward the channel top around $4,885. This bullish long-term outlook is reinforced by strong central bank demand, as the World Gold Council reported that another 290 tonnes were added to official reserves in the first quarter of 2026.

We must also remember the significant rally that defined the second half of 2025, which was driven by rate cut expectations. The current sideways market can be viewed as a consolidation period following that major advance. Therefore, the resolution of this current range could set the direction for the next several months.

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Silver (XAG/USD) traded at $75.59 per troy ounce on Monday, down 0.15% from $75.70 on Friday. Prices are up 6.34% since the start of the year.

By unit, silver was $75.59 per troy ounce and $2.43 per gram. The Gold/Silver ratio was 62.25 on Monday, compared with 62.21 on Friday.

Silver Market Overview

Silver is traded as a precious metal and can be bought in physical form, such as coins or bars, or through products like Exchange Traded Funds that track its price. It has also been used as a store of value and a medium of exchange.

Prices can be affected by geopolitical risk, recession fears, interest rates, and the US Dollar, since silver is priced in dollars. Supply from mining, recycling activity, and changes in demand can also move prices.

Industrial use in areas such as electronics and solar energy can affect demand and pricing. Silver often moves in the same direction as gold, and the Gold/Silver ratio is used to compare their relative valuations.

Market Drivers And Outlook

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With silver holding firm at $75.59, we are seeing a continuation of the trend that defined the market last year. Throughout 2025, we watched silver prices climb steadily, fueled by a weakening US dollar and the Federal Reserve’s shift towards lower interest rates. This sustained momentum has created a high price floor that we are now building upon.

A crucial factor supporting this price is the robust industrial demand, which now accounts for over 50% of annual silver consumption. The global push for green energy has been a significant driver; solar panel manufacturing, a silver-intensive industry, grew by an estimated 40% in 2025 alone according to International Energy Agency data. This creates a solid base of physical demand that provides a buffer against speculative selling.

Looking ahead, the central bank’s next move on interest rates is the key source of uncertainty and potential volatility. After the series of rate cuts we saw in 2025, any signal of a pause could create significant price swings. For derivative traders, this means implied volatility is likely to rise, making option premiums more expensive.

We should also pay attention to the Gold/Silver ratio, which is currently at 62.25. This is well below the 21st-century average, which has hovered closer to 70, indicating that silver has strongly outperformed gold for some time. This may suggest that the easiest gains for silver relative to gold have already been made.

Given the high price level and potential for choppy, range-bound trading, buying outright call options could be a risky strategy due to expensive premiums. Traders might instead look to strategies that benefit from this environment, such as selling covered calls against long futures positions. This approach allows one to collect premium while the market digests the next move on interest rates.

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EUR/JPY traded near 186.95 on Monday, up 0.07%, as markets waited for policy decisions from the Bank of Japan (BoJ) and the European Central Bank (ECB).

The BoJ is expected to keep its rate at 0.75% on Tuesday. Attention is on its messaging and whether it points to a possible June rate rise.

Central Bank Focus This Week

The ECB is expected to leave policy unchanged on Thursday, with the deposit rate at 2%. The bank is waiting for more data amid uncertainty linked to the Middle East conflict.

In Germany, the GfK Consumer Confidence index fell to -33.3 for May, the lowest in more than three years. The Euro’s reaction has been limited so far.

Middle East developments remain a main driver for markets, with talk of de-escalation after reports that Iran sent a new peace proposal to the US. Talks are still stalled, oil tankers have been blocked for two months, and crude prices are near $100 per barrel.

Safe-haven demand and energy-led inflation expectations are affecting the Yen. The Euro is constrained by weak growth and limited visibility on policy, with EUR/JPY guided by central bank signals and geopolitical news.

Options Market Signals

With major central bank decisions this week, we see implied volatility in EUR/JPY options ticking higher. One-week volatility has climbed to 11.5%, a sharp increase from the monthly average, showing that the market is bracing for a significant price move. This suggests traders are positioning for a breakout from the current tight range around 187.00.

We are watching the Bank of Japan very closely, as its forward guidance will be the main driver for the Yen. While a rate hold at 0.75% is priced in, Japan’s core inflation has remained stubbornly above target, clocking in at 2.8% for March, fueling speculation of a summer rate hike. This situation, a major shift from the negative rates we saw back in early 2024, makes buying short-dated EUR/JPY put options an attractive strategy to protect against a hawkish surprise.

In Europe, the picture is one of stagflationary risk, which ties the European Central Bank’s hands. The plunge in German consumer confidence to a three-year low is deeply concerning, and the latest Eurozone manufacturing PMI of 48.5 marks the fifth straight quarter of contraction. This economic weakness makes it difficult for the ECB to fight the inflation being imported by high energy costs, capping the Euro’s potential.

The overarching issue is the geopolitical tension keeping oil prices near $100 per barrel, a situation reminiscent of the energy shock we experienced in 2022. Global supply chains are strained, with shipping costs having tripled over the past two months. This sustained pressure fuels recession fears and makes long positions in volatility indices or call options on energy sector ETFs a sensible hedge against further escalation.

Given these conflicting drivers, we believe outright directional bets are risky. A better approach for the coming weeks could be to use options to structure a long strangle on EUR/JPY, which would profit from a large move in either direction following the central bank announcements. This strategy allows us to capitalize on the rising volatility without having to predict the complex interplay between a cautious ECB and a potentially hawkish BoJ.

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The Japanese Yen rose against the US Dollar on Monday in European trading, with USD/JPY falling to about 159.15. The move came as the US Dollar weakened on reports about Iran’s readiness for a permanent ceasefire with the United States.

The US Dollar Index (DXY) was down 0.25% at about 98.25 after giving up earlier gains. Axios reported that Iran sent another proposal on talks over Tehran’s nuclear programme, linked to lifting a US blockade so the Strait of Hormuz can reopen.

Geopolitical Developments And Market Reaction

Over the weekend, US President Donald Trump said he cancelled US envoys’ planned visit to Islamabad, calling it a waste of time. He said a counteroffer from Iran, received via Pakistan, was not acceptable.

Markets are watching the Federal Reserve decision on Wednesday, with rates expected to stay at 3.50%–3.75%. The Yen was weaker against other currencies before the Bank of Japan decision on Tuesday, where rates are expected to remain at 0.75% amid concerns tied to energy price shocks.

Looking back at the events of 2025, we saw USD/JPY briefly dip to 159.15 on talk of a permanent US-Iran truce. Today, with the pair trading near 172.50, that dip looks like a short-lived reaction to geopolitical news that never fully materialized. The focus now is less on Middle East de-escalation and more on persistent economic data.

The talk in 2025 of an Iran deal pushing the Dollar Index down to 98.25 seems distant from our current reality. Today, the DXY is hovering around a much stronger 108 level, supported by a different set of concerns. With the latest US CPI data for March 2026 coming in at a stubborn 2.8%, the market is pricing out any aggressive Federal Reserve rate cuts this year.

Options And Rate Divergence Strategies

This suggests that betting on a specific direction for USD/JPY might be risky in the coming weeks. We should instead consider strategies that profit from price swings, as the divergence between Fed and BoJ policy creates underlying tension. Buying straddles or strangles on USD/JPY could be an effective way to position for a significant move, regardless of the direction.

Last year, we saw the Bank of Japan hold its rate at 0.75%, citing economic concerns from energy prices. While the BoJ has since nudged rates up to 1.00% in early 2026, their continued cautious stance contrasts sharply with a Federal Reserve holding rates firm at 4.00%. This significant interest rate differential continues to fuel the yen carry trade, putting constant downward pressure on the JPY.

For traders with a directional view, this policy gap makes shorting the yen an attractive proposition. We can use forward contracts to sell JPY against the USD to capture this interest rate differential over the next few months. This strategy benefits directly from the ongoing monetary policy divergence between the two central banks.

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Sterling rose last week, sending EUR/GBP down to a fresh low of 0.8649. Markets have shifted towards a more hawkish Bank of England outlook, linked to firmer UK growth early this year and underlying inflation staying high.

The note expects the Bank of England to keep rates on hold this week, with two Monetary Policy Committee members voting for a rise. It names Chief Economist Huw Pill and Catherine Mann as the two expected to back a hike.

Market Drivers And Recent Price Action

Higher UK rate expectations have supported the pound, while higher energy prices and domestic politics have acted as headwinds. Political risks linked to Prime Minister Keir Starmer’s leadership, and the approach of local elections, are flagged as possible triggers for a temporary fall in sterling in the coming weeks.

We see the Pound is performing well, pushing EUR/GBP down towards the 0.8650 level. This strength comes from markets anticipating the Bank of England will maintain a hawkish stance due to a resilient UK economy. Looking back at early 2025, persistent inflation was the primary concern driving this view.

Reviewing the data from that period, UK inflation was indeed proving stubborn, with the Consumer Price Index (CPI) in the first quarter of 2025 holding firm above 3%, a full percentage point over the Bank’s target. This was happening as GDP figures showed the UK narrowly avoided a technical recession, posting slight positive growth. These factors combined made the case for higher interest rates much stronger than previously thought.

For derivative traders, this creates a clear tension between supportive monetary policy and political headwinds. The risk of a temporary sell-off, tied to uncertainty around Prime Minister Starmer’s leadership, suggests buying short-term GBP put options. This strategy provides a hedge, allowing traders to protect their positions from a sudden drop in the Pound’s value.

Options Volatility And Trading Implications

The focus on the upcoming local elections in May 2025 was a known catalyst for this potential volatility. We would expect the implied volatility on EUR/GBP options to increase as we approach that date, making options more expensive but also more valuable for hedging. This environment favours strategies that can profit from sharp price swings.

The expectation of a divided “hawkish hold” from the Bank of England, with dissenters voting for a rate hike, signals significant internal debate. This division underscores the Bank’s reluctance to ease policy, which should limit the downside for the Pound. Therefore, any politically driven dips could be seen as buying opportunities, assuming the economic data remains robust.

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Sterling faced selling pressure against most major currencies on Monday, but edged up against the US Dollar to about 1.3545 during European trading. Moves came ahead of the Bank of England (BoE) policy decision due on Thursday.

Markets expect the BoE to keep interest rates at 3.75% with an 8-1 vote split. Expectations follow a dip in UK core inflation in March and uncertainty linked to higher oil prices amid Middle East conflicts.

BoE Signals And Market Expectations

BoE Chief Economist Huw Pill has indicated a preference for tighter monetary conditions to curb rising price pressures. BoE Governor Andrew Bailey said at an IMF meeting in Washington that there is no rush to adjust policy on 30 April, despite what he described as a “very big negative shock”, according to Reuters.

The latest UK data showed core CPI inflation, which excludes food, energy, alcohol and tobacco, eased to 3.1% year on year from 3.2%. Attention is also on the US Federal Reserve decision on Wednesday.

The Fed is expected to leave rates unchanged in the 3.50% to 3.75% range for a third consecutive meeting.

The Pound is showing some weakness as we approach the Bank of England’s critical interest rate decision this Thursday. While currently trading around 1.2580 against the US Dollar, the market is clearly hesitant to make any large moves before getting more clarity. This pre-announcement tension is increasing the premium on short-term GBP options.

Implications For Gbp Usd Options

We expect the Bank of England will hold interest rates steady at 4.5%, as recent economic data presents a mixed picture. Although the latest headline inflation figure for March 2026 fell to 2.8%, the more stubborn core inflation, which strips out volatile items, remains high at 3.5%. This persistence gives policymakers a strong reason to wait before considering any rate cuts.

This situation feels very similar to what we observed back in the spring of 2025. At that time, with the bank rate at 3.75% and core inflation also running above 3%, the market was equally divided and uncertain. That period showed us that even a widely expected hold decision can lead to sharp price swings based on the tone of the governor’s statement.

Further complicating the outlook, the U.S. Federal Reserve is also anticipated to keep its own interest rates unchanged in the 4.75%-5.00% range this week. U.S. economic growth has remained more robust than in the UK, giving the Fed justification to maintain its cautious stance. This policy divergence is likely to limit any significant upside for the Pound against the Dollar.

For derivative traders, this points towards strategies that benefit from high implied volatility and a potentially range-bound currency pair post-announcements. Selling a short-dated strangle on GBP/USD, which involves selling both an out-of-the-money call and put option, could be an effective approach. This strategy profits if the currency pair does not make a large move in either direction, allowing traders to capture the inflated option premiums as they decay.

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