In the latest news, Federal Reserve Board Governor Christopher Waller has suggested a 25 basis points interest rate cut at the July meeting. He highlighted concerns about rising economic risks and a flat labour market. He noted that core inflation is stable and GDP growth is at around 1%. Waller believes a rate cut could help stabilize future policies as the economy slows. In China, the People’s Bank of China has injected 1.3 trillion yuan into the banking system to ease tight funding conditions. This week’s injection is the largest since January and has helped lower reverse repo rates for three days in a row. This action supports China’s goal of retail sales exceeding 50 trillion yuan by 2025.

Japan’s Inflation Woes

In Japan, June’s Consumer Price Index (CPI) is still above the Bank of Japan’s 2% target. The headline, core, and core-core CPI figures came in at 3.3%, 3.3%, and 3.4%, respectively. Although the U.S. dollar gained broadly, this helped support the yen. In political news, The Wall Street Journal reported links between Trump and Jeffrey Epstein, adding to legal tensions. However, reports about Trump’s health are minimal, mentioning only minor issues. The cryptocurrency market is buzzing with activity. Three major crypto bills have been passed in the U.S., including the GENIUS Act and the CLARITY Act. Overall, the market is positive, with Asia-Pacific stocks benefiting from strong performances in U.S. markets. We think the market has overreacted to Waller’s call for a rate cut. The CME’s FedWatch Tool shows an 85% chance of a 25 basis point reduction, but expectations may be too high given limited support. This presents a chance to prepare for a potential rebound in the dollar by using options on USD futures after the meeting if the Fed does not follow through. Political headlines from the White House are creating significant uncertainty, which is not fully reflected in market volatility yet. Historically, intense political scandals have led to spikes in the VIX index. We see value in buying long-dated call options on volatility indices or using straddles on the S&P 500 to guard against sudden market movements.

Crypto Market Developments

Legislative progress and the potential opening of retirement funds to digital assets are positive for the cryptocurrency market. Open interest in Ethereum derivatives has increased by over 30% this week, indicating new capital is flowing in, much like during the Bitcoin ETF approvals in 2024. We recommend buying call spreads on ETH and BTC to capitalize on this upward trend while managing entry costs. A clear difference in policy is emerging between the United States and Japan. One central bank governor is advocating for easing, while Japan’s CPI data remains stubbornly high, putting pressure on its central bank. This situation strengthens the case for a lower USD/JPY, and we are considering buying put options targeting a drop below the 150 level in the coming weeks. China’s central bank’s large liquidity injection signals its commitment to stability and financial health. This, along with a stronger-than-expected currency fixing, should help limit volatility in the offshore yuan. For short-term traders, this presents an opportunity to sell near-term premium in CNH options, anticipating that officials will keep the currency stable. Create your live VT Markets account and start trading now.

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