On June 11, 2025, news broke during Asian trading that the US-China trade talks in London were not going well. US Treasury Secretary Bessent left early, suggesting the discussions were not productive. Commerce Secretary Lutnick and others continued the talks, but the outlook remained dim. They did come to a “handshake for a framework” agreement to begin implementing previous decisions made in Geneva, pending approval from US and Chinese leaders. While this slightly eased tensions, it mostly repeated what had already been said without any new progress. As a result, currencies like the EUR, AUD, NZD, GBP, and CAD dropped against the US dollar, but not by much. Meanwhile, Chinese stocks rose. Additionally, a US Federal appeals court ruled that Trump’s broad tariffs would remain in place during the ongoing legal process, with discussions set for July 31. In Japan, May’s Producer Price Index (PPI) showed more weakness than expected, indicating lower price pressures due to falling import costs. All eyes now turn to the US CPI data set to be released at 8:30 AM Eastern Time on Wednesday. The early news about slow progress in trade talks shook the currency markets but in a measured way. Bessent’s early departure signaled that no fresh momentum was built. The handshake, while suggesting a desire to ease tensions, was more about appearance than any real policy change. The atmosphere may seem stable, but there is no new clarity on tariffs or goods flow. So, what happened next? Risk-sensitive currencies dipped, but losses remained limited. This demonstrates how investors are carefully assessing the news, recognizing that their expectations were already low. There was no panic, only a stronger dollar as directional bets declined in the short term. In contrast, Chinese stocks responded positively, driven by hopes of reduced friction and possible government support. It’s worth noting that mainland investors tend to react more quickly to trade sentiment compared to foreign investors. The court ruling that maintains tariffs adds to the uncertainty. Trump’s measures ensure import costs stay high for now. The lengthy legal process means markets will have to consider ongoing trade challenges for some time. Japan’s May PPI report came in on the softer side, indicating lower costs for producers mainly due to cheaper imports. This gives monetary officials more flexibility to discuss future inflation without immediate pressure. However, for those monitoring yen trades, it suggests caution, especially at key levels against the dollar. All of this makes the upcoming US CPI report even more important. Traders will focus not just on the headline number, but also on trends in shelter and wages to see if current Fed expectations hold. A weak reading could strengthen dollar demand, particularly if there’s defensive positioning and poor equity reactions. Overall, the combination of stagnant negotiations, ongoing tariffs, and soft producer trends in Asia presents a balanced picture. There is a tightening in forward contracts and lower conviction in implied volatility, indicating options markets are adjusting rather than disappearing. Any changes in rate expectations after the CPI data will impact mid-curve derivatives first, where positioning is lightest and carry is strongest. Directional bets should be sized carefully, ideally following a curved approach with a focus on protection around the July court date. Ultimately, this is about finding opportunities that don’t rely on momentum. The easiest path forward isn’t clear, making caution and patience more likely to yield steady results in the short term.

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