There is a 50-50 chance of making a deal with the EU. President Trump suggested that Powell might be considering lowering interest rates. He expects most deals to be finalized by August 1 and mentioned possible frameworks for an agreement with China. When it comes to Canada, the approach may focus on implementing tariffs instead of continuing negotiations.

Potential Communication Strategies

Some agreements might be reached through written communications instead of in-person meetings. The Federal Reserve welcomed the President’s visit, which seemed to reduce his previous criticisms. About the US dollar, President Trump made it clear that he would never support a weaker currency. He also mentioned that the US might take action against Hamas members. Given these comments, we expect market volatility to increase. The 50-50 chance of a major trade deal and the firm August deadline create significant uncertainty. We believe this will push the VIX index, currently around 13, back toward the high teens. We recommend buying options rather than selling them to prepare for this. The comments about Powell indicate a clear move toward lowering monetary policy, a view supported by market trends. The CME FedWatch Tool now shows over a 70% chance of a rate cut at the next meeting, a big shift from a few months ago. This signals that it may be wise to use interest rate futures to bet on lower rates for the rest of the year.

Currency And Equities Strategy

This dovish policy is likely to put downward pressure on the US dollar, regardless of the President’s statements. As the Federal Reserve lowers rates, the advantage of holding dollars decreases, making other currencies more appealing. We plan to buy call options on currency pairs like the Euro to Dollar (EUR/USD), expecting the dollar’s recent strength to weaken. For stocks, the situation is mixed but leans positive due to potential rate cuts. However, the risk of tariffs on Canada and possible breakdowns in negotiations with the EU suggest a careful approach. We prefer using derivatives to gain exposure to the tech-heavy Nasdaq 100, which is less affected by trade wars, rather than the industrials in the Dow Jones. The August 1 deadline set by the President offers a clear timeline for traders. Implied volatility for options expiring in late July and early August will be quite high. We plan to use calendar spreads by buying longer-term options while selling the pricier short-term ones. There is a noticeable difference in tone between negotiations with China and those involving our North American and European allies. This indicates a relative value trade favoring assets linked to a potential resolution with China. Historical data from the 2018-2019 trade war shows that Chinese stocks rebounded quickly on any signs of a deal, and we expect this pattern to occur again. Create your live VT Markets account and start trading now.

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