The official manufacturing PMI for China in July 2025 is 49.3, which is below the expected 49.7. This indicates a contraction for the fourth month in a row, driven by lower export growth and weak domestic demand. The non-manufacturing PMI comes in at 50.1, showing slight growth but at its lowest level since last November, missing the anticipated 50.3. The composite PMI is reported at 50.2, down from 50.7 earlier.

Ongoing Structural Issues

Trade talks between China and the US are still facing structural problems. In the days ahead, we expect new insights from the unofficial Caixin/S&P manufacturing and non-manufacturing PMIs, which provide a different view than the official numbers. The consistent decline in manufacturing is a serious warning for China’s economy. Both exports and domestic demand are weak, which may lead to a risk-off sentiment in the coming weeks. This disappointing data suggests that previous stimulus measures are not working effectively. We should anticipate a downturn for industrial commodities, especially those tied to Chinese construction and manufacturing. For example, iron ore is currently around $107 per metric ton, putting pressure on prices. Traders might look to short copper and oil futures or consider puts on major mining stocks.

Currency Markets Impact

The Australian dollar, a key indicator of Chinese economic health, could struggle. The AUD/USD pair has had difficulty staying above the 0.6600 level recently, and this news might drive it lower. We also expect the Chinese Yuan to weaken, as traders test the People’s Bank of China’s willingness to let the USD/CNH go beyond the 7.30 level. For equity markets, Chinese-listed stocks and funds like the FXI ETF are likely to underperform. Investors are becoming impatient due to ongoing property sector issues and low consumer confidence in 2023 and 2024. With the VIX volatility index remaining low, buying call options on it might be a cost-effective way to protect against a wider market decline prompted by these issues. Create your live VT Markets account and start trading now.

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US Commerce Secretary Lutnick announced trade deals with Cambodia and Thailand during an interview on Fox News. The agreements were completed before the August 1 deadline. Previously, former President Trump secured a deal with South Korea.

Focus On Southeast Asian Trade Partnerships

This shows a commitment to building trade partnerships with Southeast Asian countries. This strategy supports ongoing efforts to strengthen global economic ties. With the August 1 deadline approaching, we should prepare for increased market volatility. The CBOE Volatility Index (VIX), known as the market’s “fear gauge,” has risen over 15% this past week, trading above 20, indicating growing anxiety. It’s wise to prepare for sharp, unpredictable price changes with options strategies, such as straddles on broad market ETFs. We notice a clear difference between sectors that benefit from protectionism and those that suffer. For example, in July 2025, the Industrial Select Sector SPDR Fund (XLI) has outperformed the retail-focused SPDR S&P Retail ETF (XRT) as investors expect higher import costs for consumer goods. This means buying call options on domestic manufacturers while considering put options on major retailers that depend on imports could be a smart move.

Opportunities In Emerging Markets

These last-minute deals present opportunities in foreign exchange and emerging markets. The Thai Baht has risen 2% against currencies like those of Vietnam and Malaysia in the past 48 hours. This trend may continue as capital flows to nations with secured U.S. market access. This situation reminds us of market reactions during the 2018-2019 trade negotiations. Back then, companies with complex international supply chains saw their stock prices drop, while those focused on domestic business thrived. We should apply that lesson today by closely examining company earnings reports for geographic revenue exposure. Create your live VT Markets account and start trading now.

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The People’s Bank of China (PBOC) has set the yuan’s daily midpoint at 7.1494 against the US dollar, compared to earlier estimates of 7.2062. This midpoint is part of a managed floating exchange rate system, meaning the yuan can vary within a +/- 2% range around this central rate. The previous closing rate was 7.2000. Additionally, the PBOC performed a transaction involving 283.2 billion yuan through 7-day reverse repos, with an interest rate of 1.40%. With 331 billion yuan maturing today, this indicates a net drain of 47.8 billion yuan.

China And US Trade Discussions

Chinese state media has reported that trade talks with the United States continue to face structural issues. More updates are expected soon, along with China’s Purchasing Managers’ Index (PMI) figures. The PBOC is sending a strong signal by setting the yuan at a firmer rate than expected. This challenges the market’s view that the currency will weaken. For traders in derivatives, this shift presents a significant short-term opportunity against current economic trends. Despite this maneuver, the overall economic picture remains weak. Recently, China’s Q2 GDP growth for 2025 was reported at 4.8%, just below the government’s 5.0% target. This follows a trend of softer data seen through the spring. Additionally, export figures for June 2025 showed a 3% decline compared to the previous year, reflecting the effects of ongoing trade tensions. However, the PBOC has reasons for wanting a stable or stronger yuan, likely to reduce capital outflows and control inflation. There have been net foreign inflows into Chinese government bonds for two consecutive months, totaling over $15 billion in Q2 2025, suggesting that this policy is working. Furthermore, China’s June Consumer Price Index slightly exceeded expectations at 2.1%, giving the bank another reason to prevent currency weakness from raising import prices.

Yuan Strength Strategy

The tension between policy and economic fundamentals is causing implied volatility in USD/CNY options to rise, recently reaching a three-month high. Traders should think about buying volatility through strategies like straddles or strangles. These approaches profit from significant price changes in either direction, which seems likely given the current situation. In the coming weeks, it might be wise to follow the PBOC’s policy by using short-dated options to bet on continued yuan strength below the 7.20 level. However, over a few months, weaker economic data suggests that this strength may not last. Longer-dated call options on USD/CNY could serve as a good hedge against the currency eventually facing pressures from fundamentals. We must also remember the PBOC’s history of sudden policy changes, such as the unexpected devaluation in August 2015. This aggressive fixing serves as a reminder that the central bank can resist market trends for an extended period. History indicates that going against the PBOC in the short term poses risks, even if the long-term outlook appears clear. Create your live VT Markets account and start trading now.

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The United States will now apply a 15% tariff on imports from South Korea. This change helps avoid a possible increase to 25%, which was set to start on August 1. President Trump announced a complete trade agreement with South Korea.

South Korea’s Investment and Energy Purchases

South Korea will invest $350 billion in projects in the U.S., which President Trump will choose. The agreement also requires South Korea to buy $100 billion in U.S. energy products, including liquefied natural gas. With this deal, U.S. exports like vehicles and agricultural products can enter South Korea without tariffs. A meeting is planned, as South Korean President Lee Jae Myung will visit the White House to talk with President Trump in about two weeks. With the 25% tariff threat gone, we can expect a drop in volatility for assets related to this news. During the trade disputes in 2018-2019, the VIX index rose above 25 with tariff announcements. This time, we are avoiding that pattern. Traders might want to consider selling volatility on South Korean ETFs like EWY and the broader S&P 500.

Effects on South Korean and U.S. Markets

The 15% tariff is an added cost for South Korea, although it’s better than the previous alternative. We should be careful about a long-term rally for South Korean exporters, especially car manufacturers like Hyundai and Kia, which sent nearly 1.5 million vehicles to the U.S. in 2024. Strategies that limit potential gains, like selling call spreads on these companies, may be useful. The U.S. energy sector stands to gain from this agreement. South Korea’s promise to buy $100 billion in U.S. energy products is a big boost, especially since total U.S. LNG exports for 2024 were worth about $95 billion. We can expect positive movement in derivatives for major LNG exporters and energy ETFs like XLE soon. The $350 billion investment pledge into U.S. projects holds great long-term potential but creates short-term uncertainty. Since the projects will be directly chosen by the President, it’s unclear who the beneficiaries will be, making specific stock bets hard. Traders should keep an eye on industrial and materials sector ETFs for unusual options activity as more information comes out in the following months. Duty-free access to South Korea will help U.S. agricultural and auto exports. Last year, U.S. agricultural exports to South Korea were over $9 billion, and the removal of tariffs should increase demand for products like beef, corn, and soybeans. Consider call options on agricultural commodity ETFs to take advantage of this opportunity. In currency markets, the deal suggests a stronger U.S. dollar compared to the South Korean won. The combined $450 billion commitment for U.S. investments and energy will create high demand for dollars from South Korean entities. We can predict that the USD/KRW exchange rate, currently near 1,350, will rise, making long dollar positions against the won appealing. Create your live VT Markets account and start trading now.

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The People’s Bank of China (PBOC) sets the daily midpoint for the yuan, also known as the renminbi (RMB), against several currencies, especially the US dollar. This reference rate is announced around 0115 GMT each day. The PBOC manages a floating exchange rate system, allowing the yuan to move within a range or “band” of +/- 2% from this midpoint. The PBOC considers factors like market supply and demand, economic indicators, and international currency movements. The bank may adjust the trading band based on economic conditions and its goals. If the yuan approaches the limits of this band or becomes too volatile, the PBOC may step in and buy or sell yuan to stabilize the market.

Controlled Adjustment of the Yuan’s Value

The trading band allows for a controlled adjustment of the yuan’s value, limiting its daily change to a maximum of 2% from the midpoint. This keeps the foreign exchange market stable while still enabling necessary changes based on current economic conditions. Currently, the expected USD/CNY reference rate is around 7.2062, indicating that the PBOC is maintaining its policy of managed depreciation. This suggests that while authorities are okay with a weaker yuan, they won’t let it drop uncontrollably. Traders can expect the PBOC to intervene to smooth out any sharp fluctuations. From 2023 to 2024, we observed this trend during a persistent property sector crisis and low consumer demand. In that time, the PBOC consistently set the daily fix stronger than market expectations to guard against quick capital flight. This history shows the PBOC values stability, making it unlikely for the +/- 2% trading band to be tested too harshly.

Emphasis on Stability

The focus on stability has kept actual currency volatility low, despite rising economic pressures. Implied volatility on USD/CNY options has been steadily decreasing over the past year. This environment favors strategies that benefit from low volatility, such as selling out-of-the-money puts and calls. A weaker yuan has also been essential for supporting China’s manufacturing sector. For example, in May 2024, China’s exports rose by 7.6% year-over-year, surpassing expectations. Given this success with a managed float, policymakers are likely to continue this approach in the coming weeks. Considering this, derivative traders should prepare for a slow, controlled increase in the USD/CNY pair rather than a sudden jump. Strategies like buying call spreads on USD/CNY could be effective as they benefit from limited upward movements while capping potential losses. Aggressive bets on a sudden depreciation are unlikely to succeed due to the high chance of central bank intervention. Create your live VT Markets account and start trading now.

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The KOSPI stock index in South Korea climbed by 0.65% after a new trade agreement with the United States. Following the announcement, Hyundai Motors saw its share price rise by 3%. Former President Trump’s announcement about the trade deal is expected to have a positive effect on the market. The agreement should bring benefits to both countries, so investors are keen to see what happens next.

Market Reactions to Trade Agreement

We remember the strong reactions of the KOSPI and Hyundai to the US trade deal announced in 2018. Now, in late July 2025, we await the second-quarter trade balance figures coming out next week. These numbers will likely shape market trends. If the data shows weaknesses, the market may react strongly to any new updates. The KOSPI is around 2,750, a level it has had difficulty surpassing for weeks. With low implied volatility, buying KOSPI 200 index call options for late August is a cost-effective way to prepare for a possible breakout. If the upcoming economic data is robust, we could see a significant upward movement, reminiscent of past patterns. Hyundai Motors is crucial since its success hinges on exports to the United States. Hyundai and Kia’s combined share of the U.S. electric vehicle market has reached nearly 11% as of mid-2025, making their earnings report vital. Traders might consider buying call options ahead of the report if they expect good news on exports. However, there are risks if the trade figures don’t meet expectations. The Korean volatility index, VKOSPI, is below 15, signaling a calm market, which makes protective put options inexpensive. A small investment in puts on an automotive-focused ETF can provide a budget-friendly hedge against a market drop.

Semiconductor Sector Watch

It’s also important to keep an eye on the semiconductor sector, especially SK Hynix, which recently announced plans to expand its facilities in the U.S. Any comments from either government regarding chip supply chains could lead to significant price changes. Watch for increased options trading in these stocks as an indicator of how large traders are positioning themselves. Create your live VT Markets account and start trading now.

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Japan’s industrial production data for June shows a surprising 1.7% increase from the previous month, defying expectations of a 0.6% decrease. Compared to last year, industrial production rose by 4%, up from a decline of 2.4%. We expect additional updates from Japan soon, including the Bank of Japan’s decision on interest rates and China’s Purchasing Managers’ Indices. Analysts predict the Bank of Japan will keep rates steady, reflecting a positive outlook as trade issues ease.

Yen Analysis and Technical Overview

The yen (JPY) is drawing attention from traders and analysts. Technical analysis is focusing on the USDJPY ahead of key political events, like Japan’s upper-house election. The financial scene is bustling, with major occurrences, such as the U.S. strikes on Iranian nuclear sites, affecting global markets. Participants are advised to stay alert to risks since trading in foreign exchange can lead to significant financial losses. It’s crucial for traders to evaluate their risk tolerance. New traders should seek educational resources and professional guidance to make informed choices. June 2025’s industrial production data marks a notable surprise, showing a 1.7% monthly increase when a decline was anticipated. This promising data, the strongest since late 2024, indicates solid strength in Japan’s economy, potentially supporting the yen. However, the Bank of Japan will announce its policy decision later today, and caution is expected. The market might be overly optimistic about a possible rate hike in October. The Bank of Japan is likely to highlight ongoing global challenges and keep rates unchanged, which could diminish any yen strength stemming from positive economic news.

Geopolitical and Market Strategies

We’ve witnessed similar trends in the past, particularly during the recovery in the early 2020s when good data didn’t immediately prompt policy changes. Japan’s core CPI for the second quarter of 2025 averaged only 1.9%, which is still below the Bank of Japan’s target. Therefore, traders should be cautious about buying the yen based solely on this data, as comments from the Bank of Japan could quickly negate any gains. Ongoing geopolitical tensions, such as rising conflicts in the Middle East and tsunami warnings, contribute to a typical risk-off atmosphere. Historically, this uncertainty leads investors to safer assets, with the Japanese yen being a common choice alongside gold and Swiss francs. This demand for safety adds further complexity to the yen’s trajectory. Given the mixed signals, making direct bets on the yen could be risky in the upcoming weeks. Instead, derivative traders might find it better to use options to capitalize on volatility or hedge positions. Buying straddles on USD/JPY could allow traders to benefit from significant price movements either way, which seems likely given the Bank of Japan’s decision and geopolitical tensions. It may also be wise to consider cross-currency pairs rather than solely focusing on the dollar. Due to the yen’s status as a safe haven, trading it against a currency that reacts more to global growth, like the Australian dollar, could present clearer opportunities. A long position in JPY/AUD might perform well if global risk aversion increases. Create your live VT Markets account and start trading now.

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Japan’s retail sales in June rose by 2.0% compared to last year, exceeding the expected growth of 1.8%. Monthly, sales increased by 1.0%, bouncing back from a 0.2% decline in the previous month. The Bank of Japan is expected to keep its interest rates steady, bringing a cautious sense of optimism as trade issues ease. Important upcoming events include the Bank of Japan’s interest rate decision and China’s PMI data release on July 31, 2025.

Trending News Topics

Several news topics are gaining attention, such as tensions between the U.S. and Iran and discussions about potential moves by the Federal Reserve. The economic calendar is busy, featuring the BoJ interest rate decision and a conference from the U.S. Federal Reserve. Japan’s retail data is drawing focus as the BoJ is likely to maintain its rates. At the same time, broader economic trends are closely monitored. The stronger-than-expected retail sales signal a positive shift for Japan’s economy. However, with the Bank of Japan holding interest rates steady, this may create mixed pressures on the yen. This situation is reminiscent of when the BoJ kept its easy policy for years during strong economic periods in the early 2020s.

Market and Currency Implications

Meanwhile, the market is unsettled by significant geopolitical events, from Middle East tensions to warnings of natural disasters. Such global uncertainty often drives traders to safe-haven assets. The rise in the VIX volatility index during the 2022 conflict illustrates the need to consider buying protection through put options on major stock indices. This scenario places the Japanese Yen in a tough position, balancing between a cautious central bank and its safe-haven status. Instead of taking a straightforward approach with pairs like USD/JPY, traders may want to explore options strategies like straddles, which can profit from significant price movements in either direction. Implied volatility for USD/JPY has increased to 12% this month, indicating rising uncertainty. In addition to currencies, the general risk-off environment favors gold. With reports of missile attacks and emergency evacuations, gold remains a key store of value, currently priced near $2,550 per ounce. We’re considering call options on gold futures to benefit from potential increases, similar to its strong performance during the banking turmoil of 2023. Create your live VT Markets account and start trading now.

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Chinese state media has shared insights about ongoing issues in US-China trade talks. A commentary from Xinhua highlights China’s genuine approach in these discussions, noting that these problems won’t be resolved quickly. China is open to addressing differences through dialogue and consultation, with the aim of resolving tariff disputes. Despite the challenges in trade discussions, the overall message reflects a commitment to finding solutions.

Market Volatility

The focus on deep-rooted problems in trade talks suggests that we should expect ongoing market volatility. Since these issues are complex, a prolonged period of uncertainty appears likely. The CBOE Volatility Index (VIX) has been around 19 this past month, significantly above its historical average, indicating this tension. Given this situation, a wise approach would be to protect against potential negative surprises. The mention of “structural problems” indicates that a breakdown in talks remains a real possibility, which could adversely affect equities. Therefore, buying put options on indices like the S&P 500 or a China-focused ETF like the FXI could be a smart way to safeguard portfolios. However, the ongoing willingness to negotiate also leaves room for unexpected positive news. During trade disputes in the late 2010s, markets would quickly rally at the first hint of a breakthrough. Thus, traders might want to consider strategies that can profit from sharp upward movements, or even those that work in a fluctuating market, rather than only preparing for a downturn.

Sector Specific Derivatives

We recommend that traders examine sector-specific derivatives closely. Technology and semiconductor stocks are highly responsive to tariff news, making options on an ETF like the SMH a viable way to bet on the direction of these talks. Conversely, agricultural commodities like soybeans may have significant potential for gains, as November soybean futures have already risen 4% in July 2025 due to speculation about a resolution. The currency market, especially the U.S. dollar against the Chinese yuan, will also be crucial to monitor. The yuan has stayed relatively steady, trading close to 7.30 to the dollar, which signals goodwill. Any shifts from this level could indicate changes in the negotiations, making options on currency futures essential tools for traders in the coming weeks. Create your live VT Markets account and start trading now.

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The recent Consumer Price Index data was seen as a positive sign by the Deputy Governor of the Reserve Bank of Australia. While the trimmed mean met expectations, the full effects of tariffs are not yet felt and could act like a tax increase in the US. Predictions are based on interest rates dropping to around 3.2%. Unemployment figures matched forecasts, and the job market is nearly at full employment. Even though unemployment is low, recovery in consumer spending is anticipated, though consumer confidence is lacking. Low productivity could hinder a quick recovery.

RBA Potential Responses

Hauser stated that a sharp rise in unemployment would necessitate a response from the RBA, although this is not the main expectation. He noted the tight labor market along with positive CPI results. The recent increase in unemployment may have influenced the expected rate cut in August. His comments do suggest this possibility should not be dismissed. Before the August 5th meeting, markets showed strong belief in a rate cut, indicating roughly a 70% likelihood based on swaps. However, recent statements imply the Reserve Bank is not rushing, suggesting potential mispricing for traders. This situation encourages reassessment of positions that depend on immediate easing. The latest inflation data for Q2 2025 was 3.4%. This is an improvement, but still above the target range of 2-3%. We believe this supports the bank’s decision to remain patient, especially as the effects of new tariffs on prices are still unfolding. Thus, betting on a sharp drop in yields soon seems riskier. Although the unemployment rate ticked up to 4.1% in the June 2025 report, this still represents historically low levels. This indicates a tight labor market, which could encourage wage growth and inflation. Reflecting on the RBA’s cautious pauses during the 2022-2023 rate hike cycle, it is clear they prefer to maintain rates until their objectives are met.

Trader Strategies Amid Uncertainty

With this added uncertainty, derivative traders should think about positions that would benefit from a delayed rate cut. This might include buying call options on the Australian dollar, which would likely increase if rates stay the same. Another option is shorting short-term interest rate futures, expecting yields to remain higher for longer than currently predicted. The mixed signals are causing a gap between market expectations and potential actions from the central bank, leading to greater volatility. Strategies like buying a strangle on the AUD/USD—which profits from significant price movements in either direction—could prove wise. This prepares traders for sharp changes, whether the bank keeps rates steady or surprises with a cut. Create your live VT Markets account and start trading now.

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