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Affected by international holidays, the trading hours of some VT Markets products will be adjusted. Please check the following link for the affected products:

Notification of Trading Adjustment in Holiday

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The People’s Bank of China (PBOC) is likely to set the USD/CNY reference rate at 7.1891, according to a Reuters estimate. The PBOC uses a managed floating exchange rate system to establish the daily midpoint of the yuan against various currencies, primarily the US dollar. This system allows the yuan’s value to change within a +/- 2% band from a set reference rate. The central bank decides this daily midpoint by looking at market supply and demand, economic indicators, and changes in international currency markets.

PBOC Intervention

If the yuan approaches the edges of this trading band or shows large fluctuations, the PBOC may step in. This intervention stabilizes the yuan’s value by either buying or selling it in the market. With the managed float system in place, the daily reference rate becomes a key signal from the PBOC. The Reuters estimate shows an effort to influence the currency’s value instead of letting market forces control it completely. This suggests a strategy aimed at gradual depreciation rather than sudden changes. Traders should pay attention to the ongoing gap between the official midpoint and market expectations. Recently, the central bank has consistently set the reference rate over 1,000 pips stronger than analysts projected. This indicates a strong desire to prevent the yuan from weakening too quickly, creating a predictable resistance level for trading opportunities.

Volatility Strategies

For those who expect continued stability, selling volatility through options strategies like short strangles may be beneficial. The central bank’s commitment to the +/- 2% trading band sets a clear range, lowering the risk of unexpected large moves. In this environment, traders can profit from time decay as long as the currency stays within this managed range. However, it’s important to be ready for potential increases in volatility since the spot rate has recently been close to the weak end of its trading band. Factors like a strong US dollar and worries about China’s property sector could prompt a shift. Buying out-of-the-money puts on the yuan could provide an inexpensive hedge against sudden policy changes or a breakdown in the trading band. Recent economic data paints a mixed picture that supports this managed approach. China’s Caixin manufacturing PMI for May 2024 exceeded expectations by rising to 51.7, suggesting expansion. Yet, ongoing capital outflows and a weak property market require a stable currency. This policy appears to balance the need to help exporters with a weaker currency while avoiding financial instability. Historically, we’ve seen similar strong defensive actions throughout 2023, with the PBOC using its tools to counteract rapid depreciation. This history indicates that the authorities are both willing and able to intervene significantly to achieve their goals. Therefore, betting against the central bank’s ability to support the currency in the short term may not be wise. Create your live VT Markets account and start trading now.

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A storm warning is in effect for Hong Kong, but it won’t interrupt trading. The Hong Kong Observatory has issued an Amber Rainstorm Warning. Hong Kong’s rain warnings are classified into three levels: Amber, Red, and Black. An Amber alert means heavy rain is possible and could increase to the more serious Red or Black levels. Low-lying areas might experience flooding, so key agencies will be ready to respond.

Severe Weather Response Levels

Red and Black warnings indicate heavy rain that can lead to flooding on roads and traffic issues. These warnings prompt a full response from government departments and service providers to handle the severe weather. Right now, the Amber alert won’t affect trading. Since 2024, Hong Kong’s securities and derivatives markets, including Stock Connect trading, derivatives holiday trading, and after-hours trading, continue to function as scheduled, even in severe weather. With this new policy, the risk of market shutdowns is no longer a concern. We will focus on secondary effects of the storm, such as its impact on economic activity and investor confidence. This means we are now tracking the market’s reaction to disruptions rather than the decision to stop trading.

Market Impact and Volatility

We expect implied volatility to rise if the Observatory issues a stronger warning. The Hang Seng Index has already shown swings of over 5% in the last month due to economic news from mainland China. A severe weather event could trigger another spike in volatility, so we are looking to buy straddles on HSI futures to profit from significant price movements. We are also identifying sectors likely to be affected by flooding and transport disruptions. With Hong Kong’s retail sales dropping by 14.7% year-on-year in April 2024, we believe that consumer stocks and property management companies could face further pressure. Therefore, put options on these stocks seem like a solid strategy for the coming days. One uncertainty is market liquidity if a Red or Black storm signal is issued. Even with electronic trading, many institutional and retail traders might focus on personal safety, which could lead to fewer orders in the market. This low volume could result in exaggerated price movements, causing sharp and unpredictable swings that we need to be ready for. In the past, markets typically rallied after a typhoon cleared and exchanges reopened. However, with the new arrangement that keeps the market open, this clear trigger has disappeared. Instead, we anticipate a longer period of negative sentiment that aligns with the storm’s impact on the city rather than a quick recovery. Create your live VT Markets account and start trading now.

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Morgan Stanley has raised its target for the S&P 500 to 7200, aiming to reach this level by mid-2026. They based this prediction on several important factors affecting the market. Key elements include strong corporate earnings, new trade agreements, and a healthy U.S. economy. They also noted favorable macroeconomic conditions as part of their analysis.

Impact Of AI And Other Factors

Morgan Stanley believes the growing use of AI contributes positively to their forecast. A weaker U.S. dollar and anticipated interest rate cuts by the Federal Reserve are also important aspects. With this fresh long-term target, we think the best approach for the short term is to prepare for ongoing growth while also managing risks during any market dips. In the coming weeks, the plan should be to buy when the market weakens instead of selling during strong rallies. This aligns with a “buy the dip” strategy. This optimistic outlook suggests we should consider purchasing call options on the S&P 500 or related ETFs, particularly during market downturns. Currently, the index trades above 5,300, so any pullback provides a chance to buy in at a lower price while keeping risks defined. This way, we can join in on the predicted gains without taking on too much risk. We might also look into selling out-of-the-money put credit spreads to earn premiums and express a bullish outlook with a better chance of success. The CBOE Volatility Index (VIX) has been low recently, around 13, indicating that options are relatively inexpensive. This makes defined-risk strategies that benefit from a steady or rising market particularly appealing.

Sector-Based Opportunities

Given the focus on artificial intelligence as a growth driver, we should explore options in specific sectors. For example, the Technology Select Sector SPDR Fund (XLK) has surged over 25% in the past year, largely fueled by excitement around AI. We can use options on these ETFs for more targeted exposure to this theme. The expectation of a weaker dollar and upcoming rate cuts adds further strategy layers. Historically, markets tend to rise after the Federal Reserve starts cutting rates, and current data from CME Group shows a strong likelihood of the first cut by year’s end. So, we should brace for increased volatility around upcoming inflation reports and Federal Reserve meetings, using these opportunities to establish our bullish positions. Create your live VT Markets account and start trading now.

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The Monetary Authority of Singapore (MAS) is expected to keep its current monetary policy, based on a Bloomberg survey where 14 out of 19 economists anticipate no changes. A few, including some major financial firms, suggest potential easing could happen. Earlier this year, MAS made two policy cuts to boost growth. However, recent stronger-than-expected economic data indicates a possible pause. Recent reports show that Singapore avoided a technical recession, with steady performance in sectors like manufacturing, services exports, and construction helping the economy to recover.

Monetary Policy Tool

MAS primarily uses the exchange rate as its monetary policy tool instead of interest rates. They manage the Singapore dollar (SGD) against a basket of currencies from key trading partners, shaping the strength of the local currency. The Singapore dollar nominal effective exchange rate (S$NEER) measures currency value. MAS allows the S$NEER to fluctuate within a certain policy band, stepping in when it goes beyond those limits. This policy band has three adjustable parameters: – The slope, which controls how quickly the currency strengthens. – The level, which affects immediate adjustments to the S$NEER. – The width, which manages volatility in the S$NEER. These parameters are regularly reviewed. Given the consensus that the bank will keep its policy steady, we suggest focusing on range-bound trading and low volatility strategies. The outlook is stable, indicating no major changes for the Singapore dollar. This implies that selling options for premium may be a smarter choice than buying them in hopes of a large move. Recent economic figures support this view, showing Singapore’s economy grew 2.7% year-over-year in the third quarter, surpassing expectations. Additionally, core inflation dropped to 3.0% in September, easing the MAS’s need to tighten policy further. These balanced indicators provide a solid basis for the MAS to take a cautious approach.

Market Calm

The options market already reflects this calm period, with one-month implied volatility for the USD/SGD pair recently falling to a five-year low of about 4.5%. This suggests that market players do not expect significant currency swings soon. We should align our strategies accordingly by considering options like selling strangles, which can profit if the exchange rate remains stable within a forecast range. Historical data shows that after policy pauses, like in 2016, the S$NEER often trades within a narrow band for several quarters. This history supports the idea that low-volatility strategies may be successful in the coming weeks. Nevertheless, we must stay aware of external risks mentioned by the surveyed economists, which could cause an unexpected shift. Create your live VT Markets account and start trading now.

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UK shop prices saw their biggest increase since April 2024, reports the British Retail Consortium. The Shop Price Index revealed a year-on-year rise of 0.7% in July, which is higher than the expected 0.2%. Food prices jumped by 4.0%, the highest since February. Essential items like meat and tea increased in price due to global supply issues, leading to higher grocery bills for six months in a row.

Impact On Bank Of England Strategy

This data points to ongoing inflation, making it harder for the Bank of England to adjust interest rates. Headline inflation rose to 3.6% in June, further complicating monetary policy. The Bank of England will meet next on August 7th. Given this report, we think the odds of an interest rate cut from the Bank of England have decreased significantly. The unexpected rise in shop prices, particularly food costs, indicates that inflation remains a key issue. This makes it less likely for the central bank to ease its policies on August 7th. Although the recent Consumer Price Index for June hit the central bank’s target of 2.0%, data from the British Retail Consortium shows that underlying price pressures are starting to rise again. Food inflation is a sensitive and highly noticeable part of the cost of living, and a sharp jump to 4.0% will make policymakers think twice. Typically, central banks are cautious about cutting rates when core inflation components are strengthening.

Market Opportunities And Strategies

In light of this, there are opportunities in interest rate derivatives that bet against a near-term cut. Traders should consider selling short-term interest rate futures, as their prices are likely to drop with a decrease in the likelihood of an August rate reduction. Before this data was released, the market estimated about a 40% chance of a cut, a figure we expect to decline sharply. This change in expectations should support the British pound. A more aggressive central bank stance makes a currency more appealing, so we expect the pound to strengthen against the dollar and euro. Buying call options on the pound is a smart way to prepare for this potential gain. The surprising numbers mentioned in Sheridan’s piece will likely heighten market uncertainty. As a result, implied volatility on sterling options is expected to rise ahead of the central bank meeting. For traders uncertain about direction, buying a volatility instrument like a straddle could be a useful strategy to profit from significant price changes. Create your live VT Markets account and start trading now.

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Trump has cut his original 50-day deadline for a Russia-Ukraine peace deal to just “10 or 12 days.” He showed his frustration during a press conference in Scotland with UK Prime Minister Keir Starmer. Trump warned that if Russia doesn’t comply, his administration will impose 100% secondary tariffs on countries still buying Russian exports. Right now, countries like India, China, and Turkey buy about 60% of Russia’s crude exports, helping Russia’s economy since its 2022 invasion of Ukraine. The EU plans to stop importing refined products made from Russian oil by 2026. Indian officials caution that U.S. secondary sanctions could cause major disruptions, forcing these countries to look for other suppliers.

Potential Market Volatility

We expect significant fluctuations in the market, especially in energy and currency, due to the new, tight deadline. The 10-to-12-day window set by Trump could lead to sharp, quick price changes depending on the outcome. Traders should be ready for increased risk, as large-scale diplomatic negotiations rarely conclude under such urgent timeframes. With the risk of sanctions threatening nearly 60% of Russia’s crude exports, oil prices may rise. Brent crude is already nearing $86 a barrel following this news, and we advise buying call options on WTI or Brent futures to capitalize on potential price increases from a supply shock. Watch the CBOE Crude Oil ETF Volatility Index (OVX) for signs of panic buying. On the stock market side, it could be smart to hedge against a possible downturn by purchasing put options on indices like the S&P 500 or emerging market ETFs. The CBOE Volatility Index (VIX) is currently around 14, which we believe doesn’t accurately reflect the geopolitical risks if these negotiations fail. A breakdown in talks might significantly impact global companies linked to supply chains in China and India.

Market Reactions and Currency Implications

In the past, during the U.S.-China trade war, markets reacted sharply to tariff announcements, often even before they took effect. We expect a similar reaction now, with algorithmic trading likely to aggressively sell assets at any hint of impending secondary sanctions. Therefore, it’s vital to have defensive positions ready before the deadline hits. If a deal doesn’t happen, we foresee a shift toward the U.S. dollar as a safe haven, putting pressure on the currencies of affected countries. This creates an opportunity to short the Russian ruble or Indian rupee against the dollar. The potential for 100% tariffs would be a significant economic shock that currency markets would adjust to quickly. Create your live VT Markets account and start trading now.

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Trade tensions are calming down as the US has reached two important trade deals with Japan and the EU. Currently, discussions are happening in Sweden to extend the trade pause between the US and China, which ends on August 12. Negotiations started on Monday and may go on, increasing the chances of an extension. However, there is a small chance that no agreement will be reached. People are also focused on the Federal Open Market Committee, as a tougher statement could surprise the markets.

Indicators of Economic Health

No rate cuts are expected, but there is some worry about complacency. The US labor market shows little slack, and there are signs that core inflation is rising. The S&P 500 (SPX) looks strong, but it’s unclear if this strength is real or just a sign of complacency, as shown in daily candle patterns. With trade agreements in place with major partners like the European Union—which received over $336 billion in US goods last year—geopolitical concerns are decreasing. This situation could lead to lower implied volatility, making strategies that benefit from time decay, such as selling out-of-the-money options, appealing. We believe this calm environment provides opportunities to earn premiums. The market seems to be betting on a positive outcome for the extension talks with China. This sets up an uneven risk profile; if no agreement is reached, there could be a larger decline than the gains from a successful extension. Holding long positions without a hedge during this time carries significant risk.

The Need for Strategic Hedging

We are particularly worried about the complacency surrounding the Federal Open Market Committee. The latest Non-Farm Payrolls report showed a solid addition of 272,000 jobs in May, while core inflation remains high at 3.4%. This suggests the economy may be too strong for a gentle approach. There’s a risk that the chairman’s statement could be more aggressive in addressing inflation than the market expects. Given this potential for a hawkish surprise, we think buying protection is both smart and affordable. The CBOE Volatility Index, or VIX, has been hovering around a historically low level of 13, indicating that option premiums are cheap. Buying out-of-the-money puts on the S&P 500 or VIX call options offers a budget-friendly hedge against a market downturn. The strength seen in daily candles might hide underlying weakness. We’ve seen this before, such as during the market’s sharp decline in the fourth quarter of 2018 after a Fed meeting was viewed as too aggressive. A careful derivatives trader should be prepared for a potential pullback if the chairman’s press conference unnerves investors. Create your live VT Markets account and start trading now.

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Senior officials from the U.S. and China met in Stockholm for over five hours on Monday. They discussed extending the current tariff pause for an additional 90 days. Key figures in the talks included U.S. Treasury Secretary Scott Bessent and China’s Vice Premier He Lifeng. The focus was on resolving trade and technology disputes, with China looking for relief from tariffs and restrictions on technology exports. Analysts believe that a potential summit between Trump and Xi could help reduce tensions, with an August 12 deadline to finalize a long-term agreement. There were preliminary deals made in May and June, but after Monday’s discussions, no public statements were released.

Ninety Day Extension

A 90-day extension of the truce, first agreed upon in mid-May, is expected to stop any further increase in tariffs. This extension may also lead to a Trump-Xi summit in late October or early November, continuing the efforts to resolve ongoing disputes between the two countries. News over the weekend suggested that the U.S. and China would extend the tariff hold for another 90 days. Talks will continue on Tuesday, and the proposed extension aims to ease tensions ahead of the summit. The market has already factored in this extension, which likely means low implied volatility across major indices for now. The CBOE Volatility Index (VIX) is trading near 13.5, significantly below its historical average, indicating that traders are not expecting major disruptions from these talks. This situation makes buying call or put options relatively inexpensive while offering chances for those selling premium.

Trading Strategies and Risks

We see opportunities in strategies that benefit from this expected calm, such as selling short-dated iron condors or credit spreads on the S&P 500. The goal is to take advantage of the market’s calmness before the August 12 deadline. Historical data from the 2018-2019 trade war shows that times of negotiation after a truce usually lead to steady markets and a gradual decline in option premiums. The main risk here is a sudden breakdown in negotiations, which would cause volatility to spike sharply. For example, the VIX soared over 40% in early May 2019 when talks unexpectedly fell apart. To protect against this risk, we recommend holding a few long-shot, out-of-the-money puts on technology or semiconductor ETFs, as these areas are most affected by potential negative outcomes. A negative comment from either Bessent or Lifeng could trigger a quick market reaction. Recent economic reports, such as China’s lower-than-expected July exports, which fell 1.2% year-over-year, indicate that Beijing is under pressure to ensure market access and prevent further tariffs. This supports our belief that an extension of the truce is the most likely outcome. Therefore, the best strategy is to prepare for ongoing stability while keeping an affordable hedge against unlikely negative surprises. Create your live VT Markets account and start trading now.

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Ray Dalio, the founder of Bridgewater Associates, recommends putting 15% of a portfolio into long-term assets like gold and bitcoin. On CNBC’s Master Investor Podcast, he voiced a preference for gold but said it’s ultimately up to individual choice. Dalio highlighted the fragile economic situation in the U.S., mainly because of its rising national debt. He predicted that the U.S. government would need to issue nearly $12 trillion in Treasuries next year to manage this debt. He warned that not only the U.S. but also other Western countries are stuck in a “debt doom loop.”

Positioning for Hard Assets

With concerns about money losing value, we believe that derivative traders should prepare for rising prices of hard assets. This means looking into long-term call options on both gold and bitcoin to profit from potential gains while controlling risk. We see this as a bet on increased market volatility and a move toward scarce resources. Dalio’s preference for gold is timely, as the price has recently climbed to nearly $2,300 an ounce, close to its all-time highs. We can express this outlook by using options on the SPDR Gold Shares (GLD) exchange-traded fund. Historically, gold has been a solid hedge during times of significant government debt, which matches the current situation. For bitcoin, recent approvals of spot Bitcoin ETFs have changed the market landscape. For instance, BlackRock’s IBIT fund has attracted over $17 billion since its launch in January 2024, indicating high institutional interest. We can leverage this trend with CME Group’s bitcoin futures contracts.

Debt Doom Loop Strategy

The core issue is the “debt doom loop,” as the U.S. national debt has now surpassed $34.6 trillion. A straightforward way to trade this view is by expecting higher interest rates through short positions in Treasury futures. Another method to profit if bond prices drop from increased government debt is by purchasing put options on a long-duration Treasury bond ETF like the iShares 20+ Year Treasury Bond ETF (TLT). These alarming economic forecasts point to a period of substantial market upheaval ahead. Therefore, we should consider preparing for a surge in overall market volatility. Buying calls on the CBOE Volatility Index (VIX) could effectively hedge against the kinds of systemic risks we’ve discussed. Create your live VT Markets account and start trading now.

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