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The USD/CHF surged but faced resistance at a key swing area, restricting further upward movement.
The USDCHF saw a sharp rise but faced resistance within a key range of 0.8017 to 0.8023. This area has often acted as a barrier, affecting the pair’s movements since late June.
Previously, the pair found support at the 100-hour moving average, moving above the 200-hour moving average and a resistance zone of 0.7986 to 0.7994. This zone now acts as support for any possible declines.
A US trade delegation is discussing tariff negotiations and limited agreements with China.
A US trade delegation has arrived in Stockholm to meet with China. The goal is to keep current tariff levels and get ready for a possible Trump-Xi summit later this year. Treasury Secretary Bessent and USTR Greer are leading the talks, with China’s Vice Premier He Lifeng participating.
The discussions will cover key topics like market access, industrial overcapacity, and trade issues related to fentanyl. Though no big agreements are expected, both sides hope to create a limited deal. This might include China taking steps regarding fentanyl and making future investment commitments, which could lead to some tariff reductions.
### Broader Deal Uncertainty
Even with these discussions, a larger agreement is uncertain. Beijing might want some concessions from the US about military presence and technology export controls.
We see these talks as a reminder to keep expectations in check for immediate market changes. The CBOE Volatility Index (VIX) has been trading below 15, a historically low level, meaning markets aren’t expecting a significant trade shock. Thus, we believe there’s no need to invest in costly short-term protection or make large bets based solely on this meeting.
The outlook for a small agreement rather than a breakdown suggests that implied volatility in certain areas may be a bit high. We think this presents a chance to sell options, like covered calls on current holdings in ETFs that track Chinese stocks, to earn premium. This strategy benefits from the expected stable market while these important talks continue between Mr. Greer and Mr. He.
### Industrial Overcapacity and Market Strategy
The emphasis on industrial overcapacity is very relevant now, given the recent mixed signals from China’s economy. For example, while exports have remained strong, China’s official manufacturing PMI dropped back to 49.5 in May 2024, signaling internal challenges. We should be cautious about any bullish bets on Chinese industrial companies until we have clearer information on market access.
Unlike the trade war in 2018-2019, which caused sharp and unpredictable market fluctuations, this dialogue seems more restrained and focused on reducing tensions. The groundwork for a potential summit later this year indicates that any significant policy changes and the resulting market volatility are likely still months away. Therefore, we should think about longer-term options that can take advantage of potential market moves later this year instead of focusing on immediate weekly expirations.
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After the US-EU trade agreement, the USD weakened and major currency pairs fluctuated.
The USD had mixed results after the US-EU trade agreement. The EURUSD dropped sharply, while the GBPUSD fell only slightly before stabilizing. The USDJPY rose as the dollar gained value after the trade news.
President Trump and European Commission President Ursula von der Leyen reached the trade agreement, preventing a possible trade war before the August 1 deadline. Key details include a 15% baseline tariff on many EU goods, quota systems for EU metal exports, and the EU’s commitment to buy $750 billion in U.S. energy. They also agreed to a zero-for-zero tariff structure for some products.
Expected Import Figures
For 2024, the EU is projected to account for about 18.4% of U.S. goods imports. Major contributors include Germany at $160.4 billion, Ireland at $103.3 billion, and Italy and France at approximately $75.8 billion and $59.7 billion, respectively. Notable events coming up include the FOMC rate decision, U.S. employment data release, and earnings reports from Meta, Microsoft, and others. The U.S. stock market is showing positive trends, with the S&P and NASDAQ indices rising in premarket trading. Additionally, U.S. Treasury yields have seen slight increases across different maturities. We believe the initial response to the trade agreement is a stronger U.S. dollar, despite some headlines suggesting otherwise. The agreement avoids a trade war but imposes tariffs that heavily impact the European economy, leading to a decline in the EURUSD. This dollar strength is a key trend to monitor in the coming days. For the EURUSD, we are observing crucial technical levels like the 100 and 200-hour moving averages for indications of further declines. The new 15% baseline tariff on many European goods makes the euro less appealing in the short term. We should explore strategies that take advantage of further euro weakness until the market fully grasps the deal’s long-term effects.Increase in USDJPY
The rise in USDJPY is a result of the dollar rally, boosted by rising U.S. bond yields. As long as U.S. yields stay strong, this currency pair is likely to keep climbing. Traders should pay attention to the correlation with the U.S. 10-year yield, which has surpassed 4.4%. The differences in central bank policies are expected to amplify currency movements. Officials like Mr. Kazimir have indicated that the European Central Bank is reluctant to act, while the U.S. Federal Reserve maintains a “higher-for-longer” approach. Current data from the CME FedWatch Tool shows a greater than 90% chance that the Fed will keep rates unchanged this week, which strengthens the dollar against the euro. This week is full of risk events, setting the stage for volatility. We expect market fluctuations around the Fed’s interest rate decision on Wednesday and the US employment report on Friday. Historically, implied volatility for short-term options increases leading up to these major data releases, creating opportunities for traders expecting sharp price changes. In addition to macro data, earnings reports from large technology companies will significantly influence market sentiment. Strong results from companies like Apple and Microsoft could increase risk appetite, while any signs of weakness might push investors toward safer assets, further boosting the dollar. We should be ready for quick sentiment shifts based on these corporate results. Given the busy schedule, we believe that buying volatility is a wise strategy. The VIX, a key indicator of expected stock market volatility, has recently been around a low level of 13, indicating that options are not too expensive. This offers a cost-effective way to hedge or prepare for the major price movements we anticipate this week. Create your live VT Markets account and start trading now.Markets brace for a busy week with key reports and important monetary policy announcements ahead
This week promises to be eventful for the markets. The US and China are meeting for trade talks, which raises hopes for keeping their temporary truce.
On Tuesday, the JOLTS report will come out, providing insight into the upcoming US jobs data ahead of the non-farm payrolls report. On Wednesday, Australia will release its quarterly CPI report for Q2. Many expect the RBA to consider a 25 bps rate cut in August, with current odds around 84%.
Key Monetary Decisions
Later in the week, we will see the ADP employment figures and US Q2 GDP data. The Bank of Canada and the Federal Reserve will also announce their monetary policy decisions. Big tech companies will report earnings, with Meta and Microsoft releasing their results on Wednesday, followed by Amazon and Apple on Thursday. Thursday will also feature the Bank of Japan’s monetary policy decision, along with the US PCE price index and initial jobless claims. We will also see preliminary inflation data for July from several European countries, leading up to the Eurozone estimate on Friday. This data could impact the ECB’s decisions in September. The week will end with the US labor market report and updates on trade ahead of the August 1 deadline, along with month-end trading flows, which may complicate market analysis. With so many important events occurring this week, we believe volatility is underestimated. This scenario suggests buying options, like puts on the S&P 500, could be a smart way to protect against unexpected outcomes from key data releases. The CBOE Volatility Index (VIX), often referred to as the market’s “fear gauge,” has risen above 14, up from around 12 earlier this month, indicating growing market anxiety.Federal Reserve Policy Impact
We should expect significant price movements following the Federal Reserve’s policy announcement, particularly based on signals from Chairman Powell regarding future policies. The CME FedWatch Tool indicates a 99% chance that rates will remain unchanged, but any suggestion of a more aggressive stance could shake up the markets. Traders might use straddles on index ETFs like SPY to get ready for big moves after his press conference. Earnings from major tech companies will be crucial, as these stocks have fueled recent market gains. The options market is anticipating a post-earnings move of over 4% for Microsoft and more than 7% for Meta. Selling premiums through strategies like short strangles or iron condors could be profitable if we think the actual market reactions will be less volatile than what’s currently expected. For currency traders, the Australian inflation report is important, especially with an interest rate cut likely on the horizon. Historically, the AUD/USD pair has dropped significantly after rate cuts, including a decline of over 0.7% just hours after the unexpected RBA decision in May 2023. We find value in buying put options on the Australian dollar to benefit from a potentially dovish outcome. The week will wrap up with the US labor market report, which will significantly affect the dollar and bond yields. If the non-farm payroll number strays far from the consensus forecast of 184,000, it could easily trigger a rapid move of over 1% in the U.S. Dollar Index (DXY). Using short-dated currency options provides a direct way to trade this critical event. Create your live VT Markets account and start trading now.USTR Greer highlights EU’s acceptance of some US auto standards and ongoing negotiations with India and China.
The US Trade Representative, Greer, plans to keep working on various trade issues, such as steel and digital services taxes. There is hope for positive developments with China, but significant breakthroughs are not expected in the near future. Current agreements will be closely monitored, and while there is interest in a meeting between Trump and Xi, there’s no rush to finalize deals. As for India, more negotiations are needed, and discussions with partners are ongoing.
Recently, the markets reacted to the US-EU trade deal, anticipating a 15% tariff based on reports from last week. It’s expected that tariffs will range between 10-20%, similar to the situation with China. Deadlines are likely to be pushed back to allow for further negotiations.
Options Strategy Considerations
From the trade representative’s comments, we see a trend of long negotiations with no major changes. This suggests that implied volatility in equity index options will likely stay low, but there’s a chance of sudden spikes from unexpected news. Therefore, we should explore strategies that take advantage of this situation, instead of making large bets on the overall market. With deadlines possibly extended, we can expect time decay to play a big role in options pricing. Strategies like selling iron condors on major indices, such as the S&P 500, could be beneficial as they profit from a stable market. This method aligns with the “more talk, less action” sentiment reflected in recent comments. The mention of progress on EU auto standards is important, especially since the EU sent over 1.1 million passenger vehicles to the U.S. in 2023. A 10-20% tariff would significantly impact this, so we should be ready for fluctuations in European automaker stocks and related currency pairs like EUR/USD. Positive news in this area could give a temporary boost to that sector.China and Market Stability
The desire for a meeting between the two leaders suggests a level of stability in the market, preventing a total breakdown in relations for now. Despite existing tensions, U.S. imports from China were over $427 billion in 2023, showing the strong economic ties that both sides are careful not to break. This indicates a tense but steady trading range. The trade war of 2018-2019 taught us that markets react quickly to tariff news, but usually recover as negotiations progress. The CBOE Volatility Index (VIX) is currently in a calm 13-15 range, making it a good time to buy tail-risk hedges. Purchasing far out-of-the-money puts could be a cost-effective way to shield portfolios from sudden market changes. Ultimately, trade policy is connected to inflationary pressures. The latest U.S. Consumer Price Index shows core inflation is above the Federal Reserve’s target, meaning new tariffs could complicate the central bank’s decisions. Traders should pay attention to how new tariffs might affect both interest rate expectations and equity markets. Create your live VT Markets account and start trading now.European markets respond carefully as the euro falls following trade deal backlash and mixed equities
The euro fell as traders responded negatively to the US-EU trade deal. While the EU’s agreement includes a list for 0% tariffs, it still faces a 15% baseline tariff, which impacts the European economy.
German industry leaders and French officials are questioning the deal’s effects, and US-China trade talks are set to restart. At the same time, the Bank of England and other global policymakers are watching these developments, with the ECB stating there’s no need for immediate action in September.
Market Reaction
Data indicates that UK CBI retail sales improved to -34 from -46. In the markets, the US dollar gained strength while the euro weakened, causing EUR/USD to decline. USD/JPY and USD/CHF also increased, reflecting the dollar’s strength. European stocks opened higher, but the gains were cut back; the DAX rose by 0.1%, and the French index reduced its initial increase. US futures also saw early gains diminished, now rising by just 0.2%. Oil and gold prices stayed stable, and Ethereum is close to testing the $4,000 mark. Bitcoin decreased by 0.7%, bringing it to $118,621. The upcoming week features important events like tech earnings reports, multiple central bank meetings, and the US labor market report.Investment Opportunities
With optimism about the US-EU trade deal waning, we think the euro is likely to decline further. The political backlash surrounding the deal, especially with its 15% baseline tariff, suggests economic challenges for the Eurozone. This presents a chance to buy put options on EUR/USD, as we expect it to slide towards the 1.1500 level in the coming weeks. As equity markets pull back their initial gains, we foresee higher volatility ahead. The CBOE Volatility Index (VIX), known as the market’s “fear gauge,” is currently at a low 13.5. Historically, it tends to spike during weeks with multiple central bank decisions and major tech earnings. We recommend buying VIX call options or setting up straddles on indices like the S&P 500 to prepare for expected price fluctuations. The dollar’s overall strength, especially against commodity currencies, is a key trend to watch. The US Dollar Index (DXY) recently rose above 106, a multi-month high, applying pressure on pairs like AUD/USD. Given this trend, we are considering selling AUD/USD futures ahead of the US labor market report, as a strong number would likely drive further dollar gains. The differences in central bank positions provide a clear trading signal. As Mr. Kazimir noted, the European Central Bank does not feel immediate pressure to act, whereas the CME FedWatch Tool shows markets anticipating a more aggressive stance from the Federal Reserve. This policy divide is reflected in rising US 10-year yields, reinforcing our long-dollar position against currencies from more dovish central banks. Create your live VT Markets account and start trading now.Sefcovic says the EU-US tariff list might grow, highlighting the benefits of cooperation over trade disputes.
The EU’s trade chief recently announced that the new agreement with the US is just the beginning of efforts to reduce trade tensions. Working together is seen as more beneficial than getting into a trade war.
There are ongoing efforts to ease tensions, especially since not all EU member states agree on the deal. The framework in place has reduced trade uncertainty, which helps prevent major conflicts. Looking ahead, more improvements are expected, creating a more stable trading environment.
Strategic Approaches To Market Volatility
According to Mr. Sefcovic, traders in derivatives should prepare for lower market volatility. The existing framework and ongoing negotiations lower the chance of a sudden trade war, which has historically led to sharp increases in volatility. This implies that selling options, which gain value from falling implied volatility, could be a good strategy in the coming weeks. The US-EU trade relationship, worth over $1.3 trillion in 2023, highlights the importance of reducing tensions. Any decrease in tariff uncertainty positively impacts the global economy. This overall stability supports the idea that market volatility, especially for European stocks, is likely to stay low or decrease further. Historically, the VIX index spiked above 25 during the US-China trade war in 2018 and 2019 when new tariffs were introduced. Now, we expect the opposite to happen, as reduced tensions should limit increases in volatility. Thus, we see this as a chance to profit from low volatility, as the worst-case scenarios have been largely eliminated.Sector Specific Opportunities
This perspective is especially relevant for derivatives linked to export-heavy European sectors, like German automakers who rely on the US market. With the risk of auto tariffs currently low, implied volatility for indices like Germany’s DAX should decrease. There are opportunities in strategies that thrive on stability within these trade-sensitive stocks. The Euro Stoxx 50 Volatility Index (VSTOXX) has recently been near its yearly lows, around the 13-15 level, indicating a calm market. Mr. Sefcovic’s comments support this trend, suggesting that any brief spikes in volatility due to unrelated news could be good times to start new short volatility positions. The reduced friction in trade serves as a solid foundation for this outlook. Create your live VT Markets account and start trading now.The USD strengthens while the EUR faces uncertainty amidst mixed signals and expectations
The EURUSD pair hasn’t risen much despite the US-EU trade deal. This is likely because traders are waiting to see what the tariff rates will be. While the USD has gained some strength recently, it hasn’t had a strong reason for the move. The market is stuck in a range as traders look for new developments that could create a lasting trend. The idea of “shorting the US dollar” is still popular, but it needs a strong trigger to change expectations about rate cuts.
The US-EU trade deal has made things clearer for the euro. Some members of the European Central Bank (ECB) have taken a neutral position regarding future rate cuts. They want to see negative data before considering more reductions. Although the market thinks there’s a 65% chance of a rate cut in December, the ECB might keep rates steady due to the trade deal, recent easing measures, and fiscal plans.
Technical Analysis Highlights
Looking at technical analysis, the daily chart shows important support at 1.1575, which can affect price movements from both buyers and sellers. The 4-hour chart indicates a break in minor support at 1.1720, hinting at bearish sentiment related to trade updates. The 1-hour chart does not offer much new information, mainly showing resistance and support testing. Upcoming US economic data—like job openings, consumer confidence, GDP, and employment figures—could be triggers for market movement soon. We think the market is absorbing the news of the trade deal, which many expected. Recent data from CFTC shows that speculative short positions against the dollar are near multi-year highs. Therefore, the path of least resistance might point to a further USD rally. A short squeeze could increase any upward movement for the dollar. On the European side, officials are signaling a pause in further rate cuts. Recent comments from central bank members have pointed out that core inflation remains stubbornly high, above 5%. This feedback pushes back against market expectations for a rate cut soon. The likelihood of a December cut has dropped below 50% in the overnight index swap market, indicating that traders are reassessing the bank’s plans.Bearish and Bullish Trading Strategies
For traders who are bearish, the old support level around 1.1720 is now a great opportunity. We suggest considering buying put options or opening short positions if the price revisits this area from below. This allows for a clear risk management zone, aiming for the crucial support level at 1.1575. On the other hand, patient buyers should closely monitor the 1.1575 level for signs of a bottom. If the price reaches this key support zone, we will look for bullish reversal patterns before buying call options. This strategy is safer than trying to buy while the price is falling and positions for a potential rebound toward cycle highs. The coming week features significant US economic data that will likely influence the next steps. We are keeping an eye on Wednesday’s FOMC decision and Friday’s Non-Farm Payrolls report, which are expected to show around 170,000 jobs added. Strong numbers could strengthen the dollar and push the pair toward lower support, while weak data might undermine bearish momentum. Historically, when the market becomes as one-sided as the current anti-dollar sentiment, even neutral data can cause sharp reversals. A similar situation occurred in late 2021 when crowded short positions were forced to adjust, leading to a sustained dollar rally. Therefore, traders should stay flexible, as the trigger for a significant move might not be easy to identify. Create your live VT Markets account and start trading now.UK retail sales fell for ten months, but recent data shows a slight improvement in outlook.
**UK Retail Sales Drop**
Consumer spending continues to struggle, even with a slight improvement from a very poor reading last month. Sales have now fallen for ten consecutive months, highlighting a significant issue in the UK economy. This trend indicates that many households are facing serious financial pressure.
Recent data from the Office for National Statistics backs this up, revealing that retail sales volumes are still 1.7% lower than their levels before the pandemic in February 2020. Although UK inflation has recently met the Bank of England’s target of 2% for the first time in nearly three years, it has not yet led to increased spending. This makes the situation challenging for the central bank.
**FTSE 250 and British Pound Forecast**
In light of these developments, we think it’s wise to buy put options on the FTSE 250 index over the coming weeks. This index reacts more closely to the domestic UK economy than the more global FTSE 100. Historically, during periods of weak domestic growth, like in the early 1990s and 2008, the FTSE 250 has performed poorly.
The ongoing weakness in consumer spending also suggests a negative outlook for the British pound. We are exploring short positions in GBP/USD futures since the currency has had trouble maintaining values above 1.27 amid concerns about the economy’s strength. This ongoing economic weakness may push the Bank of England to hint at future interest rate cuts more aggressively than the markets currently anticipate.
The uncertainty highlighted by Martin Sartorius, the principal economist at the Confederation of British Industry, indicates that market volatility could increase. He pointed out that disappointing sales figures are affecting many retailers. Therefore, we are also looking into strategies to take advantage of volatility in select consumer-discretionary stocks that are most vulnerable to this spending decline.
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Kazimir thinks no action is needed right now and is waiting for clear negative signals before re-evaluating cuts.
ECB policymaker Kazimir has said there’s no urgent need for action right now because nothing has changed. He doesn’t see a risk of ongoing inflation falling below target and thinks risks aren’t moving downward.
For Kazimir to take action, he needs to see clear signs that the labor market is weakening. Although the US-EU trade deal may reduce uncertainty, its effect on inflation is still unclear.
