Samsung Electronics has landed a $16.5 billion contract to supply semiconductors to a large global company. However, the name of the company receiving the semiconductors is still under wraps. We expect more details about this contract to be revealed by the end of 2033. This is a major step forward for Samsung’s semiconductor production. We view this big contract as a significant positive change. It creates a solid income base for Samsung over the next decade. This steady income stream should reduce risks for the company’s stock, making it less safe for investors to take bearish positions, like short selling. Derivative traders should recognize this change as adding stability to Samsung’s value. Although we don’t know who the client is or what product will be supplied, this uncertainty may lead to an increase in short-term volatility. For us, this situation is an opportunity to sell out-of-the-money puts, taking advantage of the higher premiums that come with market jitters. This approach benefits from both the passage of time and the new support level created by the contract. The timing of this announcement is excellent. Samsung’s operating profit jumped over 900% year-on-year in the first quarter of 2024, mainly due to a recovery in the memory chip market. This new contract shows that the recovery is not temporary; it’s being bolstered by crucial long-term partnerships. We believe this supports a more optimistic long-term outlook. Looking back, when suppliers like TSMC secured long-term, high-volume orders from big clients like Apple, it often led to a sustained rise in its stock value over the years. We expect a similar trend for Samsung, providing ongoing support for its stock performance. The market may start to factor in this stable, high-margin revenue even before details emerge in 2033. The size of this deal strongly suggests that the end customer is likely a major cloud provider or tech giant working on custom silicon for artificial intelligence. Given that companies like Microsoft and Amazon are heavily investing in their AI chips to reduce reliance on a single supplier, this contract probably involves high-value, advanced logic chips. This positions Samsung as an essential partner in the ongoing AI competition.

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The People’s Bank of China (PBOC) sets a daily midpoint for the yuan, also called the renminbi (RMB), based on supply and demand, economic data, and changes in the global currency market. The yuan follows a managed floating exchange rate system. It can move up or down by 2% from this midpoint each trading day.

Yuan Stability and Intervention

The PBOC may step in if the yuan approaches the limits of its trading range or shows too much price movement. They buy or sell yuan to keep its value steady, ensuring it adjusts gradually. We think the central bank’s main goal is to maintain stability for the yuan. They often set the daily midpoint higher than what the market expects, signaling a desire to slow down its depreciation. This approach suggests the yuan will likely stay within a set range for now. This strategy appears to be a response to mixed economic signals, like the recent report showing China’s manufacturing PMI unexpectedly dropped to 49.5 in May, indicating a contraction. By preventing sharp changes in currency value, officials aim to maintain confidence and avoid rapid yuan depreciation that could lead to capital flight. We see their actions as a way to control the pace of change, not to reverse the trend. For derivative traders, this means that price fluctuations will likely stay low. We should consider strategies that benefit from low volatility, such as selling straddles or strangles to earn premium. The PBOC’s commitment to the +/- 2% trading band acts as a buffer against sudden, large market moves.

Volatility and Risk Management

Historically, times of strong guidance have led to less price movement. For example, implied volatility on one-month USD/CNH options is currently around 3.8%, much lower than during previous market stress. This shows that the market expects stability. The main risk to this outlook would be an unexpected policy change or external events leading the authorities to change their managed float approach. Therefore, we should have strict risk management in place for any short-volatility strategies. A crucial indicator to monitor is the difference between the official midpoint and the actual trading price. We will keep watching the daily reference rate as the key indicator of the PBOC’s intentions. As long as they defend the yuan with strong fixings, we can continue to expect a range-bound strategy. Any significant change in how they set the midpoint would prompt us to reconsider this view. Create your live VT Markets account and start trading now.

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The Australian dollar is likely to rise due to more currency hedging by large Australian pension funds. These funds have a lot of overseas investments and significantly increase the demand for the AUD. Fears about global tariffs and possible interest rate cuts from the U.S. Federal Reserve may weaken the U.S. dollar. This situation may lead Australian pension funds to hedge their U.S. assets, further boosting demand for the AUD.

Analyst Forecasts

Analysts have different predictions based on these trends. Ray Attrill from NAB expects the AUD to rise nearly 3% by year-end. Citigroup believes the AUD/USD rate will stay above 0.64, while Deutsche Bank targets 0.67 for the AUD/USD by the end of the year. Given the increased hedging by Australian pension funds, we think derivative traders should prepare for a stronger Australian dollar. These funds manage over A$3.7 trillion, so their move to hedge U.S. assets is a major and ongoing source of demand for the local currency. This trend is likely to support the AUD against the U.S. dollar in the coming weeks. The main reason for this change is the different monetary policies in both countries. Australia’s most recent CPI was 3.6%, putting pressure on its central bank to keep interest rates steady. Meanwhile, markets expect at least one cut from the U.S. Federal Reserve this year. This growing interest rate gap makes the Australian dollar more appealing.

Trading Recommendations and Strategies

We recommend traders think about buying AUD/USD call options to take advantage of the expected rise. This approach allows traders to join in on the rally predicted by analysts like Mr. Attrill while limiting risk to the premium paid for the options. Targeting strikes near the 0.67 mark matches the year-end forecast from one of the banks mentioned. Historical data supports this view, as the AUD usually performs well when the U.S. central bank starts lowering rates while Australia keeps its rates unchanged. This pattern suggests that the current economic situation is favorable for this currency pair. The extra hedging by large funds only strengthens this historical trend. While we have a positive outlook, we see the 0.64 level identified by another analyst firm as an important support level. If the price falls below this, it may indicate a potential failure of the bullish outlook, prompting a reassessment of long positions. For those trading futures contracts, this level is a good place for stop-loss orders. Create your live VT Markets account and start trading now.

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Oil prices are under pressure, currently around $70 per barrel, with predictions indicating a decrease in the market. The International Energy Agency (IEA) and the U.S. Energy Information Administration expect a surplus of oil next year, with the IEA projecting an excess of 2 million barrels daily. Francisco Blanch from Bank of America Corp notes that this surplus, particularly in the second half of the year, will likely drive prices down. TotalEnergies SE has also observed that the market has a strong supply as the OPEC+ alliance loosens production limits, even as global growth slows down and affects demand.

Additional Oil Supply Developments

Meanwhile, Norway’s Equinor ASA is fully ramping up production at its Johan Castberg field, and Brazil plans to activate its offshore resources. These developments indicate more oil supply coming from outside the OPEC framework. We see a market where current prices are stable, but there’s a clear risk of oversupply ahead. This difference between today’s prices and future supply creates unique opportunities for trading strategies. Our goal is to prepare for potential price drops in the upcoming months rather than just focusing on today’s prices. The IEA’s forecasts are important, and we take them seriously. The U.S. Energy Information Administration supports this view, projecting in its June 2024 outlook that global oil inventories will rise through 2025. This rise in supply indicates that long-term futures contracts may be overpriced compared to the current market.

Potential Trading Strategies

Blanch’s comment about a surplus in the second half of the year indicates a well-established trading strategy. We are considering selling longer-term contracts, particularly for the fourth quarter of 2024 or the first quarter of 2025. Historically, when there is an oversupply, prices for these longer contracts tend to drop quicker than those for shorter contracts, benefiting bearish calendar spreads. Warnings from the French energy firm and the recent OPEC+ decision to reduce production cuts in October highlight a clear trigger for lower prices. To take advantage of this while managing risk, we are looking at purchasing put options with strike prices below $65 for December 2024. These options offer limited initial costs while providing protection against downward price movements. Also, the increasing oil supply from outside the traditional OPEC countries is significant. For example, the new Norwegian field is contributing over 100,000 barrels per day, and Brazil’s output is steadily rising, with recent government reports showing production consistently above 3.4 million barrels per day. This reliable flow of non-OPEC oil acts as a counterweight to any major price increases. Create your live VT Markets account and start trading now.

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A meeting between Trump and EU President von der Leyen led to a new trade tariff agreement between the EU and the US. Following this weekend’s news, the EUR/USD pair saw a slight rise and has stayed fairly stable since. US equity index futures reacted positively, starting the new week strong. The agreement includes a 15% tariff rate, with the EU committing to buy energy from the US. We expect a 90-day extension to be discussed between the US and China in Stockholm.

Trade Framework Overview

President von der Leyen discussed the EU/US trade framework, which currently does not address tariffs on aircraft. Reports suggest that a temporary pause on tariffs between the US and China may also be extended by another 90 days. We see this framework agreement as a temporary boost for the euro, but uncertainty remains since the deal is not finalized. After the initial rise, the currency pair’s sideways movement indicates the market’s hesitance to fully embrace a resolution. Derivative traders should avoid unsupported rallies until more solid information becomes available. The unresolved tariffs on aircraft are a major concern, recalling a past dispute where the WTO allowed over $11 billion in retaliatory actions. This uncertainty is likely to cause price fluctuations, with implied volatility on three-month EUR/USD options increasing to 7.8% from last week’s average of 6.5%. Traders can benefit from this volatility by buying straddles or strangles without taking a specific position.

Impact of Trade Tensions

Historically, long-lasting trade tensions have negatively affected Europe’s manufacturing sector, with Germany’s IFO Business Climate Index dropping over three points during similar conflicts in the past decade. Traders should keep an eye on upcoming German factory order and ZEW Economic Sentiment data. Any signs of weakness could quickly reverse the euro’s recent gains, creating opportunities for put option buyers. The expected 90-day tariff extension from the talks with China adds another layer of uncertainty. A delay will not fix the problem, and any negative news from those negotiations could lead to a flight to safety, boosting the US dollar. This situation would pose a significant challenge for the euro, despite any progress made by von der Leyen. Create your live VT Markets account and start trading now.

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A senior official has confirmed that the US-EU trade framework has not resolved aircraft tariffs. Because of the ongoing investigation into aircraft tariffs, they will stay at zero until it’s finished. Aircraft may avoid tariffs, but the final decision depends on the investigation’s results. In the meantime, the steel tariff remains high at 50%.

Temporary Relief For Aerospace Sector

We see the delay on aircraft tariffs as temporary relief, not a solution. This lessens the immediate risks for major aerospace companies, but uncertainty will return when the investigation continues. The official suggests a positive outcome is possible, but we will wait to act until the investigation officially ends. The risk of future tariffs limits potential growth for the aerospace sector. In the past, announcements about tariffs in the long-running WTO dispute have caused significant one-day drops of 3-5% for stocks like Boeing and Airbus. We think selling slightly out-of-the-money call options on aerospace ETFs can generate income from this limited potential. The steel tariffs continue to be a challenge for domestic industrial and automotive manufacturers. These sectors are still grappling with high input costs, which hurt their profit margins. Data from the American Iron and Steel Institute shows that imports play a major role, and this policy keeps European steel from easing domestic prices.

Opportunities In Trade Volatility

For traders, this situation suggests that the gap between raw material producers and industrial consumers will likely continue. We see chances for pair trades—going long on steel producers while being cautious about manufacturers that say material costs hurt earnings. This cost issue for consumers is not likely to improve soon. This mixed trade policy suggests that market volatility may be underestimated. Although the CBOE Volatility Index (VIX) has recently been below 15, indicating calmness in the market, these unresolved trade issues could trigger sudden spikes. The absence of a full agreement leaves room for future trade tensions. Given the current low cost of options, it makes sense to create protective positions. Buying medium-term put options on broad market indices like the SPY is an affordable hedge against any negative surprises from the aircraft investigation’s conclusion. This acts as a low-cost insurance policy against renewed trade issues. Create your live VT Markets account and start trading now.

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US equity index futures climbed after the announcement of a trade deal framework between the EU and the US. The Euro strengthened, with futures opening on Globex showing ES up by 0.4% and NQ up by 0.6%. These numbers may change as the trading session progresses. A US official reported at market open that the EU has agreed to a 15% tariff on cars, semiconductors, and pharmaceuticals. The EU also accepted the US’s decision to keep 50% tariffs on steel and aluminum. Additionally, the EU will open its markets to almost all products, while a proposed $1 trillion energy deal initially suggested by Trump has been settled at $750 billion.

Anticipation Of Meetings

The US, EU, and China are planning meetings to discuss further developments. The US and EU have established a framework with a 15% tariff rate, and the EU has agreed to buy energy from the US. Meanwhile, the US and China are set to meet in Stockholm, and their tariff discussions are expected to be extended for another 90 days. A weekend report also indicated a 90-day extension in the tariff pause between the US and China. Equity futures surged on this news, suggesting a short-term continuation of this optimistic trend. The framework deal offers a clear positive trigger that could lower implied volatility as uncertainty fades. This situation might be favorable for strategies like selling out-of-the-money puts on indices such as the S&P 500. However, we should balance this optimism with the current market reality. The CBOE Volatility Index (VIX) is hovering around a historically low level of about 13, indicating complacency and making the market vulnerable to a sharp reversal if there are any surprises in the deal’s details. It’s important to remember that a framework is not the same as a finalized treaty, and we’ve seen initial positive responses fade before.

Trade Negotiations History

History shows that trade negotiations can be unpredictable. We recall the 2018-2019 period when conflicting headlines about a US-China deal caused wild market swings, punishing traders who were too confident. We advise using this rally to set up hedges, as any negative signs from officials could quickly wipe out gains. The details of the announcement offer clear opportunities based on sectors. The $750 billion energy purchase agreement makes bullish plays on energy sector ETFs very attractive. Conversely, with the US keeping significant tariffs on steel and aluminum, we might consider bearish positions on companies in those sectors that lack pricing power. Additionally, the meeting with China adds another layer of uncertainty. The reported 90-day extension only delays a crucial issue, keeping geopolitical tension alive. We’ll closely monitor options pricing on emerging market ETFs for any signs that traders expect renewed volatility from that front. Ultimately, we must remember that macroeconomic data will continue to drive the market. The latest US Consumer Price Index (CPI) showed inflation at 3.3%, still above the Federal Reserve’s target. While positive trade news is beneficial, it won’t prevent the market from reacting strongly to the next inflation or jobs report, which will remain the main influence on monetary policy. Create your live VT Markets account and start trading now.

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EU President von der Leyen talked about the trade deal framework between the EU and the US, describing it as the best possible agreement. This deal stops the use of stacked tariffs and different rates, setting a 15% rate as a permanent maximum. The framework is thought to help avoid a trade war, but it does not include rules for digital services or technology regulation. Some people believe that Europe made compromises during the negotiations, but it’s clear that the US sets its own trade rules.

Impact of the Framework Deal

The framework deal is expected to lead to higher tariffs than those seen under President Biden. During Trump’s presidency, tariffs became key to US trade policy, affecting negotiations with countries like Japan, the EU, and China. Following the deal announcement, the Euro rose against the US dollar. In tandem with the EU agreement, the US and China plan to meet in Stockholm, with a 90-day pause on tariffs expected. Reports over the weekend confirmed that the US and China want to extend the tariff pause for another 90 days. The EU deal also includes an agreement for the EU to buy energy from the US at a 15% tariff rate.

Response to the Deal

The immediate reaction should be to sell volatility. With the risk of a trade war decreased, implied volatility in EUR/USD options and major European stock indices should drop from their recent highs. History shows that solutions to trade disputes, like the 2020 Phase One deal with China, led to a significant drop in the VIX index, and we expect something similar now. The euro’s initial rise is likely a temporary relief rally, presenting a selling opportunity. The deal requires Europe to purchase US energy, creating long-term demand for dollars. Since nearly half of the EU’s liquefied natural gas came from the US last year, this dollar demand will limit any lasting strength of the euro. This new tariff environment creates clear winners and losers for specific sectors. We suggest buying puts on European automakers since the 15% tariff will impact profit margins of the over €30 billion in vehicles Germany exports to the US each year. Meanwhile, call options on major US energy exporters are becoming more appealing due to their access to the European market. A key takeaway from von der Leyen’s announcement is what was not included: digital and tech regulations. This absence indicates that technology will be the next main area of trade conflict, leading to future uncertainties for companies in that space. Traders should be ready for renewed volatility in tech-heavy indices as this unresolved issue resurfaces. Create your live VT Markets account and start trading now.

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Industrial profits in China dropped by 4.3% in June compared to the same month last year, following a 9.1% decline in May, according to the National Bureau of Statistics. For the first half of 2025, profits fell by 1.8%, slightly worse than the 1.1% drop seen from January to May. This decline is linked to ongoing producer prices falling, weak domestic demand, and uncertainty in global trade. Price wars in industries like automotive and solar panels are putting pressure on profit margins, prompting Beijing to promise new policies to help.

Policy Measures and Market Reactions

New regulations are aimed at reducing aggressive price cuts, along with a trade-in program similar to “cash-for-clunkers.” These initiatives are expected to boost consumer demand and improve profits. The industrial profits data covers companies with annual revenues over 20 million yuan (about $2.8 million). The continued drop in industrial profits signals strong economic challenges, suggesting that cautious investment strategies may be needed. The weak domestic demand is shown in the latest manufacturing PMI, which fell to 49.5, indicating struggles for large state-owned companies. We think this situation creates a chance to buy put options on broader China-focused ETFs. This slowdown in industry impacts global commodities, and we expect further weakness in industrial metals. Iron ore futures have already dipped below $110 per metric ton due to sluggish demand from China’s steel industry. As a result, we see value in shorting commodity futures or buying puts on major mining firms that are highly dependent on Chinese demand.

Volatility and Trading Opportunities

However, we need to proceed cautiously due to the government’s promised policy support, which adds significant risk to purely bearish trades. In the past, stimulus programs, like the proposed trade-in scheme, have led to sharp but often temporary rallies in sectors such as autos and consumer goods. This suggests that savvy traders might want to consider short-term call options on Chinese auto ETFs if the details of the stimulus are compelling. With the conflicting signals of weak fundamentals and possible policy intervention, we believe that volatility is the key factor to trade. This environment is well-suited for strategies like purchasing straddles on the Hang Seng Index or related ETFs, which can benefit from large price swings in either direction. This uncertainty may also affect the yuan, making put options on the currency a smart hedge or speculative bet. Create your live VT Markets account and start trading now.

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The economic calendar is empty for Asia on Monday, July 28, 2025. There are no major economic data releases planned for the day. Earlier news includes the Euro gaining value because of a new trade deal between the US and EU. This agreement comes with a 15% tariff rate, and the EU will buy energy from the US.

US and China Meeting

The US and China will meet in Stockholm on Monday, with a 90-day extension expected. This meeting could affect future trade agreements between the two countries. In the FX market, it’s a typical Monday morning with low liquidity. Prices may change quickly until more Asian markets start trading. With the new trade deal, we expect less overall market volatility. The resolution of a significant trade uncertainty could lower the VIX index, which often falls by over 15% in the months after major international deals. This suggests that selling volatility through strategies like short straddles on major indices might be profitable. The details of the deal, especially the EU’s commitment to buy American energy, should support the Euro in the long run. This situation is similar to after 2022 when U.S. LNG exports to Europe increased by over 140%, changing energy flows and currency values. We see value in preparing for further strength in EUR/USD, possibly using call options to limit risk while allowing for potential gains.

Stockholm Meeting Implications

Regarding the Stockholm meeting, the expected 90-day extension in U.S.-China talks is just a delay, not a final solution. This situation creates opportunities for calendar spread trades, similar to what we saw during the 2018-2019 trade disputes. Short-term volatility often drops after truce announcements but spikes again as deadlines approach. We think it’s wise to sell near-month volatility on assets sensitive to China while buying deferred contracts. With no major economic news today, market direction will largely depend on news sentiment. The low liquidity noted earlier increases the risk of sharp price changes based on any new headlines. We recommend being cautious when entering positions until trading volumes increase as more global centers open. Create your live VT Markets account and start trading now.

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