This week, China’s central bank added 1.3 trillion yuan to the banking system. This is the largest short-term liquidity boost since January. On Wednesday, the injections peaked at 444.6 billion yuan. By Friday, this amount had decreased to 102.8 billion yuan. Repo rates dropped for three days in a row, showing that market stress is easing.

Liquidity and Market Conditions

The increase in liquidity comes at a time when funding conditions are tight. Repo rates have risen above the policy rate due to low consumer confidence and weak export expectations. Analysts think that liquidity support might drop after the tax deadline on July 15. This move aims to ease the funding pressure caused by significant tax payments and a spike in government bond issuances. We see the central bank’s liquidity injection as a temporary solution for stability, not a major policy change. It’s a response to seasonal demands, which means the calm in the market may be short-lived. We expect low volatility in the near term. However, the overall economic outlook remains weak. The official manufacturing PMI for June unexpectedly fell to 49.5, indicating a contraction. Combined with producer prices being in deflation for over 20 months, this suggests that any rise in asset prices will be uncertain. This sets the stage for increased volatility once the current support is removed.

Expected Market Movements

As repo rates fall, we anticipate that short-term interest rate futures will show this easing, but this opportunity is closing quickly. Traders should be ready for a reversal after the July 15 tax deadline, as the central bank has indicated it wants to reduce these actions. This suggests a chance to prepare for higher short-term rates later in the month. Historically, after major injections like the one in January, Chinese equities only experienced temporary rallies before fundamental issues emerged again. Therefore, we believe that short-dated call options on major indices like the CSI 300 could yield tactical gains this week. A wise approach would be to also consider buying put options that expire in late July or August to protect against the likely return of negative sentiment. Create your live VT Markets account and start trading now.

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The Canadian Dollar (CAD) has dropped to its lowest point against the US Dollar (USD) in almost a month. This decline comes after strong US economic data, which has boosted the USD despite low expectations for Federal Reserve rate cuts. Canadian economic data had little effect on the Loonie, as it awaits market changes after this week’s rise in the Consumer Price Index (CPI). The Bank of Canada (BoC) is unlikely to cut rates further, leaving the CAD exposed to larger market trends.

USD Momentum

As the USD continues to rise, the USD/CAD exchange rate has hit new highs above 1.3750 for the first time in nearly a month. Although the US Producer Price Index (PPI) inflation came in lower than expected, other factors such as import tariffs are limiting its impact. The value of the Canadian Dollar is affected by BoC’s interest rates, oil prices—Canada’s main export—and the overall economic condition. Changes in interest rates by the BoC have a significant effect on the CAD. Oil prices are crucial because they influence Canada’s Trade Balance. Macroeconomic indicators, like GDP and employment data, also impact the CAD’s direction. Stronger economic data attracts more investment and strengthens the currency.

Exchange Rate Predictions

We believe the USD/CAD exchange rate is likely to rise in the coming weeks. The main reason is the difference in interest rates; the US Federal Funds Rate is at 5.50%, while the Bank of Canada’s rate is only 4.75%. This gap makes holding US dollars more appealing. The strength of the US economy supports this prediction, making it unlikely that the Federal Reserve will cut rates. For instance, the latest Non-Farm Payrolls report showed that the US added 272,000 jobs, significantly surpassing expectations and indicating economic strength. This kind of positive data strengthens the USD. In Canada, recent data makes the situation more complex for the Loonie. The annual inflation rate for May unexpectedly rose to 2.9%, which may cause officials to hesitate on future rate cuts. This uncertainty puts downward pressure on the currency. Considering these factors, we believe the pair could surpass the recent high of 1.3750. Traders may want to explore strategies that take advantage of this upward trend, such as buying call options that benefit from a move toward the 1.3800 level. This strategy allows for participation in the potential gains while managing risk. Crude oil prices, vital for the Canadian economy, are not offering the needed support. West Texas Intermediate (WTI) has been trading at around $81 per barrel, failing to climb higher and thus providing limited assistance. This stagnant energy market weakens a key support for the currency. Historically, sustained moves above current exchange rates, such as in late 2023, have often led to additional gains. During that period, the US dollar was strong, and there was uncertainty about monetary policy direction. A decisive break above recent highs could indicate a new upward trend for the pair. Create your live VT Markets account and start trading now.

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Gold prices dropped over 0.26% during the North American session, adding to an earlier decline. This drop happened after the U.S. released strong economic data, which fueled expectations that the Federal Reserve (Fed) will keep interest rates steady in the next meeting. Positive market feelings, driven by good job and consumer data, added downward pressure on gold. Initial Jobless Claims decreased from 228,000 to 221,000, and Retail Sales data showed a 0.6% monthly increase in June, partly due to higher prices.

Federal Reserve Commentary

Officials from the Federal Reserve spoke about inflation and their steady monetary policy. Governor Adriana Kugler pointed out that inflation remains a concern, while San Francisco Fed President Mary Daly talked about the economy’s state in light of ongoing tariffs. Market expectations show that traders believe the Fed will not lower rates soon, which affects gold demand. The December 2025 fed funds futures contract suggests an easing of only 42 basis points. Other factors, such as stable U.S. Treasury yields and a rising U.S. Dollar Index, also impacted gold prices. It’s highly likely the Federal Reserve will keep rates unchanged at their next meeting. The XAU/USD technical outlook shows gold trading between $3,300 and $3,400, with possible movements towards $3,452 or $3,246 based on market conditions.

Technical Outlook and Strategy

Given the strong economic data, we think gold prices are likely to go down in the short term. The encouraging job and retail sales figures leave little room for the Federal Reserve to cut rates, supporting bearish or neutral strategies on gold for the coming weeks. Latest inflation data backs this view. The June Consumer Price Index showed inflation at 3.1%, still above the central bank’s target. The CME FedWatch Tool indicates over a 90% chance that rates will stay the same during the next meeting. Officials like Kugler’s comments about ongoing inflation suggest a cautious stance will last. Historically, gold struggles when monetary policy is tight and the U.S. Dollar is strong, as seen during the rate hikes in 2022. The market expects only 42 basis points of easing by the end of next year, indicating a similar situation now. This historical context supports continued pressure on gold. Considering the current outlook, with gold trading between about $2,300 and $2,400, traders may want to consider strategies that benefit from this stability or a slight decline. Selling call options or setting up bear call spreads above near-term resistance could be wise ways to take advantage of limited upside potential. This strategy allows traders to profit from time decay unless a significant bullish event occurs. Create your live VT Markets account and start trading now.

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China’s commerce minister stated that the economic and trade relationship between China and the U.S. has faced many challenges, but it is still crucial for both countries. Since 2018, the U.S. has used more unilateral and protectionist measures, leading to increased tensions. The minister emphasized that mutual benefits are essential for U.S.-China trade. He believes that attempts to separate the two economies are unlikely to succeed, as this goes against economic growth. He admitted there are unavoidable differences and frictions but encouraged open dialogue to address these issues.

Irreplaceable Aspects of the Relationship

He also mentioned that some parts of their relationship are irreplaceable in the short term. He stressed the importance of respecting each other’s core interests. Agreements like the Geneva agreement and the London framework have helped stabilize trade ties and reduce tensions. From the minister’s comments, we think that traders should expect managed tensions rather than a complete breakdown. Even though two-way goods trade fell 13.6% to $575 billion in 2023, the overall trade volume reflects strong economic ties. This indicates that while major shocks are being controlled through discussions, some underlying frictions will remain. In the coming weeks, we see an opportunity in strategies that benefit from stable price movements since dialogue is likely to prevent extreme outcomes. With the CBOE Volatility Index (VIX) near multi-year lows around the 13-14 level, bearish bets may be costly and ineffective. We suggest taking advantage of any dips propelled by rhetoric to buy call options on sectors like technology and consumer goods, expecting a recovery towards expected levels.

Market Opportunities and Strategies

We recall the 2018-2019 time when tariff announcements sent the VIX above 25, causing significant market upheaval. Now, the situation appears different, with a lower chance of unilateral actions, making long-term protective put options less attractive. Our strategy will focus on short-term trades in indices and ETFs that heavily rely on the Chinese supply chain, like the iShares Semiconductor ETF (SOXX). The main point from his views is that efforts to decouple are seen as ineffective, which supports the stability of global supply chains for now. Although we wouldn’t recommend large speculative positions for downside risks, we suggest hedging your long portfolios against sudden market changes, especially in an election year. Given the current low volatility, buying out-of-the-money puts on broad indices like the S&P 500 is a smart and cost-effective way to protect against unexpected policy changes. Create your live VT Markets account and start trading now.

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The US Dollar Index has risen sharply, approaching the 99.00 level, thanks to strong US economic data. Key updates included the U-Mich Consumer Sentiment report, Building Permits, and Housing Starts, along with notable remarks from Fed official Waller. The EUR/USD pair faced downward pressure, dropping to the mid-1.1500s. We will keep an eye on Germany’s Producer Prices and broader reports from Europe regarding Current Account and Construction Output.

British Pound Settles

GBP/USD is currently stabilizing below 1.3400 as we await the UK’s public sector finance report. Meanwhile, USD/JPY is holding steady above 149.00, focusing on new data about Japan’s Inflation Rate. AUD/USD hit near three-week lows as the US dollar strengthened, with attention on the RBA Minutes. WTI crude oil is around $66.00 per barrel, influenced by the stronger dollar and geopolitical issues. Gold is staying above $3,300 per troy ounce but fluctuates due to the US Dollar’s strength. Silver prices are changing around $38.00 per ounce. Although geopolitical tensions have eased slightly, the general market mood remains sensitive to economic news and reports. We believe the dollar will continue to strengthen due to a robust US economy. Recent data showing annual wage growth at 4.1% supports the Federal Reserve’s cautious position on interest rate cuts, as mentioned by Mr. Waller. Therefore, we are looking at call options on dollar-tracking ETFs to take advantage of further dollar strength.

Effects of Policy Divergence

The clear difference in policy between the cautious Fed and the European Central Bank, which recently lowered its key interest rate to 3.75%, is likely to keep pressure on the euro. With Germany’s industrial sector facing challenges, as shown by recent weakness in factory orders, we expect further declines for the euro. We are considering buying put options on the EUR/USD pair, anticipating it will head towards the 1.1400s. For the British pound, the current phase of stabilization provides an opportunity for range-based strategies. While UK inflation fell to 2.0% in May, it remains a concern for the Bank of England, leading to uncertainty as the upcoming election approaches. This suggests we can employ strategies like iron condors on GBP/USD, expecting the pair to remain under 1.3400 until the next major trigger arises. The large interest rate gap between the United States and Japan will keep pressure on the yen. Japan’s core inflation has been above the central bank’s 2% target for over two years, yet the Bank of Japan has been slow to change its policy. Until we see a clear signal for more aggressive tightening, we prefer strategies that benefit from the pair staying high or increasing. The Australian dollar is particularly susceptible to a strong US dollar and mixed signals from China’s economy. Recent data shows a slowdown in Chinese retail sales, which directly affects outlook for the Aussie, a key indicator of Chinese growth. We will closely analyze the RBA’s meeting minutes for any dovish signals, which could lead us to add to our bearish positions. In the energy sector, the stronger dollar is limiting oil price gains despite ongoing geopolitical tensions. The latest report from the Energy Information Administration showed rising crude inventories, indicating ample supply for now. This strengthens our belief that American crude will struggle to significantly rise above current levels. Gold’s stability is being challenged, and we expect that the high cost of holding a non-yielding asset in a strong dollar environment will put downward pressure on its price. Historically, gold prices, currently around $2,320 per ounce, tend to drop when real interest rates are high. We remain cautious, viewing any price increases as chances to enter bearish positions. We see silver, currently hovering around $29 per ounce, as a more volatile option that responds to both industrial and monetary trends. Its prices tend to fluctuate more than gold’s, making it sensitive to changes in manufacturing data, like global PMI figures. Given the overall market sensitivity, using defined-risk options strategies on silver seems wise. Create your live VT Markets account and start trading now.

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The British Pound is gaining strength against the Japanese Yen, as Japan’s weak Trade Balance data puts pressure on the Yen. This situation comes as Japan prepares for its upper-house election on July 20, which may influence its fiscal and economic policies. The GBP/JPY pair is steady during American trading hours, hovering around its intraday high of 199.56. Currently, it’s trading around 199.30, recovering from earlier losses and staying in a tight trading range for more than a week.

Japan’s Trade Report Misses Expectations

In June, Japan’s trade report shows a surplus of ¥153.1 billion, falling short of the expected ¥353.9 billion. Exports dropped by 0.5% year-over-year, largely due to a significant 26.7% decline in car shipments to the US amid tariffs, while imports increased by 0.2%. The Pound benefits from mixed economic data in the UK, including an Unemployment Rate of 4.7% and Average Earnings Excluding Bonus at 5.0% year-over-year. Inflation surprised by increasing to 3.6% in June, surpassing the Bank of England’s target. Japan’s upcoming National CPI data might provide crucial insights into inflation trends and could influence the Bank of Japan’s future policy decisions. Although recent core inflation remains above the BoJ’s target, the bank is cautious due to various external and domestic issues. The key factor driving this currency pair is the notable difference in monetary policies. With the GBP/JPY trading close to 200.50, a level not seen since 2008, the divergence between the hawkish United Kingdom and the dovish Japan supports the Pound’s strength. Political uncertainty from the upcoming election may add additional pressure on the Yen.

Japanese Monetary Policy’s Impact on Yen

The Bank of Japan has maintained its cautious approach, keeping its policy rate between 0% and 0.1% and indicating no immediate plans for aggressive tightening. This suggests that sustained support for the Yen from its monetary officials is unlikely, potentially leading to further depreciation. In contrast, the United Kingdom’s outlook is more complex. Despite strong wage growth, the latest CPI data for May shows inflation has fallen to the central bank’s 2% target for the first time in nearly three years. This could lead policymakers to consider interest rate cuts later this year, which might limit the Pound’s upside potential. We advise caution due to the looming risk of currency market intervention by Japanese authorities. Data from the Ministry of Finance reveals that Japan spent a record ¥9.79 trillion on intervention in April and May 2024 to support its currency. A swift move significantly above the 200 level could trigger a similar official response. Derivative positioning data indicates that speculative traders continue to hold large short positions against the Japanese Yen. This crowded trade makes the Yen vulnerable to a sharp rally if market sentiment shifts, as traders would be forced to cover their bearish bets. We see this positioning as a major risk for anyone maintaining long exposure in this currency pair. Create your live VT Markets account and start trading now.

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China is threatening to block a proposed $23 billion sale of over 40 international seaports unless Cosco, a state-owned shipping giant, is included in the deal. These ports, currently owned by Hong Kong’s CK Hutchison, include key locations at the Panama Canal. Beijing wants Cosco to partner equally with BlackRock and Mediterranean Shipping Co. (MSC), who have a preliminary agreement to acquire the ports from March. This move shows China’s effort to maintain its influence over vital global infrastructure as Western countries expand in crucial maritime hubs.

Cosco’s Global Influence

Cosco is China’s largest state-owned shipping company and ranks among the world’s biggest in container and logistics services. It operates a worldwide network of ports, ships, and terminals, playing a key role in China’s maritime strategy, which includes the Belt and Road Initiative. The rising political tensions could delay or halt the deal’s completion. This geopolitical pressure introduces significant uncertainty into global shipping and logistics markets. The ambiguity around this important infrastructure deal, especially at a major global chokepoint, opens trading opportunities. We are preparing for price fluctuations in shipping-related assets rather than predicting a specific outcome. The situation is worsened by ongoing stress at the Panama Canal, which is facing one of its worst droughts. This has cut daily ship transits down to about 27, from the usual 36. This new ownership dispute adds a political risk on top of the already troubling climate-related operational challenges. We expect futures contracts tied to global freight rates to become more unstable in the upcoming weeks. Recent data shows the Freightos Baltic Index, a key indicator of container shipping prices, is high at over $2,700, which is more than 95% above pre-pandemic levels. This indicates how sensitive the market is to any new supply chain threats. We see increased value in call options on shipping ETFs as a way to protect against further spikes in rates due to this uncertainty.

Market Reaction to Disruptions

Historically, disruptions at major maritime chokepoints lead to sharp market reactions. For example, the 2021 Suez Canal blockage disrupted about $9.6 billion in trade each day. Even the possibility of slowed traffic or changed routes due to this state-owned enterprise’s involvement will affect market sentiment. Therefore, we are considering put options on industrial and retail companies that rely heavily on consistent trans-Pacific shipping schedules. The main players in this transaction face significant risks, making their stocks suitable for options strategies like straddles. If the deal goes through, there could be a relief rally. However, if it falls apart, the Hong Kong-based port owner would likely see a sharp decline. By buying both call and put options, we can profit from significant price movements in either direction as the situation unfolds. Create your live VT Markets account and start trading now.

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Federal Reserve Governor Christopher Waller has recommended that the Federal Open Market Committee (FOMC) lower interest rates by 25 basis points at the meeting in July. He highlighted the uncertainty about the long-term Fed Fund rate but suggested that a rate of 3% seems suitable. The Wall Street Journal considered Waller’s comments a strong endorsement for a rate cut this month. As of now, there are no Federal Reserve speakers scheduled for Friday, July 18, 2025, but unexpected appearances could happen.

Federal Reserve Blackout Period

The Federal Reserve’s ‘blackout’ period starts on Saturday, July 19, 2025. During this time, FOMC members and staff cannot speak publicly or give interviews, which begins two Saturdays before an FOMC meeting. In light of Governor Waller’s comments, we should now consider a 25 basis point rate cut this month as the expected outcome. The CME FedWatch Tool shows a 92% chance of this cut, a notable increase from 65% just yesterday morning. His comments, made just before the blackout period, serve as a strong signal to the market. For investment strategies, this means we should explore options on short-term interest rate futures. The price of September SOFR futures has already risen, reflecting lower expected rates. We think that buying call options on these futures is a prime opportunity to benefit from the anticipated decrease in rates throughout the summer.

Economic Data Aligns With Fed Actions

This anticipated rate cut aligns with recent economic data. Last week’s report showed the unemployment rate rising to 4.1%, while core CPI dropped to an annualized 2.8%. These numbers provide the FOMC with the support needed to begin easing rates. Mr. Waller’s comments confirm that the Fed is responding to the economic data as expected. We’ve observed similar actions in the past, such as leading up to the 2019 rate cuts when officials made final public appearances to set market expectations. This strategy helps prevent a chaotic market reaction on announcement day. We view his statement as a way to guide the market smoothly toward the FOMC’s upcoming actions. As a result, we might see a weakening of the U.S. dollar and a supportive environment for equity indexes. Strategies that benefit from a rally in the S&P 500, like buying calls on the SPY ETF, are becoming more attractive. This expected policy shift makes dollar-funded trades less appealing in the short term. With the outlook now clearer, we anticipate a decrease in implied volatility in the bond market. Since his comments were released, the MOVE Index, which tracks Treasury market volatility, has fallen by 5%. This suggests that the cost of options may decrease, making it easier to build positions before the FOMC meeting. Create your live VT Markets account and start trading now.

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The Australian Dollar has lost ground against the US Dollar due to disappointing employment figures from Australia and solid retail sales data from the US. In June, Australia’s unemployment rate climbed to 4.3%, while US retail sales rose by 0.6%, exceeding forecasts. Currently, the AUD/USD pair is trading below 0.6485, with intraday losses around 0.70%. Given the weak employment data from Australia and lower inflation expectations, there is a higher chance that the Reserve Bank of Australia might consider cutting the rate from 3.85% to 3.60%. The US retail sales figures have made the outlook more complex as the Federal Reserve assesses the impact of tariffs alongside strong consumer spending. The probability of a rate cut in September has fallen to 52.7%, while the chance of rates staying the same has risen to 46.0%.

Bearish Momentum of the AUD/USD Pair

The AUD/USD pair is showing bearish momentum, dipping below key resistance levels and possibly approaching 0.6400. If the price remains above support levels, there could be a chance for a bullish recovery that targets higher Fibonacci levels. Interest rates play a crucial role in currency values, causing nations with higher rates to attract more global capital. They also affect gold prices, as rising rates typically bolster the US Dollar, leading to falling gold prices. We see the difference between the Australian and US economies as a distinct opportunity for traders. The recent rise in local unemployment to 4.1% in January 2024 strengthens the case for a more cautious policy. This stands in contrast to the mixed signals from the US, making currency derivatives a useful tool for the upcoming weeks. Weak employment data from Australia has put substantial pressure on the central bank. With easing inflation expectations, market pricing now suggests a strong chance of a rate cut from 4.35% by late 2024. If this trend continues, we should expect further weakness in the Australian Dollar. On the other hand, recent data from the US has obscured the Federal Reserve’s outlook. Although the economy seems strong, retail sales dropped unexpectedly by 0.8% in January 2024, marking the largest decline in almost a year. This has boosted market expectations, with the CME FedWatch Tool indicating over a 70% likelihood of a rate cut by the June meeting.

Strategies Amid Economic Divergence

Given the bearish momentum pushing the AUD/USD pair below key resistance levels, there is potential for strategies that benefit from a continued decline toward the 0.6400 support level. Buying put options or taking short positions in the futures market aligns with this trend and allows us to take advantage of the growing interest rate gap. However, if the pair finds strong buying support and stabilizes, a recovery could occur. In this case, purchasing out-of-the-money call options would provide an affordable way to prepare for a potential rebound. This would be a contrarian move against the prevailing fundamental pressures. The currency’s relationship with commodities, especially gold, adds another layer to consider. Higher interest rates usually strengthen the US Dollar and put pressure on gold. Still, recent geopolitical tensions have kept gold prices steady above $2,000 an ounce. A weaker Australian Dollar can also affect the profits of the country’s major mining exports. Looking back can teach us valuable lessons. Between 2013 and 2015, a similar issue of policy divergence caused a drop in the currency pair of over 30%. We might be entering another prolonged trend if the two central banks continue on their opposing paths. Create your live VT Markets account and start trading now.

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The United States has introduced a new import tariff targeting Chinese products, specifically battery-grade graphite. The US Commerce Department intends to impose anti-dumping duties on these imports, with a final decision expected by December 5. Currently, the Commerce Department is led by Paul Dabbar, who has previously worked with JP Morgan & Co and the US Department of Energy. Tariffs are fees on imports that help support local industries by making them more competitive against similar foreign products.

Understanding Tariffs

Tariffs differ from taxes; they are paid at the port when goods arrive, not at the point of sale. Economists debate the pros and cons of tariffs. Some argue they help protect local markets, while others warn they may lead to higher prices and trade disputes. During his presidential campaign, Donald Trump stated he would use tariffs to strengthen the US economy and support local businesses. By 2024, Mexico, China, and Canada accounted for 42% of US imports, with Mexico alone totaling $466.6 billion. Trump plans to target tariffs at these countries and use the revenue to cut personal income taxes. We believe the December decision on graphite will cause short-term fluctuations in the electric vehicle and battery manufacturing industries. Traders might want to buy put options on companies that heavily depend on Chinese battery parts to protect against possible price increases and supply issues. This strategy aims to address how the Commerce Department’s duties might affect production costs for US manufacturers. Since China supplies over 65% of the world’s natural graphite, this tariff could cause major changes in global supply chains. This situation could benefit mining companies located outside of China, especially in allied countries. Thus, looking into call options for Canadian or Australian graphite producers may be a smart move for long-term investment.

Market Implications and Strategic Positions

The former president’s plan to implement broad tariffs, such as a proposed 60% on Chinese goods, indicates a more aggressive trade policy in the future. We recommend preparing for increased market volatility, which could be managed by purchasing VIX futures. This strategy is general and can provide protection against the uncertainties of a potential trade war. Reviewing the trade conflict from 2018-2019, we witnessed sharp declines in industrial and technology stocks while the VIX rose. History shows that as political talk around tariffs grows stronger, buying broad market index puts can be an effective defensive strategy. The market often responds to the threat of tariffs well before they take effect. With Mexico and Canada making up such a substantial share of US imports, any new tariffs will likely have significant effects on the North American economy. It’s essential to keep an eye on currency pairs like the USD/MXN, as trade tensions often weaken the currencies of exporting nations. Taking a long position on the US dollar against the peso could be a way to address this specific geopolitical risk. Create your live VT Markets account and start trading now.

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