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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China remains the world’s second-largest consumer market, with retail sales growing by 5.5% annually over the past four years. By 2025, it’s expected that retail sales in China will exceed 50 trillion yuan. Foreign investment in China is increasing by more than 5% each year, making it one of the top three destinations for investors worldwide. Since the start of the 14th five-year plan, foreign investment has surpassed $700 billion, exceeding initial goals.

Resilience in Foreign Trade

China shows strong resilience in foreign trade, keeping its top spot in global goods trading. Its export market share is over 14%, while imports hold steady at more than 10%. We believe the market is being overly pessimistic about China’s economic stability. Recent data indicates that the CBOE China ETF Volatility Index (VXFXI) has dropped from highs of around 40 earlier this year, pointing to a decrease in extreme fear. This creates a good opportunity for traders to prepare for a rebound before positive sentiment takes hold. While Wang mentions strong long-term growth in retail, the latest figures paint a more complex picture. Retail sales in April grew by just 2.3%, slightly below expectations. However, we view this as an opportunity rather than a weakness. The market seems too focused on short-term numbers, overlooking the strong policy commitment to boosting consumption. This opens the door for potential gains with call options on consumer-focused ETFs like KBA. Wang’s confidence in foreign investment contrasts with Q1 2024 data, which showed a year-on-year drop in actual foreign capital use. This gap between official statements and recent data is causing current market mispricing. For traders, this suggests strategies that take advantage of volatility, such as selling cash-secured puts on undervalued large-cap tech stocks for collecting premium.

Strength in Trade and Valuation

The strength in foreign trade is backed by solid numbers; April’s exports rose by 1.5%, and imports climbed 8.4%. This underlying strength supports the economy and hasn’t yet been reflected in the offshore yuan (CNH), which is under pressure. We see this as an opportunity to buy call options on the yuan, anticipating that strong trade will eventually lift the currency. Looking back, Chinese equities are trading at low valuations compared to their historical averages after recent significant sell-offs. The government’s supportive tone suggests that the period of strict policy tightening may be ending, mirroring conditions seen at previous market bottoms. Accordingly, we are considering longer-dated call spreads on the Hang Seng Index to take advantage of a potential recovery while managing risk. Create your live VT Markets account and start trading now.

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Ethereum has recently hit its highest value since early January, trading above $3,600. This is a new peak for ETH/USD since the first week of January. In other news, the US House of Representatives has passed three significant crypto bills. This legislative progress is boosting optimism in the cryptocurrency world. Additionally, the Financial Times reports that steps are being taken to allow cryptocurrency investments in the US retirement market. This move could lead to wider acceptance and more interest in digital assets. With the market breaking through key resistance levels, we expect increased volatility. The recent legislative advancements and the potential for new capital inflows are creating a strong bullish outlook. Now is the time to position for gains, not to go against the trend. Looking at the options market, data shows a notable change in sentiment. The put-to-call ratio for Ether has recently dropped below 0.50, meaning bullish call options are now twice as popular as bearish put options. This signals that experienced traders are anticipating higher prices in the coming weeks. Given this situation, buying call options or establishing bullish call spreads could be beneficial. Recent news has caused implied volatility to rise over 75%, which makes options more expensive but also suggests a market expectation of significant moves. Traders should be ready for sharp price fluctuations as speculation around a spot ETH ETF approval grows. The developments in the House provide strong support for the entire digital asset space. We see this as an important de-risking event that could attract institutional investments that have been waiting for clear regulations. This isn’t just a short-term spike, but a potential long-term change in how the market views crypto assets. Historically, we can learn from the launch of spot Bitcoin ETFs in January. After an initial dip from “buy the news,” these products saw over $12 billion in net inflows within three months, pushing prices to all-time highs. A similar trend could occur, especially with the former president’s policy proposal. Therefore, we are considering longer-term derivative contracts to take advantage of this multi-month trend. Expiration dates in September and December allow us to benefit from potential gains while managing any short-term pullbacks. This strategy focuses on capitalizing on broader political and structural changes, rather than just short-term price movements.

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The President of the Federal Reserve Bank of San Francisco stated that even though there has been progress, inflation continues to be a challenge, making it hard to adjust policy rates. The job market and economic growth are strong, but we haven’t fully achieved price stability. Rates have been kept high for years, and the effects of tariffs are not as bad as previously thought.

Potential Rate Cuts

The President mentioned two possible rate cuts this year but emphasized they shouldn’t be made too soon. There is optimism among businesses, and growth is steady. Any cuts, whether in July or September, are not the top priority. Rates are predicted to stay at or above 3%, which is higher than the neutral rates before the pandemic. We advise derivative traders to get ready for more market swings around upcoming economic data releases. The Consumer Price Index for May showed a promising slowdown to 3.3% year-over-year. Additionally, the economy added 272,000 jobs that month, which supports the President’s view of a strong economy, making timing tricky. This means any surprises in inflation or job reports could lead to sudden market changes. Given this situation, we believe there’s little benefit in preparing for a July rate change. Current market predictions, as shown in the CME FedWatch Tool, suggest there’s less than a 10% chance of a cut in July, but over a 60% chance for a cut by September. Therefore, strategies betting against a summer change or futures that favor a later easing start seem wiser.

Market Implications

We need to reconsider our long-term rate expectations based on the idea that the new neutral rate will be higher than in the last ten years. Before the 2008 financial crisis, policy rates often stayed above 3%, indicating a return to a previous norm rather than a stricter approach. This means that long-term bond futures may not rise as much as we once thought when cuts begin, and trades betting on a steep yield curve might not do well. Due to the uncertainty, we find investments related to market volatility appealing. The CBOE Volatility Index (VIX) has recently been below 13, indicating that the market may be too complacent. Buying VIX call options or futures could be a good protection against unexpected market shifts if the central bank becomes less patient or if data surprises us. Create your live VT Markets account and start trading now.

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The GBP/USD pair fell by 0.07% during the North American session, influenced by strong US economic data that boosted the Dollar. The pair was trading at 1.3408. Even with a higher unemployment rate in the UK, the Pound rose against most currencies except for the US Dollar. A mixed UK job report showed more jobs but also rising unemployment.

Asian Session Trading

During the Asian session, GBP/USD dropped below 1.3400, hovering around 1.3390. Traders were waiting for the UK jobs report, which includes data on June’s Claimant Count Change and the unemployment rate for the three months ending in May. The instruments mentioned on this page are for informational purposes only and should not be seen as buying or selling recommendations. It’s essential to conduct thorough personal research before making investment decisions. Trading involves risks, including the complete loss of your initial investment. Please note that we cannot ensure the accuracy, timeliness, or completeness of the information provided. We advise consulting an independent financial advisor if you have concerns about the risks of foreign exchange trading.

Risk Considerations

Trading foreign exchange carries significant risks, including the chance of losing all or part of your initial investment, and it may not be suitable for everyone. The pair is struggling below the 1.3400 mark mainly due to the strength of the Dollar. Recent US data, particularly the Non-Farm Payrolls report that showed over 270,000 jobs added, surpassed expectations and supports the idea of a strong American economy. This makes us hesitant to take a simple long position on the Pound at this time. The UK jobs report adds complexity that derivative traders can use to their benefit. With UK inflation at 4.0% in January 2024—twice the Bank of England’s target—any indication of weakness in the labor market could challenge the central bank’s ability to keep interest rates high. We believe this tension will result in price volatility. Given the breach of an important psychological level, buying put options seems like a smart way to prepare for further declines. Historically, breaking below such a key level has often led to testing the next significant support zone, which may be around 1.3250. This approach allows for defined-risk speculation on continued Sterling weakness. For those expecting a significant price movement but unsure of the direction, we are considering long straddle positions. These should be set up ahead of major data releases, like the upcoming UK inflation report or the next central bank meeting. This strategy allows traders to benefit from a substantial price change in either direction, leveraging the uncertainty itself. Create your live VT Markets account and start trading now.

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Federal Reserve Governor Christopher Waller supports a rate cut, echoing President Trump’s desire for more relaxed monetary policy. He suggested a 25 basis point cut during the FOMC meeting on July 29–30 and is open to more cuts later this year if inflation remains stable. This view differs from other Fed officials who warn that new tariffs could lead to long-term inflation and see further cuts as potentially risky. Waller believes trade barriers might only cause temporary price changes instead of ongoing inflation and emphasizes the importance of being aware of a potential slowdown in growth.

Fed in Blackout

With the Fed in a blackout period before the July meeting, Waller’s comments stand out amidst disagreements within the Fed and pressure from the White House on Powell. Although Trump has recently reduced direct threats against Powell, the Fed Chair remains under political scrutiny. Given Waller’s statements, we think traders should prepare for a more dovish monetary policy. The likelihood of lower short-term interest rates is increasing, making interest rate futures that bet on a July cut more appealing. This aligns with Waller’s clear call for policy easing this month. The market is already showing this sentiment. According to the CME FedWatch Tool, traders currently see over a 90% chance of a 25 basis point cut at the upcoming Federal Open Market Committee meeting. If the central bank fails to meet these expectations, a significant market shift is likely. For equity traders, this positive outlook supports a bullish strategy on stock index derivatives, especially in growth sectors sensitive to borrowing. We recommend buying call options or setting up bull call spreads on indices like the Nasdaq 100 in anticipation of the late July decision. The indication of possible further easing this year provides additional support for this strategy.

Inflation Concerns and Market Impact

Waller’s dismissal of inflation worries seems valid based on recent data, which lowers the chances of an unexpected hawkish stance. The latest Personal Consumption Expenditures (PCE) price index, the Fed’s preferred measure, showed a 2.6% year-over-year increase in May 2024, continuing a trend of modest cooling. This suggests that price pressures are controlled enough to allow for a policy change. We also expect a weaker U.S. dollar, so traders should adjust their positions accordingly. They could short the dollar using futures contracts or buy put options on dollar-tracking ETFs like UUP. A rate cut would reduce the yield advantage of holding dollars. However, the noted internal divisions hint at potential volatility as the meeting approaches. Historical data from past rate cuts in 2007 and 2019 illustrates that the period following an initial cut can be turbulent as markets evaluate the economic weaknesses that led to the decision. Therefore, acquiring some downside protection or volatility-linked products like VIX options might be a wise safeguard. Create your live VT Markets account and start trading now.

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