The US dollar dropped on Friday after Fed Chair Powell made dovish comments. This caused stock prices to rise and gold to gain value. Treasury yields also fell, marking a change in market trends as the week ended. Right now, the dollar is stabilizing but having trouble reaching new lows. The EUR/USD is close to 1.1700, impacted by large options expirations. Meanwhile, USD/JPY has slightly recovered to 147.30, after reaching a peak of 147.52 but facing resistance at the 200-hour moving average.

Market Activity Levels

US futures have settled down after Friday’s gains. S&P 500 futures are down by 0.1%. Trading has been quieter due to the summer bank holiday in the UK, as markets take a pause before Wall Street kicks back into gear. Fed funds futures show an 87% chance of a 25 basis points rate cut. Even with this high probability, markets are cautious and aren’t fully committing to a September cut until the US jobs report on September 5 provides more information. After last week’s dovish signals from the Fed, the market is in a pause, which is common on a slow Monday. With the 87% probability of a rate cut for September already priced in, it seems like the best approach is to short the dollar and invest in equities. However, this high probability also leaves the market open to surprises. The upcoming US jobs report on September 5 is crucial. Initial jobless claims have edged up slightly over the past month, averaging around 230,000, indicating a cooling labor market and supporting the case for a Fed rate cut. If the jobs report shows significantly stronger numbers, it could lead to sharp changes in the market and elevate the dollar.

Investment Strategies

Given the current situation, implied volatility seems low, with the VIX index around 13.5. This suggests that the market is not very sensitive ahead of the major data release that could influence Fed policy. For derivative traders, this represents an opportunity to buy volatility at a low price. One simple strategy is to consider options on major stock indices that expire shortly after the jobs report. A long straddle or strangle on the S&P 500 could profit from significant movement in either direction, regardless of whether the data is unexpectedly strong or weak. This approach isn’t about predicting direction but betting that the current market calm will change. The dollar also remains a key focus, showing signs of weakness. This is supported by recent Core CPI data, which at a 3.1% annual rate is the lowest since early 2024. A contrarian strategy could involve buying inexpensive out-of-the-money call options on the US dollar. This could yield benefits if the jobs report surprises and leads the market to reconsider the likelihood of a rate cut. We remember how volatile markets were in late 2023 when payroll data frequently challenged the belief in a Fed pivot. At that time, one jobs report could shift rate expectations by 20-30 basis points in just one day. The current scenario feels similar, with a strong consensus based on data that is still inconclusive. Create your live VT Markets account and start trading now.

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**Barclays and BNP Paribas Update Forecast** Barclays and BNP Paribas have changed their outlook on the Federal Reserve’s interest rate policy after Fed Chair Jerome Powell spoke at the Jackson Hole symposium. Both banks now expect two rate cuts this year. Barclays predicts these cuts will happen in September and December. In contrast, BNP Paribas previously thought there wouldn’t be any rate cuts this year. This shift shows that market analysts are rethinking how the Fed may act regarding monetary policy after Powell’s recent comments. Market observers are now looking forward to the U.S. jobs report on September 5, which could significantly impact the likelihood of the expected rate cuts. This moment reminds us of last year after the 2024 Jackson Hole meeting when many believed the Fed would soon shift to a more lenient stance. Major banks adjusted their predictions, expecting rate cuts before the year ended. However, we learned that those cuts did not happen in 2024, with the first one only occurring in March 2025. **Caution and Uncertainty** This history teaches us to be cautious about making decisions based solely on Fed comments. We are in a similar situation now, with the Fed funds rate between 4.75% and 5.00%. The latest Consumer Price Index (CPI) data from July 2025 shows a slight rise in inflation to 2.8%, making it harder to predict any upcoming easing. On the other hand, the job market is softening. The unemployment rate has increased to 4.1%, and job growth has slowed to 175,000 last month. This mixed data could lead to unexpected policy changes. The best approach in the coming weeks is not to bet on a specific direction but to prepare for a possible sharp move by investing in volatility. We should consider options that benefit from significant price changes, whether they go up or down. For example, strategies using options on SOFR futures can be designed to take advantage of market reactions to the upcoming September 5 jobs report. This way, we can position ourselves for the event without needing to predict the Fed’s final decision. Create your live VT Markets account and start trading now.

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Federal Reserve Chair Powell is open to changing policies in September due to risks in the labor market and economy. His comments suggest a more cautious approach, leading traders to believe there is an 84% chance of a 25 basis point rate cut next month. The non-farm payrolls data on September 5 will be key to confirming this. Powell pointed out that the Fed relies heavily on economic data, meaning weak labor market figures could support the idea of a rate cut.

Markets Dismissing Data

If the upcoming jobs data is disappointing, a September rate cut seems likely. There may still be pressure on the Fed, particularly from political leaders, even if they do cut rates. On the other hand, strong job numbers could make things more complicated and leave markets in doubt. In this situation, markets might overlook the data, seeing it as a temporary issue, but still expect a September rate cut. The Fed will have to manage market expectations in this context. Powell has not firmly agreed to a rate cut. If tariffs significantly impact inflation and the labor market remains strong, the pressure to make a change might lessen. The July inflation data had little effect, suggesting that the Fed could withstand bond market pressures before making major policy changes. Looking back at similar scenarios, like in 2019, provides guidance amidst the current uncertainty following the Jackson Hole symposium. With Powell recognizing risks, traders are leaning towards the idea of a dovish policy shift. The CME FedWatch Tool now indicates a 75% chance of a 25 basis point cut at the September 2025 FOMC meeting.

Potential Market Reactions

The upcoming non-farm payrolls report on September 5 is now a crucial event for the market. The last report for July 2025 revealed a slowdown, with only 150,000 jobs added. If the next report is also weak, it would almost guarantee a rate cut. For derivative traders, this situation makes buying near-term index call options a likely bet if they expect continued labor market weakness. However, if the jobs report is stronger than expected, it will bring uncertainty and challenge current market beliefs. In this case, traders might want to buy protective options, like short-dated puts on major indexes or use straddles to prepare for a spike in market volatility. The VIX is around 18, up from its summer lows, indicating that the market is preparing for this upcoming tension. We also need to keep an eye on the US CPI report, which will arrive during the FOMC blackout period. After the latest July 2025 reading of 2.8%, another low inflation figure would give the Fed more leeway to act. This means traders might consider longer-dated options, like call spreads in rate-sensitive sectors, to profit from a confirmed easing cycle. The bond market’s reaction is another vital signal to monitor. History shows, like in the lead-up to the 2019 cuts, that a sharp drop in the 10-year Treasury yield can pressure the Fed. If long-term yields fall sharply following the jobs data, it may indicate that the bond market is pressuring the Fed to act. Create your live VT Markets account and start trading now.

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The yen is weaker in Asia, with the USD/JPY trading close to 147.50, recovering from Friday’s fall due to Powell’s comments. New Zealand’s retail sales showed positive growth, likely due to the Reserve Bank of New Zealand lowering interest rates. Asia-Pacific stocks climbed after Powell hinted at a possible Federal Reserve rate cut in September. The yen’s movement is linked to recovering from a prior dip, as BOJ Governor Ueda suggested potential rate hikes, which is positive for the yen.

The Impact On Global Currencies

The dollar’s strength has slightly impacted other currencies. The EUR/USD has dropped, while the AUD, NZD, and GBP initially weakened but later recovered. New Zealand’s retail sales for Q2 exceeded expectations, benefiting from lower rates and boosting household spending. In agriculture, attention is on the first confirmed U.S. human screwworm case in Maryland. These parasitic flies lay eggs in wounds, and their larvae can cause severe infestations. Untreated cases can be deadly for animals. We see the current rise in USD/JPY toward 147.50 as a short-term move in a developing trend of policy differences. With the Federal Reserve hinting at a possible rate cut in September and the Bank of Japan considering rate hikes, the trend suggests the yen may strengthen in the future. Recent U.S. CPI data from July 2025, showing 2.8%, supports the Fed’s case for easing policy soon. Derivative traders should view the dollar’s current strength as a chance to prepare for a lower USD/JPY in the coming weeks. Buying put options on USD/JPY or short positions in the futures market could be smart. The BOJ’s decision in March 2024 to end its negative interest rate policy was a first step, and recent comments from Governor Ueda indicate another change may be near.

Equities And Commodities Market Impact

The hint of a possible Fed rate cut in September is also boosting equity markets, indicating a growing risk-on sentiment. The CBOE Volatility Index (VIX) has been under 15, but this might rise as we near the Federal Open Market Committee meeting. Buying call options on major indices could take advantage of the optimism before the meeting. For commodity traders, the U.S. screwworm case poses a major risk for the livestock market. An outbreak could severely affect cattle herds and tighten supply, leading to higher prices. This situation is reminiscent of the animal health emergency declared in Florida in 2016, which caused significant disruption. This news could spur speculative buying in the derivatives market as a safeguard against a larger outbreak. Live Cattle futures on the CME have already seen a slight increase, trading around $1.95 per pound in early action. We expect traders to actively purchase call options to shield against a potential supply-driven price shock. Create your live VT Markets account and start trading now.

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HSBC has changed its end-2025 predictions for major Chinese stock indexes because of strong liquidity. The Shanghai Composite is now expected to reach 4,000, up from the earlier forecast of 3,700. For the CSI 300, HSBC predicts a rise to 4,600, an increase from the previous estimate of 4,300. The Shenzhen Composite is also set to rise to 13,000, up from its earlier target of 11,500.

Positive Predictions Due to Liquidity

HSBC believes these positive predictions stem from the strong liquidity in the market. This liquidity is expected to help stabilize stock prices and aid in a slow recovery of Chinese stocks. The new outlook for Chinese stocks suggests a steady recovery, with increased end-of-year targets for key indexes. The Shanghai Composite is thought to reach 4,000, while the CSI 300 is expected to hit 4,600. This view mainly relies on the assumption that strong liquidity will support market prices. This liquidity expectation is realistic based on recent developments. Earlier this month, the People’s Bank of China lowered the reserve requirement ratio for major banks. Additionally, July’s growth in the M2 money supply slightly exceeded expectations at 8.5%. These actions are pumping cash into the financial system, which often flows into stock markets.

Investment Strategies and Opportunities

In this environment, buying call options on China-focused ETFs like iShares China Large-Cap ETF (FXI) could be beneficial in the coming weeks. Implied volatility has been decreasing, making long-option strategies more affordable. This offers a way to invest with defined risk for a potential rise. For a more cautious approach, consider bull call spreads on the Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR). This strategy could earn profits from a moderate index increase while limiting both potential gains and losses, which fits the prediction of a “gradual recovery” instead of a sudden jump. Traders who are more willing to take risks might explore long positions in futures contracts linked to the FTSE China A50 Index. This method provides direct and leveraged exposure to the largest mainland companies. It’s essential to manage entry points carefully, especially following an extended period of market weakness throughout 2023 and 2024. Create your live VT Markets account and start trading now.

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The London Stock Exchange will be closed on Monday, August 25, 2025, for a Bank Holiday. This closure will lead to reduced trading activity in the EU/UK timezone.

Impact of Market Closure

With London closed today, UK and European markets are seeing very low liquidity. This means that any orders placed can lead to larger price changes than normal, especially for FTSE 100 futures and GBP currency pairs. It’s important to be cautious, as even minor news can cause significant market movements until trading volume returns to normal tomorrow. This slow start to the week follows UK inflation data from July 2025, which was slightly above expectations at 3.1%. This keeps pressure on the Bank of England. Given the ongoing inflation, the market is highly responsive to any new information during this time of low liquidity. We should pay close attention to any surprising data from the US later, as it could greatly impact the GBP/USD exchange rate. Looking forward, a key event will be the Jackson Hole Symposium later this week. This event is important for shaping expectations around monetary policy. In the past, comments from central bankers, especially in the post-pandemic period of 2022, have caused significant market swings. Considering buying inexpensive, out-of-the-money options on major indices could be a smart move for those anticipating a spike in volatility.

Trading Volume and Volatility Trends

Historically, the period after the August bank holiday often sees a return of trading volume and directional momentum as we enter September. Data from previous years indicates that implied volatility for both stocks and currencies usually reaches a low point in late August before rising into the fall. Therefore, now is an important time to assess risks on existing positions and think about strategies that take advantage of increased market activity. Create your live VT Markets account and start trading now.

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Goldman Sachs has raised its target price for Cambricon Technologies by 50%, now setting it at CNY 1,835, up from the current share price of CNY 1,243. Three key factors contributed to this upgrade: increased spending by Chinese cloud companies like Tencent, a broader range of chipset platforms including DeepSeek 3.1, and continuous investments in research and development. Cambricon Technologies, located in Beijing, was established in 2016 as a spin-off from the Chinese Academy of Sciences. This semiconductor firm, partially owned by the government, focuses on designing AI processors and GPGPUs used in deep learning applications across various sectors, such as cloud servers, edge devices, and smart terminals. As a result, it’s often referred to as “China’s Nvidia.”

Trading Strategy

With the new target price of CNY 1,835 for Cambricon, we view this as a strong bullish indicator for the upcoming weeks. Traders might consider buying call options with strike prices below the new target, ideally within the CNY 1,500 to CNY 1,600 range. This approach prepares for a significant upward shift while keeping initial risk low. This upgrade is likely to raise the stock’s implied volatility, which can increase options’ prices. To manage these rising costs, we should also consider bull call spreads. This means buying a call option at a lower strike price and selling one at a higher strike price to help finance the position. Recent data from China’s Ministry of Industry and Information Technology (MIIT) supports our confidence in this move. They reported a 22% year-over-year increase in cloud infrastructure spending for the second quarter of 2025. This trend confirms that spending is rising among key Cambricon clients like Tencent, indicating that demand for domestic AI hardware is growing as we expected. In addition, Cambricon’s recent success with its new MLU 500 series chip, launched earlier this year, strengthens this sentiment. The chip has demonstrated a 30% performance improvement over its predecessor in large language model training, showing that its R&D investments are yielding positive results. This gives strong reasons for the stock to climb higher.

Policy Support

We believe this trend is a direct result of the push for technological self-sufficiency that grew stronger after US chip restrictions in the early 2020s. As a state-supported leader, Cambricon is gaining market share that was once hard to reach. This long-term policy backing provides a solid base for the stock’s momentum. This scenario is quite familiar, as it resembles the analyst upgrades that led to significant rallies for Nvidia in 2023 and 2024. With a strong AI narrative, real technological advancements, and rising cloud demand, we see a powerful catalyst forming. We expect a similar upward trend for “China’s Nvidia” in the near future. Create your live VT Markets account and start trading now.

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Japan’s finance minister, Kato, announced plans to foster a welcoming environment for crypto assets. He noted that these assets could enhance diverse investment portfolios. Kato’s remarks hint at the possible integration of crypto assets into broader investment strategies. However, given Kato’s previous actions, the effects on the crypto market might not be as positive as some hope.

Sell The News Setup

The finance minister’s statement is setting up a typical “sell the news” scenario for derivative traders. Although the news sounds encouraging, the phrase “appropriate environment” is unclear. Considering Kato’s conservative financial background, it likely signals more regulations and taxes ahead. We should approach any initial price increase from this news with caution. This uncertainty is leading to higher implied volatility, with front-month Bitcoin options volatility rising from 48% to 52% in just 24 hours. This indicates that buying straddles or strangles, which gain from significant price movements in either direction, may be a smart strategy in the coming weeks. The market is anticipating a major shift once the details of Japan’s new framework are revealed. For those already holding long positions, this is a strong indication to buy protective puts. The put/call ratio on major exchanges has increased to 0.65 from 0.58 last week, showing a growing interest in downside protection. Hedging now is more affordable than waiting for the first draft of the regulations.

Market Reaction

Reflecting on the response following U.S. regulatory clarifications in 2024, there was an initial price surge, followed by a sharp drop when compliance costs became clear. History shows that government actions, even when framed positively, often limit the market’s speculative aspects in the short term. We should expect a similar market reaction this time. We will be closely monitoring funding rates for perpetual swaps and open interest on futures contracts related to Japanese yen pairs. A rise in negative funding could indicate that shorts are increasing, which might set the stage for a short squeeze if the news is unexpectedly positive. For now, the safest approach is to brace for volatility instead of counting on a steady upward trend. Create your live VT Markets account and start trading now.

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Nomura’s Global Markets Research team believes that recent dovish comments from Fed Chair Jerome Powell may weaken the dollar against the yen. These remarks suggest a higher chance of a rate cut in September, indicating that the USD could face pressure in the near future. The team stands firm on a short USD/JPY trade, targeting 142.00 by the end of October. They will also watch for updates from Bank of Japan officials like policy board member Junko Nakagawa, who may hint at potential rate hikes that could further boost the yen.

Market Reaction to Fed Chair Comments

After last Friday’s dovish statements from the Fed chair, we are more confident in our short USD/JPY position. Markets now see over a 70% chance of a rate cut in September, according to CME Group data, which supports our belief that the dollar will be under pressure. This change in policy outlook is a clear driver for a lower exchange rate. We still aim for 142.00 by the end of October. This target reflects a significant drop from the highs of late 2023 and 2024 but remains achievable given the shifting policies of central banks. We view this as a move back to a more balanced valuation as interest rate differences narrow. For derivative traders, purchasing USD/JPY put options that expire in October or November is a practical way to capitalize on this trend. This strategy offers a defined-risk approach to target the 142 level. Since the Fed’s announcement, implied volatility has decreased slightly, making option premiums more appealing than earlier in the month.

Focus Shifting to Bank of Japan

Now, focus is turning to the Bank of Japan. A key speech from a policy board member is set for this Thursday. With Japan’s core inflation consistently above 2.5% through mid-2025, any hint of a rate hike before the year ends could significantly strengthen the yen, creating another strong reason to support this trade. Traders seeking a more cost-effective method might consider a bear put spread, like buying a 145-strike put and selling a 142-strike put. This strategy lowers the upfront premium for the position. While it caps the maximum profit at our 142 target, it provides a more efficient way to express the outlook. Create your live VT Markets account and start trading now.

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Hedge funds have cut their investments in crude oil to the lowest level in almost 17 years. With less risk of new sanctions on Russian oil, the focus has turned to worries about too much supply. Recent CFTC data from Bloomberg shows that money managers reduced their net-long position in West Texas Intermediate (WTI) futures by 19,578 lots, bringing the total down to 29,686 in the week that ended on Tuesday. This is the lowest level since October 2008.

Geopolitical Tensions Ease

Geopolitical tensions have calmed down, and several agencies expect that oil supply will surpass demand later this year. The U.S. is pushing for talks to resolve the conflict in Ukraine, making new sanctions on Russian oil less likely, even though peace efforts have not made much headway. Money managers now hold the smallest net-long position in WTI crude since the 2008 financial crisis. This indicates a strong belief that oil prices will drop in the near future. The focus has shifted away from geopolitical risks to worries about a global surplus of oil. Recent reports from the International Energy Agency (IEA) indicate that global oil production is set to exceed demand by almost 1.5 million barrels per day by the fourth quarter of 2025. Russian oil exports by sea have also remained surprisingly strong, averaging over 3.3 million barrels per day through mid-2025. This steady supply takes away a key factor that had kept prices high. On the demand side, weakening economic indicators—especially China’s manufacturing PMI dropping below 50—point to a decrease in consumption ahead. This is a stark contrast to the positive demand forecasts we saw earlier this year. Traders are now worried about significant demand destruction if the global economy continues to slow down.

Market Positioning Strategy

Given the current situation, traders might want to prepare for further declines or stagnant prices. Buying put options on WTI or Brent provides direct exposure to falling prices. Selling call credit spreads can generate income if prices stay below a certain level. We have noticed a significant rise in the put-to-call ratio for October and November 2025 contracts, reflecting this bearish outlook. The last time hedge funds were this negative was in October 2008, just before a major price crash during the global financial crisis. While the overall picture seems weak, such extreme positioning can also lead to a sharp price rebound if an unexpected event occurs. Therefore, managing risk in bearish trades is crucial, as crowded trades can unwind quickly. Create your live VT Markets account and start trading now.

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