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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The People’s Bank of China (PBOC) has announced a USD/CNY reference rate of 7.1161, compared to the expected 7.1551. This managed floating exchange rate system allows the yuan to vary within a set range of +/- 2% around this midpoint. This new rate is the strongest since November 6 last year and is lower than the previous close of 7.1666. The PBOC has also injected 288.4 billion yuan through 7-day reverse repos at a rate of 1.40%. With 266.5 billion yuan maturing today, this results in a net injection of 21.9 billion yuan.

Yuan Fixing Announcement

Today’s yuan fixing signals that policymakers intend to stop the currency’s decline. The rate is much stronger than market expectations, indicating clear support for the yuan. This suggests that betting on a weaker yuan or holding long positions in USD/CNY is now a risky move. This comes after China reported a surprising trade surplus of $89 billion for July 2025, a figure that should support the currency. However, the yuan has still weakened due to concerns about the property sector and slowing domestic demand. The PBOC is now stepping in to counter these negative feelings and align the currency with strong trade data. This situation is reminiscent of late 2023 when the central bank defended the 7.30 level against the dollar, creating a stable ceiling for months. We might now be seeing the formation of a new, lower ceiling around 7.15-7.20. This managed stability could reduce volatility in the currency pair, making some trading strategies more appealing.

Impacts on Derivatives and Goods

For traders in derivatives, this means that selling short-dated USD/CNY call options could be a smart strategy, as the central bank is limiting the dollar’s potential rise. The yuan’s implied volatility, which hit a six-month peak of 4.8% last week, may now be overvalued due to the bank’s intervention. A more cautious approach would be to use call spreads to bet on limited upside for the dollar. Strengthening the yuan will likely affect Chinese stocks and global commodities. A stronger currency makes Chinese goods costlier abroad, which could hurt export-heavy stocks. On the other hand, it boosts China’s ability to purchase raw materials, potentially supporting commodities like copper and iron ore that have seen price declines recently. Create your live VT Markets account and start trading now.

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Powell’s recent comments show a change in the Federal Reserve’s focus from inflation risks that were stressed in July. He noted that weaker labor data, with payroll growth averaging just 35,000 over the last three months—down from 168,000 earlier in 2024—has influenced this shift. He also highlighted that tariffs still present inflation risks. However, Powell believes that current labor market conditions may limit workers’ ability to demand higher wages, which could help keep inflation from rising due to tariffs.

Predictions on Unemployment and Rate Cuts

Pantheon Macroeconomics predicts that employment challenges might push unemployment rates above the Federal Reserve’s forecast of 4.5% by the end of the year, potentially hitting 4.75% by late 2025. They expect inflation from tariffs to mostly affect goods and predict the Federal Reserve will cut rates by 25 basis points in September, November, and December, suggesting more cuts than the market currently expects. There is a noticeable shift in the Fed’s outlook, with Powell now prioritizing concerns about a weakening job market over inflation. The latest BLS report revealed a sharp slowdown in July payrolls, bringing the three-month average down to just 35,000, a significant decline from 168,000 in 2024. This may lead to easier monetary policy sooner than many think. While tariffs were a major worry earlier this year, their impact on inflation seems under control due to softer wage growth, giving the Fed room to act. With July’s annual CPI at a manageable 2.8%, the chance of inflation from tariffs becoming a long-term issue appears low. This view is backed by last month’s unemployment rate increasing to 4.3%, a trend we expect to continue.

Opportunities in Rate and Equity Markets

This situation creates a strong opportunity in interest rate markets, as we expect three rate cuts by year-end in September, November, and December. The markets are not fully aligned with this outlook; the CME FedWatch Tool shows only a 55% chance of a single 25-basis-point cut by December. Traders may want to consider strategies that benefit from falling rates, such as buying SOFR futures or call options on Treasury bond futures. This dovish stance is also a positive signal for stocks, reminiscent of the policy change in mid-2019 that led to a significant market rally. We anticipate this could lift stock indices, making long positions with S&P 500 call options an attractive strategy. With the Fed’s change in messaging, we may see increased volatility around the upcoming FOMC meetings, making VIX derivatives worth considering for short-term strategies. Create your live VT Markets account and start trading now.

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USD/JPY saw a bounce back in the Asian morning, recovering from Friday’s drop following Powell’s comments at Jackson Hole. The pair is now close to 147.50, even without any new news. Bank of Japan Governor Ueda stressed the need for more women and foreign workers to meet Japan’s labor challenges arising from an ageing population. Friday’s market move is viewed as a ‘gap,’ indicating a potential for pullback, though caution against overstating this is advised.

Trump’s Tariff Plans

In other market updates, Trump is pushing for a 15-20% minimum tariff on EU goods, causing the EUR/USD to fall. Powell’s shift in focus reveals rising job market risks, with the Fed expected to cut rates three times in 2025, according to Pantheon. Trading in foreign exchange comes with high risks, and it may not suit all investors. It is crucial to assess your investment goals and risk tolerance before trading, and seek advice from financial experts. InvestingLive provides links to economic and market data but does not offer investment advice or support specific opinions. Past performance does not guarantee future results, and compensation may be received from website advertisers.

USD/JPY Market Caution

The rise of USD/JPY to near 147.50, despite dovish signals from the Fed, shows market hesitation. It’s worth noting that similar levels in late 2023 led to strong warnings from Japanese officials, making this area risky for chasing the dollar higher. A move toward 150 could provoke a stronger reaction from Tokyo. Fed Chairman Powell’s focus on job market risks is significant. With the market anticipating three interest rate cuts in 2025, the dollar’s strength seems fragile. Recent data indicates US core inflation has dropped to 2.8%, and July 2025’s Non-Farm Payrolls report showed only a 150,000 job increase, giving the Fed room to ease its policy. Meanwhile, the Bank of Japan remains silent on policy changes, keeping the yen weak. Historically, Japan’s core inflation, which briefly surged above 2.5% in mid-2024, has struggled to stay elevated, leaving Governor Ueda with little reason to raise rates. This difference in policies is key to keeping USD/JPY high. Global risks are increasing volatility, with talks of new US tariffs and Evergrande’s final delisting creating uncertainty. This is not a moment for a relaxed, one-way bet. The VIX, a measure of stock market volatility, has climbed from a low of 13 to about 17 in the past month, indicating traders are becoming more concerned about sudden market shifts. Given this situation, buying USD/JPY put options for October or November 2025 offers a defined-risk way to bet on a dollar decline. This strategy allows traders to profit if Fed rate cuts weigh on the dollar while limiting potential losses to the premium paid. This is a reasonable approach, with intervention risks limiting any upside. For those anticipating a significant move but uncertain of the direction, a long straddle options strategy could work well. By purchasing both a call and put option at the same strike price and expiration, a trader can profit from a large price swing either way. This is essentially a bet on the rising volatility we expect in the coming weeks. Create your live VT Markets account and start trading now.

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The People’s Bank of China (PBOC) sets a daily midpoint for the yuan, known as renminbi (RMB). This is part of a managed floating exchange rate system, which allows the yuan’s value to shift within a range of +/- 2% around this reference rate.

Setting The Daily Midpoint

Every morning, the PBOC calculates this midpoint mainly against the US dollar. They take into account market supply and demand, economic data, and changes in global currency markets. This midpoint serves as a guide for daily trading. The PBOC allows the yuan to move within a +/- 2% band around the midpoint. This band can be adjusted depending on economic conditions and policy goals. If the yuan approaches the limits of this trading band or experiences too much volatility, the PBOC may step in by buying or selling the yuan. This helps to keep the currency’s value stable and ensures a gradual adjustment, promoting stability in the foreign exchange market. The expected reference rate of 7.1551 signals that the People’s Bank of China aims to stabilize or strengthen the yuan. This indicates that the central bank is actively working to prevent further depreciation.

Opportunities And Risks

With the yuan able to move only 2% around the daily midpoint, we have a clear trading range. This setup makes selling volatility appealing, especially since one-month implied volatility on USD/CNH options is at a yearly low of 3.8%. Traders may consider selling out-of-the-money puts and calls to earn premiums. This policy direction appears to be backed by recent economic data, boosting our confidence. After a tough 2024, China’s industrial production increased by 4.5% year-over-year in July 2025, and exports are showing steady recovery. A stable currency can attract foreign investment and prevent capital outflows. It’s important to keep in mind the sharp drop we saw in late 2023 when the rate exceeded 7.30. The central bank’s ability to intervene means that while the outlook seems positive, betting on a strong appreciation carries risks. The PBOC prioritizes stability rather than a one-sided rally, which limits profit potential on straightforward trades. Create your live VT Markets account and start trading now.

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Goldman Sachs’ chief economist, Jan Hatzius, talked about Federal Reserve Chair Jerome Powell’s recent speech that highlighted growing risks in the job market. Powell explained that the labor market is currently balanced, with both the supply and demand for workers dropping. He warned that these employment risks could quickly lead to more layoffs and higher unemployment rates. Powell also mentioned that GDP growth has significantly slowed down, partly due to a decrease in potential output, not just cyclical demand concerns. This cautious outlook has sparked hopes in the market for a possible rate cut by the Federal Open Market Committee (FOMC) in September.

Federal Reserve Meeting

The FOMC’s next meeting is set for September 16-17, and many expect a 25 basis point cut in the Fed Funds rate. Powell made his remarks at the Jackson Hole symposium, where economists gather to discuss monetary policy and other economic issues. Chair Powell’s remarks from Jackson Hole indicate a notable shift to a more cautious approach regarding the economy. His warning about job market risks supports our belief that a rate cut is imminent. The derivatives market reflects this sentiment, with the CME FedWatch Tool indicating over an 85% chance of a 25-basis-point cut at the September meeting. This scenario indicates we should prepare for lower interest rates soon. We can express this view by using options on SOFR futures, which would benefit us if the Fed cuts rates as expected. This is a straightforward response to the market’s reaction to the Fed’s more dovish stance. Lower borrowing costs should help boost equities, especially growth and tech stocks. We are looking into call options on the Nasdaq 100 index to take advantage of a possible relief rally ahead of the September FOMC meeting. In the easing cycle of 2019, we saw that even the anticipation of rate cuts could drive market gains.

Market Implications

Powell’s concerns are valid, as current data supports this cautious outlook. The latest July 2025 JOLTS report revealed a steady decline in job openings, while weekly jobless claims have risen to an average of 240,000. This is a significant shift from the much stronger job market we had just a year ago. The overall economy is also showing signs of slowing down, which gives the Fed more latitude to act. The advance estimate for Q2 2025 GDP growth was only 1.5%, a significant decline from past quarters. With the latest Core PCE inflation reading stable at 2.7%, the Fed has a strong reason to take steps to stimulate growth without worrying about inflation rising. A rate cut would likely weaken the U.S. dollar. Thus, we should consider derivatives that would benefit from a falling dollar compared to other major currencies. Buying call options on the euro or Japanese yen for October expiration could be a smart move to prepare for this situation. Finally, the likelihood of a rate cut may lessen overall market uncertainty in the short term. This could cause a drop in the VIX, the main gauge of market volatility. We see a chance to sell VIX call spreads, a strategy that would profit if market volatility remains low or decreases leading up to the Fed’s September decision. Create your live VT Markets account and start trading now.

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Keurig Dr Pepper is close to buying Dutch coffee company JDE Peet’s for about $18 billion. If this deal goes through, the new company will split into two separate parts: beverages and coffee. This would effectively undo the Keurig-Dr Pepper merger from 2018. Keurig Dr Pepper, located in Texas, has been doing well with its drinks, but its coffee side hasn’t performed as strongly. The company has a market value of nearly $48 billion and owns over 125 brands, including 7-Up, Canada Dry, Snapple, Green Mountain, and Tully’s Coffee. JDE Peet’s, based in Amsterdam, has a market value of around $15 billion. It owns popular brands like Peet’s Coffee, Stumptown, and Maxwell House. Both companies have not officially commented on the potential deal yet. The talks about this acquisition may create uncertainty, which could be a chance for options traders. We expect both companies’ stocks to experience more volatility as the market reacts to the potential $18 billion price and the plan to split the companies. Implied volatility on KDP options for October 2025 has already jumped to over 45%, up from a recent average of 28%. For Keurig Dr Pepper, the goal is to improve its struggling coffee division, which reported a 5% revenue drop in its Q2 2025 earnings. Splitting the company into beverage and coffee units may unlock value, similar to how the market reacted positively to Johnson & Johnson’s spin-off of Kenvue in 2023. Traders might want to use straddles to take advantage of a possible large price swing without betting on a specific outcome just yet. JDE Peet’s presents a clearer merger arbitrage situation. If the acquisition looks likely, its stock price is likely to move closer to the purchase price. We are already seeing an increase in call option volume for JDE Peet’s, particularly for strike prices just below the expected valuation. Selling out-of-the-money puts on JDE Peet’s could be a way to earn premiums, assuming the deal stabilizes the stock price. It’s also important to remember the 2018 Keurig-Dr Pepper merger, which didn’t get much market applause at first, with the stock staying mostly flat for the first year. Regulatory reviews and financing details could pose challenges, potentially delaying the deal longer than current options expirations assume. This suggests that buying longer-dated options may be a better way to benefit from the outcome of this deal.

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