Early-week risk sentiment improved on hopes of progress in the Middle East, but markets faded as details on any agreement failed to materialise. Gold found support after dipping below $4,000, while SpaceX shares fell 13% on higher-than-expected capital expenditure even as management projected an upbeat trajectory. In FX, the US Treasury intervened to support JPY for the first time since the 2011 earthquake, with reports indicating it sold EURJPY using the Exchange Stabilization Fund’s relatively small EUR holdings rather than acting through USDJPY, a move described as unprecedented. A Camp David note referenced buying JPY $5-10 bil, and there are indications Japan’s MOF bought around $37 billion in the latest operation; however, half of last week’s move in USDJPY has since reversed despite confirmed coordination with the US and Korea.
Oil rose overnight as uncertainty persists over the Strait of Hormuz reopening, while bonds weakened as rate expectations adjusted. Next week’s diary includes Tuesday’s RBA decision after last month’s hold that followed three consecutive hikes, and Wednesday’s US CPI, where headline inflation is expected to ease to 3.4% from 3.5%. US earnings season is thinning out, with Cisco, CoreWeave and JD.com among the remaining releases, while Nonfarm Payrolls is due tonight.
Trading Strategies Amid Geopolitical and Macro Headwinds
We advise derivative traders to exploit the current weekly cyclicality by buying risk assets on Mondays and taking profits on Thursdays. This pattern is driven by recurring weekend geopolitical anxieties in the Middle East that repeatedly fail to materialize by the start of the week. For those looking at safe havens, gold’s recent breakout above the $4,000 mark proves that buying the dips remains a highly rewarding strategy as its correlation with risky assets decouples.
We suggest caution when trading the Japanese Yen despite the unprecedented joint intervention where the US sold EUR/JPY to support the currency. While Japan’s Ministry of Finance deployed approximately $37 billion in its latest effort, history shows that limited interventions rarely reverse long-term macro tides like interest rate differentials. With USD/JPY already clawing back half of its post-intervention losses, we should expect further volatility and wait for official ECB coordination before placing heavy bullish bets on the Yen.
Macro Outlook and Sector Positioning
Looking ahead to next week, we must prepare for key macroeconomic releases, starting with the Reserve Bank of Australia’s rate decision on Tuesday, where a hold is highly anticipated. On Wednesday, the focus shifts to the crucial US CPI release, where the headline inflation figure is projected to ease from 3.5% to 3.4%. Traders should position for potential equity market relief if the inflation data aligns with these softer expectations, further cooling interest rate fears.
In the energy sector, we recommend holding long positions on crude oil (USOIL) as ongoing uncertainty surrounding the closure of the Strait of Hormuz keeps risk premiums elevated. Meanwhile, the winding down of the US earnings season, featuring reports from Cisco, CoreWeave, and JD.com, offers selective equity derivative opportunities. We also suggest monitoring high-growth names like SpaceX, whose recent 13% drop due to heavy capital expenditures highlights the market’s sensitivity to rising costs despite optimistic long-term guidance.
