Markets were digesting two US-driven shocks as oil and trade risks returned to the fore. The IEA described the current episode as the biggest disruption in the oil market in history, with an escalating Middle East war pushing September WTI to its highest since mid-June and reinforcing arguments to look through energy-led disinflation. Helium supply, a natural gas byproduct used in semiconductor fabrication, was also tightening. Separately, Washington signalled it may replace expiring “balance of payments” tariffs with a new regime tied to “forced labour” standards, after a 25% tariff threat against Brazil and fresh warnings of 50% duties on some Canadian goods. The dollar was narrowly mixed versus G10, with most pairs excluding NOK within +/-0.1%, while 10-year yields were generally firmer and equities mixed; the Fed was in its quiet period ahead of next week’s FOMC, and Alphabet and Tesla were due to report.
In FX, EUR hovered near $1.1400 with around EUR2.9bn of expiries, as the US 2-year premium over Germany widened from ~138 bp to ~146 bp; USD/JPY held near a 40-year high around JPY163.25, with nearly $1.6bn of options and October hike odds at about 83% versus under 60% at end-June. Sterling fell for a fourth session to near $1.3360 despite softer UK inflation, while 10-year Gilts hit a two-month high and June CPI rose 0.1% m/m, easing to 2.6% y/y from 2.8%; core held at 2.6% and services slipped to 3.6% from 3.7%, alongside a plan to scrap VAT on electricity worth about GBP45 per household, offset by dropping a national digital ID proposal. The US 2-year premium over Canada hit 143 bp, a new high since May 2025, as tariff threats covered an estimated $20bn of US imports from Canada and USD/CAD traded around 1.4085–1.4110 with $635m of expiries at 1.4075; AUD struggled around $0.7000 after peaking near $0.7025. In EM, Mexico’s May retail sales fell 0.6% versus a 0.1% rise forecast, Colombia’s peso gained about 0.7% and USD/COP neared 3200, while USD/CNH rebounded toward 6.7760 as the PBOC fixed at CNY6.7933. Elsewhere, USD/INR touched 96.5760 as oil rose. In rates and commodities, the 10-year US yield was near 4.63% after closing above 4.60% for only the third time this year, with the May 19 high just under 4.69%; 10-year breakevens rose about 3 bp over three sessions and the expected year-end Fed funds rate rose almost 3 bp, while Asia-Pacific yields added 2–3 bp and Europe 1–2 bp. Gold rose about 1.5% to above $4084 before testing almost $4142 and easing below $4120, while silver jumped 4% to around $59.25 and later stalled just under $60. September WTI added 2.25% after about 5.3% gains over the prior two sessions, briefly topping $85, then reached $88.60, up almost 4.5% intraday, with $84.55 marking the 61.8% retracement of the drop from the May 18 high near $95.30. Japan posted a JPY407bn June trade deficit versus JPY392bn in May, with H1 25 averaging about JPY393bn compared with about JPY169bn in H1 this year; exports rose 19.3% y/y and imports 25.4%.
Energy and Commodity Volatility
We must brace for heightened volatility in the energy derivatives market as WTI crude targets the $90 threshold amid escalating Middle East tensions. This massive supply disruption is already reflected in the options market, where call options for oil have surged in volume as traders hedge against further price spikes. Historically, geopolitical risk premiums can add $10 to $15 to a barrel of oil almost overnight, making long call spreads on September WTI an attractive play.
Currency and Precious Metals Strategies
In the currency space, we should prepare for further downward pressure on the Canadian dollar as the threat of 50% US tariffs looms over $20 billion of imports. The US two-year Treasury premium over Canada has widened to 143 basis points, its highest level in over a year, which strongly favors buying USD/CAD call options. We recommend targeting the CAD 1.4125 to 1.4155 resistance range for near-term bullish targets.
The Japanese yen remains exceptionally weak, with the dollar hovering near a 40-year high of JPY 163.25. Despite repeated verbal interventions from Tokyo, the swaps market is pricing in an 83% chance of a rate hike by October, up from 60% last month. We should look to exploit this divergence by trading short-term yen volatility, keeping a close eye on the JPY 163.00 level where massive option expiries are currently concentrated.
Gold’s dramatic run to nearly $4,142 per ounce underscores a broader systemic flight to safety. With silver holding strong near $59, the precious metals complex is signaling deep investor anxiety over rising global tariff structures and sticky services inflation. We advocate for accumulating long gold futures on pullbacks toward the $4,050 support level to capitalize on this ongoing momentum.
