Oil, FX, and Commodities Market Update<\/p>\n\n
Oil extended its rebound as traders questioned talk of a near-term US-Iran agreement. Brent rose for a fifth session to $90 a barrel, a seven-day high, while September WTI gained nearly $2 after rising nearly $4 yesterday and $3 in the last two sessions of last week; it reached $82.30 yesterday and $84.60 today, with last Wednesday\u2019s low at $74.25 and the next retracement target a little above $86. Higher crude fed through to firmer yields and a stronger US dollar, which pushed to about JPY159.35\u2013JPY159.40 despite official efforts to support the yen. The euro slipped to almost $1.1530 after a prior low near $1.1540, with last week\u2019s trough around $1.1500, while sterling hovered around $1.35 after peaking near $1.3530, with support near $1.3485 and resistance near $1.3560; the late-January $1.3870 peak anchors a 61.8% retracement reference.<\/p>\n\n
The US dollar held near its two-month low versus the Canadian dollar around CAD1.3925, staying below CAD1.3950; key levels include CAD1.3900, CAD1.3855 and slightly above CAD1.3815, with the May 1 low near CAD1.3550. The Australian dollar traded between $0.7040 and a little above $0.7060 after the RBA held at 4.35%, while markets priced a 69% chance of a hike by year-end versus about 46% late last week. In EM, the dollar traded around MXN17.1355\u2013MXN17.15, and ranged near CNH6.7420\u2013CNH6.7490 as the PBOC fixed at CNY6.7884 then CNY6.7900. The dollar climbed to INR95.4475 after INR95.2875\u2013INR95.3750, with INR95.59 a near-term risk point. Equities were softer, though the Nikkei rose 2%, while the US 10-year yield touched 4.70% after Europe moved 4\u20136 bp then 2\u20135 bp; late July saw nearly 4.75%. Gold rebounded from $4313 to $4395, hit $4435, then slipped through $4357, while silver pushed from about $65.15 to almost $66.50 before easing toward $64.25 and then near $65. US existing home sales fell a cumulative 4.2% over six months, July is seen down 1%, and attention turns to July CPI. Mexico output is forecast up 0.2% in June after almost -0.8% in May; AI-related exports to the US rose 84.5% y\/y to $105.8bn in January\u2013May 2026, and Taiwan is Mexico\u2019s third-largest trading partner, up from eighth in 2022.<\/p>\n\n
Oil is surging with Brent hitting $90 and September WTI touching $84.60 due to skepticism over a US-Iran deal. We recommend derivative traders buy call options on WTI, targeting the next technical resistance level near $86. Historically, geopolitical friction in the Middle East has pushed the oil volatility index (OVX) higher, making long volatility strategies like straddles highly attractive right now.<\/p>\n\n
The stronger oil prices are pushing US 10-year yields to 4.70%, driving USD\/JPY to a post-intervention high of 159.40. We believe traders should brace for further Japanese yen weakness but hedge with short-dated JPY call options to protect against sudden Bank of Japan intervention. Historically, Japan spent a record 9.8 trillion yen in interventions to defend the currency near the 160 threshold, making this a critical line in the sand.<\/p>\n\n
For those looking at commodity-linked currencies, we suggest taking long positions on the Australian dollar and Canadian dollar via knock-out forwards. The Reserve Bank of Australia\u2019s hawkish hold has raised the implied probability of a rate hike this year to 69%, while Canada benefits directly from rising crude. Historically, Australia’s cash rate adjustments have triggered sharp swings in AUD\/USD, making options spreads a smart way to capture this yield divergence.<\/p>\n\n
Gold recently hit a high of $4435 before pulling back, showing that late long positions are facing immediate risk from rising Treasury yields. We advise utilizing bear put spreads on gold to capitalize on this short-term correction while keeping long-term bullish futures intact. When 10-year yields hover near 4.7%, non-yielding assets like gold face temporary selling pressure, which is why a defensive strategy is necessary.<\/p>\n\n
In emerging markets, we see a unique opportunity in the Mexican peso as Taiwan-led AI hardware exports to the US surged to $105.8 billion earlier this year, overtaking auto exports. We recommend using structured options to buy the peso on dips, as these technology supply chains provide a strong fundamental cushion. This growing trade relationship with Taiwan, which has risen to become Mexico\u2019s third-largest trading partner, will likely shield the peso from broader market weaknesses.<\/p>\n\n\n\n