The Japanese yen strengthened as traders processed Japan’s recent election. European equities showed little enthusiasm, with attention still on US-EU trade discussions.
Bitcoin remained above critical levels, although its momentum slowed. US Treasury secretary stated the importance of quality over timing in trade agreements, and Japan’s political changes are being monitored regarding tariff talks.
Japan’s Political Influence
Japan’s Ishiba expressed a desire to speak with the US President soon about trade solutions. The EU continues to prioritise negotiated tariff resolutions with the US. The ECB survey indicated a drop in 1-year inflation expectations from 2.9% to 2.5%. China maintained existing lending rates, and Swiss National Bank sight deposits increased to CHF 475.3 billion.
JPY appeared stronger, USD lower, and European stocks slightly negative. US 10-year yields reduced by 5.7 basis points, with gold rising by 0.7% to $3,371.79. WTI crude marginally increased to $67.47, while Bitcoin rose 1.0% to $118,439.
European markets were calm as trade developments remained focal. US S&P 500 futures gained 0.2%, with tech shares in focus due to impending Google/Alphabet and Tesla earnings reports. Meanwhile, gold advanced to $3,371, and cryptocurrencies like Bitcoin and Ethereum showed continued growth.
The political shake-up in Japan is driving significant volatility, and we see the yen’s strength as a primary trend to follow. We are positioning for this by buying put options on the USD/JPY pair to capitalize on further downward movement. Historically, such political uncertainty in Tokyo often supports the yen, and we note that implied volatility on the currency has recently spiked to levels unseen in over a year, suggesting more sharp moves are likely.
Market Strategies and Trends
With the US Treasury secretary hinting at a delay in trade resolutions, the dollar’s recent weakness is likely to persist. We are adding to our EUR/USD call options, as the euro appears poised to benefit from this dynamic. The dollar index (DXY) has already fallen over 2% in the past month, and a postponement of the August 1st deadline would likely push it lower still.
We remain cautious on European equities, as tariffs are clearly starting to impact corporate earnings. To protect our portfolio, we are buying put options on European automotive sector ETFs. In contrast, US tech appears more insulated, so we will maintain our long call positions on key names ahead of their earnings reports this week.
The crypto rally is showing incredible momentum, and we are participating by holding call options on both Bitcoin and Ethereum. Given the rapid 50% rise in Ethereum, however, we are also selling some far out-of-the-money covered calls to secure profits and generate income. Open interest in CME bitcoin futures recently surpassed $8 billion for the first time, signaling that significant institutional capital is fueling this surge.
The flight to safety is evident in the bond market, with US 10-year yields dropping significantly. This environment is extremely bullish for gold, as falling real yields increase the appeal of non-yielding assets. We are increasing our exposure by buying call options on major gold ETFs to ride the move past $3,400 an ounce.
