From June ninth, two thousand twenty-five to June thirteenth, two thousand twenty-five

I. Foundation 

resistance to change and hence greater dependability for the results shown in the past.

Kill the dollar with the euro: on EUR/USD as the core pair for shorting the dollar

In today’s market, EUR/USD stands out, as we have consistently emphasized since the start of the year:

EUR/USD is in fact the core pair for putting on a short-dollar trade.

The market’s The real central theme is not simply shorting the dollar, but choosing the right currency to go long..Under the same narrative, assets following the same trading path can still have different risk-reward profiles, Choosing which horse to put in the race can sometimes matter more than getting the direction right.(See Notes 250522: Capital management in an environment of exceptional uncertainty)

Chart: Notes 250516 continues the discussion of unhedged dollar exposure and includes an EUR/USD target

Since we exited at the top, EUR/USD has traded sideways within a range,

until today, when it moved back above our observation level:

Chart: Our observation level marks a key structural change

In fact, if we plot the year-to-date performance of major currencies on one chart, the euro’s outperformance becomes even clearer:

Chart: The euro is the best-performing currency year to date

The fundamentals underpinning the euro theme are very strong:

1) The ECB has clearly stated that the rate-cutting cycle is over

2) In the euro area momentum toward fiscal burden-sharing is building, while the ECB and other institutions keep promoting the euro as an alternative to the dollar

3) As concern and hostility toward US policies intensify, European pension funds are increasing their dollar hedges

4）large-scale defense spending is on the way and could be a structural tailwind for the euro

5) After years of underperformance, Eurozone equities (euro assets) are beginning to outperform US equities (dollar assets)

Since this is a Foundation column, let’s discuss each point one by one:

The first point is a bet on the mismatch between interest-rate cycles resulting from divergence between euro-area and US monetary policy.The Federal Reserve is clearly lagging in its rate actions (see Notes 250528 on the paradox of high deficits and high interest rates; the Fed has been pushed to the very end of the decision-making chain), while the ECB has completed its rate cuts, The Fed, at the very end of the decision-making chain, will act significantly later than other central banks around the world, led by the ECB, This process of monetary policy moving from divergence to convergence is the process of dollar depreciation, and we will position ourselves in advance.

The second and fourth points—spending and fiscal policy—are closely tied to debt. The market is playing a beauty contest, and the relative severity of US debt will be a significant fiscal drag, Ultimately, any issue around a budget agreement is a contest between short-term fiscal stimulus and the interest-rate-structure pressures caused by medium- and long-term deficits.(See Notes 250611: Reconsidering fiscal stimulus—the key danger level for the ten-year US Treasury.)

Chart: Notes 250430 revisits that giant rectangle from 25 years ago, which lasted 4700 days

Notes 250429 also adds to the thorough answer to “What is the safe-haven asset?” Be sure to review it if you have not already:

One more point here: 250430, this Notes piece revisiting the huge rectangle that lasted 4700 days 25 years ago is essential reading. It is our core explanatory article for the latter part of the two important theses: “long gold, short dollar.”

The third and fifth points are fundamentally about asset allocation by sovereign (wealth) institutions, and if you ask whether this thesis has begun, it is clear that we are indeed at the start of an asset rotation cycle that could span 5-10 years, with the dollar serving as the valuation denominator for US assets (and most global financial assets).

Taking this a step further, what does the data say about the progress of this narrative?

This Deutsche Bank chart makes the answer quite clear, Pension funds’ dollar hedge ratios remain extremely low. In other words, pension funds and insurers are still heavily invested in dollars, and this position is currently continuing to suffer losses...

This data is consistent with our long-standing view: widening short-term interest-rate differentials between the US and overseas markets, together with the continued strength of the dollar, keeps foreign-exchange hedging costs high and leads most investors to leave their FX exposure to US assets unhedged.

For most wealth institutions, FX hedging costs remain too high. Pension funds and insurers need to meet fixed return targets. Pension funds typically target annualized returns of 6.5%-7.0%. At present, the hedging cost over the next 12 months for USDCHF or USDJPY is as high as 3.5%-4.0%—a heavy negative carry that is enough to deter most asset managers.

What we are still betting on is these institutions’ “having no choice”:

“Generally speaking, the dollar usually has a negative correlation with risk assets: if stocks plunge or credit blows up, the dollar usually rises and protects the portfolio. If stocks rise and the dollar rises too, that naturally forms a positive-drift type of hedge, which means institutions usually do not need to fully hedge their dollar exposure—and in practice, that is exactly what they do—

This is very comfortable when the dollar and US equities confirm each other (that is, during periods of TINA or US Exceptionalism), but if TINA/US Exceptionalism is confirmed to have ended, they will have to start rebuilding the dollar hedges they should have held, and may even need to hold more..

It is precisely the start of this contrarian trade that creates a bearish trading logic for the dollar as a whole, Institutions that have not adequately hedged their dollar risk will have to start selling dollars steadily. This is a genuine rotation: if others are selling, you have no choice but to sell too...”

— Notes 250430 revisits that giant rectangle from 25 years ago, which lasted 4700 days

Finally, one key question remains; having raised it at the start, we should naturally provide a clear conclusion...

When will this “no-choice” moment arrive?

At present, three conditions will be the key factors that ultimately trigger it(We also set out three key trigger conditions for selling US equities in Notes 250507, “The moment to short US equities”; if you have not read it, you should), and these the point at which all three conditions are met is also when the dollar-selling trade truly begins to expand...

...

Amid a consensus narrative (Paul Tudor Jones is also calling for dollar sales today), everyone knows the dollar should be sold, but there is no clear, testable answer to “when to sell.” Identifying these three factors is what sets us apart from the market...

We’ll leave you in suspense and finish tomorrow.

...

One last chart, For the many friends who have recently joined the community, the best way to get the most value from it is to make sure you first read the Notes archive (at least those published earlier this year). Our thinking and actions form a consistent, integrated system, and certain core ideas run throughout...

If everything is “normal,” then “abnormality” will never appear; if “abnormality” appears, then things are no longer “normal”...

Consistency is the only answer that holds throughout.

2025.06.12

II. Insights 

Our Viewpoints and ideas on market...

Focus on London: tactical concessions, not directional trades (a decision-making perspective)

The next key event shaping risk appetite trades is the outcome of the US–China talks now taking place in London... It should be noted that The beta of trade-war-related headlines has fallen significantly. The market largely no longer believes in supposed agreements or threats, or in whether today’s tariff levels will remain unchanged next month. This is highly consistent with the negotiation path we mentioned earlier:

Chart: Notes 250509 before the trade negotiations

The harsh reality is that trade negotiations often involve a long and repeated back-and-forth, and the market does not have the patience to stay engaged throughout.Therefore, whether the news concerns a ceasefire, a pause, a reversal, or a policy U-turn, it is now seen as temporary and liable to change at any time; the market reaction is also no longer as intense as it was in recent months.

From the perspective of decision-makers in both East and West, this London meeting is also very different from the one a month ago...

1) Given that the S&P 500 index has returned close to its highs and US Treasury volatility has eased, it is no surprise that the United States feels confident enough to take a relatively hard-line stance(In a highly market-oriented system, market outcomes are a key reference point for US decisions.)。

2) May’s data are crucial because they show results under considerable tariff uncertainty. China’s May exports continued to demonstrate exceptional resilience, still posting year-over-year growth of 4.8% on last year’s high base, This means there is no urgent pressure to reach a deal with the United States or stimulate the economy, Compared with a major directional deal, the likelihood of reaching a limited transactional agreement has increased, and policymakers can indeed make only cautious concessions.

Chart: Although exports to the United States fell sharply again, exports to other countries grew, so total exports still increased

Chart: Strong trade with countries outside the United States makes U.S. demand easier to read

Behind the strong exports, what this means is that second-quarter GDP growth has been secured (actual second-quarter GDP growth is likely to exceed 5%, and the third quarter will also benefit from a low base), which is the fundamental source of confidence...

This article also shares the reasoning behind this analysis. In fact, over the decades since reform and opening up, a decision-making system that sets the overall framework and its key components has fundamentally determined the action framework of the entire policymaking apparatus, Whether fiscal, central-bank, or trade policy, the fundamental constraints on all actions are set by the operating framework of the growth target.

Last year, we bet on the “had no choice” scenario of missing the target, and in the end the payoff was fairly good. This year, the same framework will also constrain the “no.” Meeting the target matters most; neither exceeding nor falling short is best. Those working within the system should understand what we mean. Overshooting is not necessarily a good thing. If someone stands out as having pushed too hard and something goes wrong, accountability will be pursued all the way.

This also means that we likewise have no expectations for an adjustment before the third quarter at the 7 monthly meeting or as priced in by the market,

Let me make this clear once again here.

Finally, returning to the article’s title, compared with a directional deal, a technical concession is far more likely to be the outcome—for example, a simple, symbolic concession on rare-earth exports (China controls about 70% to 90% of the world’s critical rare-earth resources, giving it greater bargaining power in negotiations, so rare-earth materials are one element), in exchange for eased restrictions (concessions on chip controls, with advanced technology as the other element) or tariff relief (the U.S. side may yield on fentanyl tariffs)—that is the likely scenario..

The likelihood of anything else is low.

2025.06.09

A brief note on precious metals (gold and white precious metals)

This weekend’s Wrap added silver to the watchlist alongside gold and platinum; here are a few brief additions.

1/ White precious metals differ greatly from commodities in the traditional trading universe, such as gold, oil, and copper;

2/ For commodities such as silver and platinum, Once they break free of their long-term trading ranges (which they have not yet done), these metals can be especially volatile. This means their price potential should not be underestimated, and trading them calls for more patience than with other categories.(We waited 3 weeks on the Planet for a breakout point in platinum 1100);

3/ On risk management, It is more appropriate to trade these with smaller positions, because the stop-loss distance required for large swings is also far greater than in normal commodity trading.

4/ White precious metals are also among the assets best suited to trading through proxies in other markets, Because of their high volatility and speculative drivers, compared with oil and gold, whose prices are constrained by fundamentals, their prices are reflected more broadly in other markets (gold and gold-mining stocks do not always move together and sometimes follow opposite price paths, whereas white precious metals show much greater consistency in this regard).

5/ After two quiet months, the Wrap has brought up the question of re-entering gold, which has excited some readers. Still, there is no need to rush.At present, the point when silver and platinum, which follow gold’s trading swings, complete a full trading cycle (like gold: rise, peak, correction) may be when gold trading restarts Then a breakout is more likely to hold successfully and begin the next move higher.

Finally, a brief reminder: holding short-term gold positions during the CPI/PPI data week is very dangerous.

2025.06.10

Revisiting fiscal stimulus: key danger level for the ten-year U.S. Treasury

Rising rates caused by deficits will limit the effectiveness of stimulus policies. Ultimately, any question about a budget agreement is a contest between short-term fiscal stimulus and medium- to long-term deficits and the resulting pressure on the interest-rate structure.

Generally, large-scale fiscal stimulus is implemented (under unified government) in the early stages of an economic expansion, when stimulus is more likely to generate growth. Only a few stimulus measures are introduced when unemployment is low and the cycle is weak (for example, in 2001).

Assessing a fiscal bill requires considering not only the amount of spending but also its purpose, so as to analyze the multiplier effect it may have on the economy and the extent to which this fiscal-policy change will have a base effect on private-sector borrowing and spending.

From this perspective, The fiscal policies beginning in the second half of the year will indeed provide moderate support to economic growth in the short term, but will ultimately lead to more contractionary policies, partly offsetting the direct stimulus.

Especially when this fiscal stimulus comes after the wealth effect has already taken place.

On the other hand, the government’s spending plans come as the supply-demand balance in the bond market is deteriorating; compared with periods of weaker economic conditions, At this stage of the cycle, an expanding deficit is itself more likely to push yields higher, and rising yields will partly offset fiscal stimulus.

At this point, a key question naturally arises, and it is also one of the core risks we are watching over the coming months:

At what interest-rate level does a rise in yields begin to cause material harm to risk assets?

If the so-called One Big Beautiful Bill passes before Congress’s summer recess, it will likely prompt previously hesitant investors to add to risk assets involuntarily, and this behavior is predicated on long-end yields do not surge sharply.If the bill’s passage instead pushes interest rates back into the “danger zone,” the outcome will naturally be unfavorable for risk assets.

The key indicator we are watching is the 10-year U.S. Treasury yield, with the key level for its danger zone provisionally set at 4.7%,In other words, yields still have about 25 basis points to go before they reach the level at which they begin to place broad-based pressure on various asset classes.

Chart: Key danger level for the ten-year U.S. Treasury

Chart: Adding a Morgan Stanley Global Macro Forum chart for reference; nearly all the valuable information is on this page

2025.06.11

Three triggers for a weaker dollar

As of now, Most wealth-management institutions still have extremely low hedge ratios for the U.S. dollar,

because the cost of foreign-exchange hedging really is still too high..

In Notes250612, “Use the euro to kill the dollar: EUR/USD as the core pair for shorting the dollar,” we explain the fundamental logic behind the trade in greater depth. This article is the definitive answer to “when to start” and “how to enter.”

At present, the definitive breakdown of the dollar-bullish structure three conditions must be met:

1) The Federal Reserve formally turns dovish and begins to cut interest rates substantially

2) The cost of hedging the dollar declines

3) The dollar continues to depreciate, forcing large wealth-management institutions to reassess their existing long-dollar positions(One point to make here: dollar depreciation and hedging are mutually causal. Generally, this kind of crowded, stampede-like trade tends to occur after an unexpected price shock of a certain 1-2 magnitude... An unexpected price shock can have lasting structural consequences.)

If the three forces of a dovish Fed, Trump policies, and a global wave of dollar hedging converge, short-dollar trading will become a systemic force... creating long-term trading opportunities measured in years...

On the other hand, the market’s real central theme is not simply to short the dollar, but to choose the right assets to go long..

Within the same narrative, assets following the same trading path can have different risk-reward profiles. Choosing which horse to back can sometimes matter more than correctly calling the direction. (See Notes250522, “Capital Management in an Exceptionally Uncertain Environment.”)

Besides EUR as the core trading instrument, we will prioritize currencies that could attract hedging inflows, such as CHF and JPY. We will also keep some commodity currencies on the watchlist, such as AUD and CAD... (Markets of commodity-exporting countries can also be traded)..

As for commodities, gold will remain the purest expression of a short-dollar position. As mentioned a few days ago, after a trading cycle in white precious metals, we are watching gold closely again, and the Wrap will continue to update readers on our positioning here.

2025.06.13

III. Market Pulse 

Our latest Comments on the economic and market environment

Note: All content in this article is for reference only and does not constitute investment advice or serve as a basis for any laws, regulations, or regulatory policies. Investors should not use or rely on this information as a basis for decisions.