July twentieth, two thousand twenty-five (250714-250720)
Starting this week, the weekly review will try to further align our understanding of the drivers of global asset movements, including the core analytical frameworks for different assets, the reasoning process, and our preferences regarding price direction and trends.None of this constitutes investment advice; price direction is for reference only. We do not forecast the market, but assess the risk/reward ratios under different possible probabilities.We will gradually complete this framework each week going forward; it is a little too much to write all at once... including the addition of asset classes and the refinement and updating of the logic for each asset.
Part one, U.S. Dollar Index
Chart: As expected, it broke above the downtrend line and shifted to sideways movement
1) This section’s guiding framework is, the Fed’s repricing room* (the intensity of U.S. policy uncertainty* the difficulty of deficit financing* the pace at which growth slows relative to other economies), which determines short-term fluctuations in the dollar’s trajectory under long-term structural pressure.
2) The latter three factors are reflected directly in U.S. stock prices (for further reading, see the previous Notes on the K-shaped economy).
3) Before tariff-impact data come in between 10 and 11, short-term rates (the front end) are the main driver. In other words, the foreign-exchange market’s response to inflation still depends above all on the monetary-policy response path.
4) Tariff implementation has been postponed to 8, which means the actual data will not be available until 10/11 to formally assess the inflationary effects of tariffs and a weaker dollar. Until then, goods that were rushed forward will remain in the supply chain for longer... Our view is that rate cuts will not come before 9, so the dollar Sideways movement is currently expected to continue at least until 9。
5) The tail risk to Powell and Fed independence is extremely low, shock trades may be limited.
6）97 is a key control point (that is, a high-volume node) for the spot U.S. Dollar Index over the past 20 years. A high-volume area matters because, at this price, counterparties that are insensitive to short-term shocks are willing to absorb trades in any quantity. The bullish and bearish trends around this price therefore represent more clearly the views of current market liquidity...
And given the current situation, it seems that people are not yet willing to let the dollar decline smoothly all the way, even though dollar shorts will indeed remain a core macro-trade conviction for a long time.
7) When returning to a short-dollar position, there are four paths; a) revisit European currencies, b) trade EM currencies, c) trade commodity indices or the currencies/assets of commodity exporters
Part two, Japanese yen and Japanese government bonds
Chart: USD/JPY rebounds as expected
1) This section’s guiding framework is, under political volatility fiscal dominance determines the direction of Japanese government bonds and the yen.
2) Structurally, yen trades as a way to short the dollar have lost their appeal. On the one hand, Japanese institutions have yet to bring about the capital repatriation expected by the market in April and May (a rotation from U.S. Treasuries to Japanese government bonds), making the renewed trade in domestic assets a joke. On the other hand, the interest-rate differential structure makes shorting USDJPY very costly.
3) The larger the governing party’s seat losses in the Japanese election, the more likely the authorities are to introduce fiscal stimulus, triggering selling in long-term Japanese government bonds and further yen weakness, meaning that USD/JPY will rise further。This is the direction currently expected by the market: a loss for the governing party.
4) However, If selling in Japanese government bonds becomes disorderly, the trend in long-term yields will spread to global yields, once the market shifts to this trading pattern, USD/JPY will instead move lower, meaning the yen will strengthen after weakening.
Chart: The bond-market and foreign-exchange logic under fiscal dominance also applies to the dollar
5）After the fiscal event has passed, macro fundamentals will again become the dominant pricing factor that is, after 9 and through 10, 11, the yen itself will have greater potential to strengthen on a relative basis and will return to the long-term path of shorting the dollar.
6) The trading range for a weak yen is 140-162，A strong-yen trade requires waiting for the price to break below 140; we’ll discuss it then.
Chart: The yen is expected to weaken first, then strengthen
Chart: Notes250714 “From Fiscal Policy to the Bond Market: Rechoosing Value”
Part three: Commodity indices
Chart: BCI, waiting for an upside breakout
1) This section’s guiding framework is:Tariff pass-through + fiscal expansion = clear inflation risk
2) Inflation risk and rate-cut speculation are the two key factors in commodity markets, and they generate different price responses under different scenarios. In general, rising inflation expectations raise the central level of commodity prices (This means that the breakout in BCI may also be delayed until year-end), while bets on the rate path are a powerful catalyst for directional opportunities.
3) Different price responses in commodity markets are often reflected in the composition of market segments. A simple distinction is to divide commodities into precious metals and industrial commodities:This section also connects to the silver, platinum, gold, oil, copper, and other items below...
Precious metals are often more sensitive to real interest rates. Gold and white precious metals are the trading proxies for this segment, which means that moderate-inflation trades that do not bring the prospect of higher rates, as well as behavioral bets on the rate path, will both serve as positive catalysts.
Industrial commodities such as copper, oil, and iron are more sensitive to growth expectations, In inflation trades involving a demand-driven economic slowdown, cyclicals are often held back, except in inflation trades driven by rising costs, because in those trades industrial commodities themselves are often what is rising.
4) The commodity index has been hovering in a low range, while As of today, a potential breakout may be taking shape..
5) Key levels 22
Four. Oil
Chart: Returning to fundamentals
1) This section’s guiding framework is: Notes250522Reasons to keep shorting oil prices+Notes250527Reasons to short oil prices (continued)+Notes250620Rereading The Origins of Oil
2) We have discussed oil fundamentals and the supply glut many times before on the platform; this is also the basis for our previous short positions (see Notes250523 Reasons to short oil prices+Notes250527 Reasons to short oil prices (continued)). Apart from geopolitical shocks, this part is “basically unchanged”: a) OPEC+ample supply, b) weak demand growth, c) inventories have risen for several consecutive months, and based on the current outlook, inventories will continue to grow over the next 18 months.
3) However, structurally, Before the fundamentals-driven downside trade resumes, a period of relief with lower volatility is more likely to come first.
4）Prices may later form a range between 55-65, with the upper boundary as a potentially viable level for shorting.
5) Given the risk volatility outside the market, 63 is a safer downside entry point.
Five. White precious metals (silver, platinum)
Chart: Silver makes new highs using other proxies
Chart: Platinum makes new highs using other proxies
1) For the renewed breakouts in silver and platinum, we use other trading proxies (ETF+individual-stock basket) to re-enterand re-enter; the reasons are in the fourth point below.
2) For commodities such as silver and platinum, volatility is especially high once they break free from their long-term trading ranges. This means, on the one hand, that their price potential should not be underestimated, and, on the other, that trading them calls for more patience than trading other categories.
3) In risk management it is more appropriate to use a smaller position size, because the stop-loss distance associated with large swings also has to be far greater than in normal commodity trading。
4) White precious metals are also the category best suited to trading through proxies in other markets, because, compared with oil and gold whose prices are constrained by fundamentals, their large swings and speculative drivers mean their prices are reflected more broadly in other markets (gold and gold-mining stocks do not always perform in tandem and sometimes even follow opposite price paths, whereas this consistency is stronger for white precious metals).
5) The high volatility and speculative drivers of white metals also mean that views can change at any time; a flexible stance is not a bad thing.
Six. Gold
Chart: If gold breaks to a new all-time high again, we will choose to re-enter
1）Volatility is broadly flat, macro-fund participation is declining, and trades with higher Sharpe ratios in the market are gradually eroding enthusiasm for gold trading. At present, it is difficult to see a catalyst that would push gold prices above their current level, and this may be the condition needed to force many macro funds to close their long positions, especially at this mid-year point, when some funds cannot afford to wait.)
2) As for gold, new price highs may have to wait until 10 month 11 month, that is, after the actual data are released; this is also the gold move in XAU/SPX that we discussed earlier the expected timing for the gold/U.S. Dollar Index pair trade to move higher (the long-gold, short-U.S. Dollar Index phase)。
Seven. Crypto markets
Chart: Waiting for another breakout
1) Inflation risk and rate-cut speculation are two key factors for crypto markets, and they produce different price responses under different scenarios.Relatively speaking, moderate inflation combined with an accommodative policy environment is most favorable to crypto markets, whereas rate tightening in response to extreme inflation is unfavorable; the market is more inclined to use real interest rates as its trading benchmark..
2) A softer growth bias and a tendency toward softer data in the months of 10 and 11 are giving us the idea of trying to position for further new highs after 9 weeks, however, This trade will also use a relatively tight stop-loss and will be taken only with spot exposure.
3) Although there was a short squeeze in ETH, Bitco reacted mildly to the passage of stablecoin legislation. As expectations and news on this topic approach their end, there may be a bout of positioning that follows “buy the rumor, sell the fact”, and if this behavior occurs, the price may return to around 110500, The worst-case outcome for this trade is breakeven.
Eight. U.S. Dollar Index
Chart: SPX
Chart: RTY
Chart: DJI
1) In an environment of uncertainty around the final decision conditions, micro-level trading will dominate the U.S. equity market: the data blackout caused by repeated delays, combined with the arrival of earnings season, With the burden of macro shocks lifted, the U.S. equity market will linger near the top for longer. In the near term, there is only one remaining possibility for the smooth decline we expect: a batch of “far worse than expected earnings results” emerging one after another at the micro level.
2) Before the actual assessment data for 10 and 11 months are released, the market will see more intense debate and positioning around the rate-cut path for the rest of the year and the terminal rate, which means volatility on data-release days will rise again—after nearly half a year of quiet.
3) The process of the U.S. equity market hovering near the top is RTY and other indices rallying to catch up process, DJI is expected to complete a false breakout, and this part is already unfolding as expected.
Nine. China assets
Chart: Close above 2760
1) As discussed in Notes250710 “From Brazil to China: A Market Tour,” compared with the other indices in the market, the price of the Shanghai Composite 50 matters more to us. A stable weekly close above 2760 is the primary condition for entering later.Once it holds firmly, China assets may see a catch-up rally over the coming weeks.
2) Although it is not particularly strong, it is tradable. We are starting to go long China assets, and domestic-market coverage will increase starting next week.
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The weekend is over. Wishing everyone reading this a happy life and all the best in the new week!
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Note: All content herein is for reference only, does not constitute investment advice, and is not a basis for any laws, regulations, or regulatory policies. Investors should not use or rely on this information as a basis for their decisions.