July eighth, two thousand twenty-five
《THE ONLY WAY TO BE RIGHT IS TO BE RIGHT ON TIME》
Preface: The traditional Notes format makes many topics difficult to cover. Very brief views are hard to develop into a piece, while a long, single-topic discussion can seem too uninteresting to readers who do not follow that asset. As market opportunities shift from being concentrated around a consensus to becoming increasingly dispersed, we have decided to prioritize content in choosing both substance and format. We are therefore making a simple change to Notes, adopting the format of our former weekly Wrap and focusing on the most valuable cross-asset moves of the day.
Of course, if it does not work for everyone, we may switch back later.
Without further ado, let’s get started:
1. On the dollar short
On the daily chart, the Dollar Index is still moving along its year-to-date downtrend line. Dollar shorts in the first half of the year were driven by hedging trades, with the euro serving as the main trading proxy for this exposure, We chose to exit our EUR/USD FX position at 1.18, while market institutions generally set their price targets near 1.2.(that is, a clearly defined prior high at a round-number level)Or 1.235(that is, the next target price level we expect over a longer time horizon):
Chart: EURUSD after 1.18
There are several key reasons for choosing the more conservative level:
1) market views are excessively unanimous on shorting the dollar; 2) with the view so crowded, most of the incremental weakness in the dollar has already been priced in, and the structural case for shorting the dollar has been thoroughly discussed, which means When faced with an event or data shock, prices are more likely to move against the consensus.3) As we enter the second half of the year, hedging trades may pause for a while, and the core trading pairs may shift from the euro toward more emerging-market currencies...
Chart: it has already rebounded to the trendline
Since we exited, the dollar has rebounded all the way to the trendline, If this price is successfully broken, the next target will be 100; prices may first enter a period of narrower trading ranges because the inflation narrative has not yet been fully taken off the table, at least so far.
The black horizontal line marked on the chart is a key control point (that is, a high-volume area) for the spot Dollar Index over the past 20 years.，The significance of a high-volume area is that, at this price, counterparties who are not sensitive to short-term shocks are willing to absorb any quantity of transactions. The bullish and bearish trends around this price also more clearly represent the views of the capital currently active in the market..
...whereas Given the current situation, it seems people are still unwilling to let the dollar fall all the way down smoothly, even though dollar shorts will indeed remain a core conviction in macro trading for a long time.
Figure: Notes250427
As I keep saying, the only way to be right is to be right on time.
It won’t be bought back that quickly, There are also quite a few trading paths to choose from going forward, including:
1) Re-establish a position in EUR (or CHF)
2) Go long a basket of EM currencies instead
3) Go long commodity indices or assets of commodity-exporting countries instead
There are actually many more... I encourage everyone to think and research this for themselves. Only when you understand it through your own research can you hold on to the position.
2. Since we’re talking about commodity indices...
Figure: BCI
BCI is still hovering below 22, but once it gets going, exceptionally large price swings are to be expected.
Figure: Gold
Many readers in the community are still debating gold. Overall, the outlook is not very optimistic. Chinese buyers have indeed continued to absorb a small amount during this round of gold-price declines; EFT + the Shanghai Gold Exchange + the Shanghai Futures Exchange added a combined approximately 25 ten thousand ounces last week, but the amount was not large.
Volatility is broadly unchanged, and macro investors are less engaged. Trades with higher Sharpe ratios in the market are gradually eating away at enthusiasm for gold. At present, it is hard to see a catalyst that would push gold prices above current levels, and that may be what it takes to force many macro investors to close their long positions. This is especially true at this half-year point, when some funds cannot afford to wait.
If we have to look for the next big narrative,
Attention may next turn to the Federal Reserve’s independence.
3. Let’s fill in a gap we left earlier: why we dropped the yen trade
We stopped including the yen in our weekly asset reviews a few weeks ago, but we never got around to discussing the reasoning behind avoiding it. This is also an example of what we mentioned in the introduction: “An opinion that is too short is hard to develop into an article, while a single topic that runs too long can be too dull for readers who don’t trade that asset.” I’ve wanted to discuss it for a while, but couldn’t fit it into the right column.
Structurally, the yen trade as part of a short-dollar strategy had long since lost its appeal, on the one hand, Japanese institutions have yet to deliver the capital repatriation the market expected 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 makes it very costly to short USDJPY.
The Bank of Japan has disappointed us again and again, to the point that one starts wondering whether Japan and the United States have made some kind of policy deal.
Figure: Price action across currency pairs after dropping the yen
After we dropped the yen from the pool, its price action diverged clearly from that of the other short-dollar currency pairs. The market, too, evidently realized that this once highly anticipated star performer was actually a trap.
https://mp.weixin.qq.com/s/Kti4jLfkcsndiKWqvvK5SA
The link above summarizes a key takeaway from today’s Trump tariff letters: the final deadline has been materially pushed back, and the new deadline is also “not one hundred percent certain”...The market doesn’t have the energy to play along the whole time. Top-down microstructure is bound to take over from macro narratives as the market’s driver.
Among the 14 countries that received letters in the first round, Japan and South Korea rank highest by export volume to the United States, at 1480 hundred million dollars and 1310 hundred million dollars, respectively, with exports concentrated mainly in automobiles and parts.
I promised, so I’ll discuss it here. If you’re not interested, you can scroll straight to the end.
1) South Korea: the index reaction has actually been quite mild, largely because The soft extension on 8 1 continued to be interpreted by the market as meaning negotiations were still underway, and South Korea’s trade delegation is currently heading to Washington to discuss the details with the U.S. side; an update on the outcome may be released as soon as tomorrow.
Meanwhile, South Domestic-demand-driven local sectors are gaining strength, on the one hand, an additional budget of around 200-plus hundred million dollars was approved domestically, with a focus on stimulating consumption (by issuing consumer vouchers); on the other hand, their Commercial Act was also revised, with a second round of amendments to follow, The domestic capital market is lively now.
The Korean won is also a key focus for us in the second half of the year.
2) As for Japan, Before the House of Councillors election on 7 20 concludes, a tariff agreement is unlikely to be reached, while uncertainty remains high around tariff differences across industries. There is a lot of signal noise, making it difficult to form a directional macro view. Those focused on the Japanese market can devote more attention to bottom-up analysis in the second half. The macro impact will not be very large.
We’d like to know whether you enjoy this new Notes format. If you think there’s a better way, you can also leave a like to let us know. We’ll use the feedback we receive to decide whether to continue with this content or return to the previous column format.
Wishing you all the best.
2025.07.08
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 their decisions.