August tenth, two thousand twenty-five (250804-250810)
The weekly review beginning with 250720 will try further align our understanding of global asset dynamics, including the core guiding framework, reasoning process, and directional price outlook for different assets.None of this constitutes investment advice. Price direction is for reference only; we do not forecast the market, but examine risk/reward ratios under different probabilities.In the coming weeks, we will gradually complete this framework; it is a bit too much to write all at once.. This will include adding asset classes and refining and updating the internal logic for each asset.
What would count as being familiar with the material?
Our basic requirements for our traders are: 1) be able to sketch from memory the weekly price movements of the assets discussed, in other words, when shown an unmarked price chart, immediately identify the asset and the period in which that price action occurred; 2) be able to write down from memory the key prices of all assets discussed, in other words, when seeing any price figure (without looking at a chart or the news, only hearing the number), immediately identify the asset, its latest price, and the corresponding position; 3) when reading related materials and content, immediately connect them to the guiding framework and logic, in other words, be able to place any incremental event, news item, or analysis in the logical chain, supplement, replace, and update it, and assess how replacing that node’s content would affect the outcome..
Section one, U.S. Dollar Index
Chart: Broke above the downtrend line as expected and shifted to sideways movement
This week’s commentary update: The basic view is unchanged. If there is a genuine breakdown, it will not happen before 10 or 11. Until then, a return to 100 remains the more likely scenario. The downtrend still cannot get started, so don’t rush.
Chart: Expected subsequent path (daily chart)
Since we closed our euro-funded short position in the dollar index at the low, the dollar has moved sideways as expected. Several potential catalysts for further dollar depreciation are: a) the FOMC signaling a rate cut in month 9; b) talks between China and America (see Notes 250725, The Great Reversal); and c) potentially weaker American labor-market data, discussed in the earlier series on American employment data.
1) The guiding framework for this section Guiding framework Yes, Fed repricing room * (intensity of U.S. policy uncertainty * difficulty of deficit financing * pace at which growth slows relative to other economies), which determines short-term fluctuations in the dollar under long-term structural pressure.
2) The latter three are reflected directly in U.S. stock prices (for further reading, see the earlier Notes on the K-shaped economy).
3) Before the tariff-impact data for 10 to 11 are released, short-term rates (the front end) are the main driver; in other words, the foreign-exchange market’s reaction to inflation still depends chiefly on the monetary-policy response path.
4) Tariffs being delayed until 8 means that actual data will not allow a formal assessment of the inflation effects of tariffs and dollar weakness until 10/11. Before then, goods rushed into the country will remain in the supply chain longer... We do not expect a rate cut before 9, therefore 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 trading may be limited.
6）97 It is a key control point (i.e., 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 who are insensitive to short-term shocks are willing to transact in any quantity. The bullish and bearish trends around this price more clearly represent the views of the capital currently active in the market.....
And given the current situation, People do not yet seem willing to let the dollar fall smoothly all the way down, although dollar bears will indeed retain their status as a core macro-trading conviction for a long time.
7) When returning to a short-dollar position, there are four paths, a) trade European currencies again, b) trade EM currencies, c) trade commodity indices or the currencies/assets of commodity-exporting countries
Two, Yen, Japanese government bonds, and Nikkei futures
Chart: The dollar–yen pair rebounded as expected (daily chart)
This week’s commentary update: continuing upward, The expected trading shift will occur in October, when it will intersect the current uptrend line; after that, trading will turn sideways or downward.
Meanwhile, Nikkei futures set an all-time closing high on the weekly timeframe...
Chart: Nikkei futures set a closing high on the weekly chart
Our long Nikkei position continued higher after a volatile, bumpy period. Weekly confirmation has further strengthened our confidence in this trade, and we will continue to hold this portion firmly.
As noted last week, during periods of macro turmoil, breakout trades tend to fail at a significantly higher rate because charts are disrupted by external factors and destructive self-invalidating signals appear frequently, causing patterns that have traditionally been considered highly reliable to fail repeatedly.
This is happening simultaneously across multiple time frames in many markets, whether in broad asset classes or in individual stocks within specific markets. This means: 1) either accept giving up some profit and act on signals with a delay in exchange for greater certainty; 2) or accept greater risk by allowing more room for positions horizontally (time) or vertically (volatility), so as not to miss sudden volatility-driven moves.
Chart: Tokyo’s broader stock index
As for the Nikkei, Unlike gold, a safer backdrop favors the second approach and allows a core allocation to an ETF position to some extent. In addition to the Nikkei, Tokyo’s broader stock index has greater exposure to Japanese technology stocks and can also serve as a small part of a core allocation.
The larger the wave of selling at the long end of Japanese government bonds, the sooner the yen will strengthen after weakening; take note.
1) The guiding framework for this section Guiding framework Yes, Under political volatility, fiscal dominance is determining the direction of Japanese government bonds and the yen.
2) Structurally, yen trades along the short-dollar path have lost appeal. On one hand, Japanese institutions have yet to bring back the capital flows the market expected in April and May (rotation from U.S. Treasuries to Japanese government bonds), making the repricing of domestic assets a joke. On the other hand, the interest-rate differential structure makes it very costly to short USDJPY.
3) The greater the ruling party’s seat losses in Japan’s election, the more likely the authorities are to introduce fiscal stimulus, triggering a selloff in long-dated Japanese government bonds and further yen weakness, meaning The dollar–yen pair is set to move higher。This is the direction the market currently expects, namely a loss for the ruling party.
4) However, If the selloff in Japanese government bond yields becomes disorderly, the trend in long-term yields will spread to global yields, once trading moves into this pattern, The dollar–yen pair should instead move lower, meaning the yen will strengthen after weakening.The larger the wave of selling at the long end of Japanese government bonds, the sooner the yen will strengthen after weakening.
Chart: The fiscal-dominance logic for bonds and foreign exchange also applies to the U.S. dollar
5）After the fiscal event is realized, macro fundamentals will again become the main driver of pricing driver, meaning that after 9 and through 10 and 11, the yen itself will have greater potential to strengthen on a relative basis and return to the long-term short-dollar path.
6) The weak-yen trading range is 140-162，A strong-yen trade requires waiting for the price to break below 140; we will discuss it then.
Chart: The yen is expected to weaken first and then strengthen (weekly chart)
Chart: Notes250714, “From Fiscal Policy to Bond Markets: Rechoosing Value”
7）The Nikkei’s directionless trading range is between 38800 and 40500; a breakout would be the corresponding entry point，Relatively speaking, an upside breakout is more likely.
8) For Japan, the only thing that can be confirmed is that the balance of power between the ruling and opposition parties is changing (see Notes250723, “Japan in Turmoil: From the Trade Deal to Ishiba”),The change means a contest for influence over economic policy, and it also means Fiscal policy is bound to be pushed in a more expansionary direction...
Three. Commodity indices
Chart: BCI, still waiting for an upside breakout
This week’s commentary update: It is not there yet. The monthly trade mentioned this week in Notes250805, “Viable Trades on the Daily, Weekly, and Monthly Timeframes,” is also highly relevant to this, and is why it has not yet taken shape, is not yet formed the reason.
Everyone can also use this price level to serve as a benchmark for validating all trading views related to stagflation.
1) The guiding framework for this section Guiding framework is:Tariff pass-through + fiscal expansion = significant inflation risk
2) Inflation risk and rate-cut bets are two key factors in commodity markets, and they produce different price responses under different scenarios. In general, rising inflation expectations lift the overall 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 strong catalyst for directional opportunities.
3) Different price responses often show up in the composition of commodity markets; a simple distinction is to divide commodities into precious metals and industrial commodities:This section also connects with the silver, platinum, gold, oil, copper... discussed below.
Precious metals are generally more sensitive to real interest rates, and gold and the white precious metals are the trading proxies for this group. This means that moderate inflation trades that do not imply the possibility of higher rates, as well as rate-path bets in practice, will both act as positive triggers.
Industrial commodities such as copper, oil, and iron are more sensitive to growth expectations, in inflation trades involving an economic slowdown driven by demand, cyclical commodities are often suppressed, except in cost-push inflation trades, because in those inflation trades industrial commodities are often the rise itself.
4) Commodity indices have been hovering in a low range, while as of today, a potential breakout may be forming..
5) Key levels 22
Four. Oil
Chart: Back to fundamentals
This week’s commentary update: The break below 65 in the early part of month 8, emphasized for several weeks, arrived as expected...
For details, see Notes250807, “When a Hedged Position Becomes a Directional Position,”This article is essential reading!
1) The guiding framework for this section Guiding framework It is: Notes250522, Reasons to Keep Shorting Oil Prices + Notes250527, Reasons to Short Oil Prices (continued) + Notes250620, Rereading The Origins of Oil
2) On the supply glut, we have discussed oil fundamentals many times before, and they were also the basis for our earlier short positions (see Notes250523, Reasons to Short Oil Prices + Notes250527, Reasons to Short Oil Prices (continued)). Outside geopolitical shocks, this part is “largely unchanged”: a) OPEC + ample supply, b) weak demand growth, c) inventories have risen for several consecutive months and, as things stand, are expected to keep increasing over the next 18 months.
3) However, structurally, Before a downside trade returning to fundamentals, the more likely scenario is a period of relief with lower volatility first.
4）Price may subsequently form a range at 55-65, with the upper boundary as a potentially viable short entry.
5) Given the risks of volatility outside the market, 63 is the safer downside point.
Five. White precious metals (silver, platinum)
Chart: Silver, position closed
This week’s commentary update: It did not break below 36.8.
Chart: Platinum, position closed
White precious metals trading is showing divergence，This is also a warning signal for gold.
Platinum and silver are among the year's most worthwhile subjects for review, and may also prove to be the year's greatest regret overall.
We had positioned ourselves ahead of the first moment for an upside breakout, and our system had also calculated the turning point accurately. But by exiting too early, we missed nearly half of the gains. This mistake affected our subsequent judgment to some extent and, in fact, also violated our trading rule against repeatedly re-entering in the short term after closing out a position...
Ultimately, this came down to our lack of maturity in trading white precious metals. The last such episode of volatility was 17 years ago; countless reviews, scenarios, and deductions on paper still could not outweigh experiencing it firsthand once in a career. When the next opportunity comes, we will handle it with greater maturity.
This is something that calls for serious reflection. I will print this case and put it on my desk as a warning.
1) On the renewed breakouts in silver and platinum, we Use other trading proxies (ETF + individual-stock basket)Re-enter; see the fourth point below for the rationale.
2) For commodities such as silver and platinum, volatility becomes especially high once they break free of their long-term trading ranges. This means their price potential should not be underestimated, and trading them calls for more patience than with other categories.
3) In terms of risk control it's more suitable to trade with a smaller position size, because the stop-loss distance corresponding to 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, compared with oil and gold, whose prices are constrained by fundamentals, large swings and speculative drivers mean that white precious metals’ prices are reflected more broadly in other markets (gold and gold-mining stocks do not always move together, and sometimes even follow opposite price paths; this relationship is much more consistent 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.
Sixth: Gold
Chart: If gold breaks above its all-time high again, we will choose to re-enter.
Weekly commentary update: The key point is actually to add a second half to the caption below the gold chart, namely:
However, If this new high comes before 10, we will choose to dampen the signal and delay acting on it..
This is a completely different choice of entry approach from the Nikkei section above. These two trades can be viewed together; the difference between them reflects our assessment of how different macroeconomic backdrops affect probabilities in the current market environment.
Price reflects all information, but that does not mean macroeconomic fundamentals are irrelevant. Without context, every identical chart pattern would produce the same result... The macroeconomic backdrop affects the breakout probability of every candlestick equally, from the monthly and daily to the hourly time frame, as well as the extent of moves in different directions...
Unless you trade random intraday fluctuations on the minute time frame, please pay attention to the backdrop.。
For more on this, see this week’s Notes 250808 “Gold’s Breakout to a New High... (Temporarily) Fails”
1）Volatility is broadly unchanged, 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 hard to see a catalyst for gold prices to break above their current level, and this may be the condition needed to force many macro funds to close their long positions, especially at this midyear point, when some funds cannot afford to wait.)
2) As for gold, A new price high may have to wait until 10–11, that is, after the actual data is released, this is also the gold for XAU/SPX that we mentioned earlier when the gold and U.S. Dollar Index pair trade moves higher (the long-gold, short-dollar-index phase)。
Seven: Crypto markets
Chart: The rally is slowing
This week’s commentary update: The spot long position is showing a small unrealized profit, but this trade is mentally prepared to exit at breakeven.
1) Inflation risks and the debate over rate cuts are the two key factors in crypto markets, and different scenarios will produce different price responses.Relatively speaking, a moderate-inflation environment combined with accommodative policy is the most favorable for crypto markets, whereas the monetary tightening triggered by extreme inflation is instead unfavorable; the market tends to use real interest rates as its trading benchmark..
2) The tendency toward softer growth and softer data ahead of 10 and 11 gave us the idea of trying to position further for a new high after a gap of 9 weeks, however, this trade will also use a tighter stop-loss and will use spot exposure only.
3) Although a short squeeze occurred in ETH, Bitco reacted mildly to the passage of stablecoin legislation; as expectations and news on this front draw to a close, there may be a momentary flow pattern of buying the rumor and selling the fact, and if this happens, the price may return to around 110500, The worst-case outcome for this trade is breakeven.
Eight: U.S. Dollar Index
Chart: SPX Daily
This week’s commentary update: The lower boundary of the S&P 500 channel and horizontal support together form a support zone spanning 6,157 to 6,250 points.
The major indices are consolidating near their highs; this consolidation will allow capital to change hands and sentiment to diverge.
For specific U.S. equity trades, see this week’s Notes 250805 “Viable Trades on the Daily, Weekly, and Monthly Time Frames”:
1 U.S. equities will enter a period in which hedging trades and thematic trades run in parallel
2 Theme trading exists, but will be limited to the AI sector, insufficient to sustain momentum across a broader range
3 The market environment will feature two structures, one persistent and one relative
4 Persistence is achieved through a hedge-driven rally on the economic downside; in fact, long positions in procyclical valuations on the growth side have already returned to 4.9 highs
point; within the U.S. equity market, hedging will create another persistent sector rotation, with defensive sectors (assets whose beta relative to U.S. GDP growth is lower than the S&P 500 overall beta) outperforming on a relative basis
Chart: NDX
Last week we said that a major downside move would remain unlikely before 10. Taking NDX as an example, the key price 22700 marked in last week’s Wrap produced a precise rebound; if prices later decline, they will first return to 22120.
1) In an environment where the conditions for the final decision remain uncertain, 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 U.S. equities shedding the burden of macro shocks, the market will linger longer near the top. In the short term, there is only one remaining possibility for the smooth decline we expect: a wave of earnings results “far below expectations” emerging one after another at the micro level.
2) Before the actual assessment data for 10 and 11 are released, the market will engage in more intense debate and positioning around the path of rate cuts this year and the terminal rate; this means volatility on data-release days will rise again—after nearly half a year of quiet.
2）The process of the U.S. equity market hovering near its top is RTY and other indices catching up the process, DJI is expected to complete a false breakout; this part is already unfolding as expected.
Ten: U.S. Treasuries
Chart: Volatility at the bottom
This week's commentary update: continue allocating
1）If the market experiences an extreme scenario, bonds will offer exceptionally good value
2) Someone may be aggressively buying to build a position; considering the performance of U.S. equities, this possibility is growing
Nine: Chinese assets
Chart: Pullback to around 2760
Weekly commentary update: The weekly chart of the Shanghai Composite 50 still cannot be described as strong.
For a period, the price movements of major equity indices will provide the trading backdrop for individual assets in the market; a strong index breakout means a higher probability of successful right-side trades. Over the past week, the breakout-pattern success rate monitored by our model diverged from index prices, largely because the break above 2760 two weeks ago was not particularly strong.
A pullback to 2760 means the prime time for broad-based right-side trading has not yet arrived; we still cannot fully let loose and go all out,
manage risk properly.
1) The Notes 250710 “From Brazil to China: A Market Tour” explain that, compared with 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, Chinese assets are expected to 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 Chinese assets, and China-related content will increase starting next week.
Ten: Emerging markets and Brazilian equity indices
Chart: EEM
This week’s commentary update: The key judgment has been validated; the high was 49.96, and we continue with scenario b under the add-on dilemma
We can continue accumulating at the lower end of the trading range.
1) Previously, we had only envisaged one path: continually making new highs. However, the dilemma of adding to positions has now emerged (see Notes 250724, “EM’s Re-Entry Dilemma”), so there are actually two possibilities now... a) a strong breakout above 50, continuing along our previous expectation, with emerging markets remaining the core area of relative outperformance; b) consolidation at the index level, fluctuating between 50 and 47.
2) Overall this year, our focus is more on emerging markets.From the global-asset lows of 20 to the present, emerging-market indices have underperformed on a relative basis, but At this stage, going long EM offers greater return potential. The upper boundary of the EEM trend channel sits around 50 and could be the next-stage upside target; if risk-asset appetite persists, the uptrend could accelerate and outperform on a relative basis.
3) Slower-moving institutional mandate funds face a difficult add-on dilemma. On the one hand, market prices have already largely priced in the expectation that they may buy, so entering now means they cannot pick up assets cheaply. On the other hand, at present, EM assets really are among the relatively better allocation choices in the beauty contest.The add-on dilemma means EM assets may enter a period of consolidation at the index level, though the expected path remains upward afterward.
Chart: Brazilian equity index
This week’s commentary update: Precise support at the key level; likewise, buy near the lower boundary.
1) A longer trading horizon, with the expected path unchanged, there is quite a lot in this section, and the background may be unfamiliar to many readers, so we recommend reading the full text directly; see Notes 250710 “From Brazil to China”.
A little promotion: we ask the traders in our trading room to write a single-market note roughly every 2 days, covering U.S. stocks, A-shares and Hong Kong stocks, and commodities. We select the better ones to post in the corresponding small communities,
Interested readers can subscribe as needed (only if you need it; don't waste your money):
U.S. equities:https://t.zsxq.com/ob7TH
A-shares and Hong Kong stocks:https://t.zsxq.com/crjVF
Commodities:https://t.zsxq.com/lAXbi
As for the level of detail, we will probably get down to the industry level. In mainland China, we will try to avoid crowded trades; if we write too specifically, someone may front-run us. We may be able to be more specific about U.S. stocks, but readers will still need to think things through and fill in the gaps themselves.
The overall win rate has been pretty good lately...
Note: Everything in this article is for reference only and does not constitute investment advice, nor does it serve as a basis for any laws, regulations or regulatory policies. Investors should not use or rely on this information as a basis for making decisions.
August tenth, two thousand twenty-five (250804-250810)
For internal use only in the Knowledge Planet “Cross-Market Asset Strategy Notes”; do not share externally!
Beginning 250720, the weekly reviews will try to further align our understanding of global asset dynamics, including the core guiding frameworks for different assets, our reasoning process, and our directional preferences for price trends. None of this constitutes investment advice; directional views on prices are for reference only. We do not forecast the market, but analyze the risk-reward ratios under different possible probabilities. We will gradually complete this framework each week; it is a little too much to finish all at once.. This includes adding asset classes and refining and updating the internal logic for each asset.
What would count as being familiar with the material?
Our basic requirements for our traders are: 1) be able to sketch from memory the weekly price movements of the assets discussed, in other words, when shown an unmarked price chart, immediately identify the asset and the period in which that price action occurred; 2) be able to write down from memory the key prices of all assets discussed, in other words, when seeing any price figure (without looking at a chart or the news, only hearing the number), immediately identify the asset, its latest price, and the corresponding position; 3) when reading related materials and content, immediately connect them to the guiding framework and logic, in other words, be able to place any incremental event, news item, or analysis in the logical chain, supplement, replace, and update it, and assess how replacing that node’s content would affect the outcome..
One: U.S. Dollar Index
Chart: Broke above the downtrend line as expected and shifted to sideways movement
This week’s commentary update: The basic view is unchanged. If there is a genuine breakdown, it will not happen before 10 or 11. Until then, a return to 100 remains the more likely scenario. The downtrend still cannot get started, so don’t rush.
Chart: Expected subsequent path (daily chart)
Since we closed our euro-funded short position in the dollar index at the low, the dollar has moved sideways as expected. Several potential catalysts for further dollar depreciation are: a) the FOMC signaling a rate cut in month 9; b) talks between China and America (see Notes 250725, The Great Reversal); and c) potentially weaker American labor-market data, discussed in the earlier series on American employment data.
1) The guiding framework here is that the Fed’s room for repricing* (the degree of U.S. policy uncertainty*the difficulty of deficit financing*the pace at which growth slows relative to other economies) determines short-term fluctuations in the dollar under long-term structural pressure.
2) The latter three are reflected directly in U.S. stock prices (for further reading, see the earlier Notes on the K-shaped economy).
3) Before the tariff-impact data from 10 to 11 are released, short-term rates (the front end) will be the main driver; in other words, the foreign-exchange market’s response to inflation will still depend chiefly on the monetary-policy response path.
4) Tariffs being delayed until 8 means that actual data will not be available until 10/11 to properly assess the inflationary effects of tariffs and dollar weakness; until then, front-loaded goods will remain in the supply chain longer... We judge that rate cuts will not come before 9, so we currently expect the dollar’s sideways movement to continue at least until 9.
5) The tail risk to Powell and Federal Reserve independence is extremely low, so the shock trade may be limited.
6) 97 is a key control point for the spot U.S. Dollar Index over the past 20 years (that is, a high-volume node). The significance of a high-volume area is that, at this price, counterparties insensitive to short-term shocks are willing to transact in any quantity. The long and short trends around this price also represent the views of the market’s current liquidity more clearly.....
Given the current situation, it seems people are still unwilling to let the dollar decline smoothly all the way down, even though dollar shorts will indeed remain a core conviction in macro trading for a long time.
7) When returning to short-dollar positions, there are four paths: a) re-enter European currencies; b) trade EM currencies; c) trade commodity indices or the currencies/assets of commodity-exporting countries
Two: Japanese yen, Japanese government bonds, and Nikkei futures
Chart: The dollar–yen pair rebounded as expected (daily chart)
This week’s commentary update: The rise continues. The expected shift in trading is due in October, when it will intersect the current uptrend line; after that, trading will turn sideways or downward.
Meanwhile, Nikkei futures set a record weekly closing high...
Chart: Nikkei futures set a closing high on the weekly chart
Our long Nikkei position continued higher after a volatile, bumpy period. Weekly confirmation has further strengthened our confidence in this trade, and we will continue to hold this portion firmly.
As noted last week, during periods of macro turmoil, breakout trades tend to fail at a significantly higher rate because charts are disrupted by external factors and destructive self-invalidating signals appear frequently, causing patterns that have traditionally been considered highly reliable to fail repeatedly.
This is happening simultaneously across multiple time frames in many markets, whether in broad asset classes or in individual stocks within specific markets. This means: 1) either accept giving up some profit and act on signals with a delay in exchange for greater certainty; 2) or accept greater risk by allowing more room for positions horizontally (time) or vertically (volatility), so as not to miss sudden volatility-driven moves.
Chart: Tokyo’s broader stock index
For the Nikkei, unlike gold, with a safer backdrop, the second response is more suitable. This also means that a base allocation to ETF positions can be made to some extent. In addition to the Nikkei, the TOPIX has greater exposure to Japanese technology stocks and can also be considered for a small portion of the base allocation.
The larger the wave of selling at the long end of Japanese government bonds, the sooner the yen will strengthen after weakening; take note.
1) The guiding framework for this section is that, amid political volatility, fiscal dominance is driving the moves in Japanese government bonds and the yen.
2) Structurally, yen trades along the short-dollar path have lost appeal. On one hand, Japanese institutions have yet to bring back the capital flows the market expected in April and May (rotation from U.S. Treasuries to Japanese government bonds), making the repricing of domestic assets a joke. On the other hand, the interest-rate differential structure makes it very costly to short USDJPY.
3) The wider the ruling party’s seat losses in the Japanese election, the more likely the authorities are to introduce fiscal stimulus, triggering a selloff in long-dated Japanese government bonds and further yen weakness—in other words, a further rise in dollar/yen. This is the market’s current expectation: a ruling-party defeat.
4) However, if the selloff in Japanese government bond yields becomes disorderly, the trend in long-term yields will spread to global yields. Once the market shifts into this kind of trading pattern, dollar/yen will instead move lower, meaning the yen will strengthen after weakening. The greater the selloff pressure at the long end of Japanese government bonds, the sooner the yen will strengthen after weakening.
Chart: The fiscal-dominance logic for bonds and foreign exchange also applies to the U.S. dollar
5) Once fiscal events have played out, macro fundamentals will again become the main driver of pricing. That is, after 9 month and through 10 month, 11 month, the yen itself will also have greater potential to strengthen on a relative basis and return to the long-term path of shorting the U.S. dollar.
6) The weak-yen trading range is 140-162. A strong-yen trade must wait until the price breaks below 140; more on that when the time comes.
Chart: The yen is expected to weaken first and then strengthen (weekly chart)
Chart: Notes250714, “From Fiscal Policy to Bond Markets: Rechoosing Value”
7) The Nikkei’s directionless trading range is between 38800 and 40500. A breakout is the corresponding entry signal; an upside breakout is relatively more likely.
8) For Japan, the only thing we can confirm is that the balance of power between the ruling and opposition parties is shifting (see Notes250723 “Japan in Turmoil: From the Trade Deal to Ishiba”). This shift means a contest for influence over economic policy, and it also means fiscal policy is bound to be pushed in a more expansionary direction...
Three. Commodity indices
Chart: BCI, still waiting for an upside breakout
This week’s commentary update: Not there yet. The monthly trade mentioned this week in Notes250805 “Viable Trades on the Daily, Weekly and Monthly Time Frames” is also closely related to this, which is why it has not yet taken shape.
You can also use this price level as a benchmark to validate all trading views related to stagflation.
1) The guiding framework for this section is: tariff pass-through + fiscal expansion = clear inflation risk
2) Inflation risk and the debate over rate cuts are two key factors in commodity markets, producing different price responses under different scenarios. In general, rising inflation expectations lift the overall level of commodity prices (which means a breakout in BCI may also be delayed until year-end), while bets on the interest-rate path are a strong catalyst for directional opportunities.
3) In commodity markets, these different price responses often show up in the composition of the market. A simple distinction is between precious metals and industrial commodities; this also connects to the silver, platinum, gold, oil, and copper sections below...
Precious metals are generally more sensitive to real interest rates, and gold and the white precious metals are the trading proxies for this group. This means that moderate inflation trades that do not imply the possibility of higher rates, as well as rate-path bets in practice, will both act as positive triggers.
Industrial commodities such as copper, oil, and iron are more sensitive to growth expectations. In inflation trades involving demand-driven economic growth slowdowns, cyclical commodities are often suppressed, except in cost-push inflation-upside trades, because in those trades, industrial commodities themselves are often what is rising.
4) The commodity index has been hovering in a low range, and now a potential breakout may be taking shape..
5) Key levels 22
Four. Oil
Chart: Back to fundamentals
This week’s commentary update: The break below 65 in the early part of month 8, emphasized for several weeks, arrived as expected...
For details, see Notes250807 “If a hedged position becomes a directional position”; this article is essential reading!
1) The guiding framework for this section is: Notes250522 Reasons to remain short oil prices + Notes250527 Reasons to be short oil prices (continued) + Notes250620 Rereading The Origins of Oil
2) On the supply glut, we have discussed oil fundamentals many times before, and they were also the basis for our earlier short positions (see Notes250523, Reasons to Short Oil Prices + Notes250527, Reasons to Short Oil Prices (continued)). Outside geopolitical shocks, this part is “largely unchanged”: a) OPEC + ample supply, b) weak demand growth, c) inventories have risen for several consecutive months and, as things stand, are expected to keep increasing over the next 18 months.
3) Structurally, however, before the downside trade returns to fundamentals, a more likely scenario is that conditions first ease as volatility levels decline.
4) Prices may subsequently form a range between 55-65, with the upper bound 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, position closed
This week’s commentary update: It did not break below 36.8.
Chart: Platinum, position closed
Trading in white precious metals has diverged, which is also a warning signal for gold.
Platinum and silver are among the year's most worthwhile subjects for review, and may also prove to be the year's greatest regret overall.
We had positioned ourselves ahead of the first moment for an upside breakout, and our system had also calculated the turning point accurately. But by exiting too early, we missed nearly half of the gains. This mistake affected our subsequent judgment to some extent and, in fact, also violated our trading rule against repeatedly re-entering in the short term after closing out a position...
Ultimately, this came down to our lack of maturity in trading white precious metals. The last such episode of volatility was 17 years ago; countless reviews, scenarios, and deductions on paper still could not outweigh experiencing it firsthand once in a career. When the next opportunity comes, we will handle it with greater maturity.
This is something that calls for serious reflection. I will print this case and put it on my desk as a warning.
1) On the renewed breakout in silver and platinum, we re-entered using other trading proxies (ETF+ single-stock basket); see the fourth point below for the rationale.
2) For commodities such as silver and platinum, volatility becomes especially high once they break free of their long-term trading ranges. This means their price potential should not be underestimated, and trading them calls for more patience than with other categories.
3) For risk control, it is more appropriate to trade with a smaller position size, because the stop-loss distance associated with large swings is also far greater than in normal commodity trading.
4) White precious metals are also the category best suited to trading through proxies in other markets. Compared with oil and gold, whose fundamentals constrain them, their greater volatility and speculative drivers mean their prices are reflected more broadly in other markets (gold and gold-mining stocks do not always move together and sometimes even follow opposite price paths, whereas white precious metals show greater consistency in this regard).
5) The high volatility and speculative drivers of white metals also mean that our views may change at any time; a flexible stance is no bad thing.
Sixth: Gold
Chart: If gold breaks above its all-time high again, we will choose to re-enter.
Weekly commentary update: The key point is actually to add a second half to the caption below the gold chart, namely:
However, if this new high occurs before the month marked 10, we will choose to dampen the signal and delay acting on it..
This is a completely different choice of entry approach from the Nikkei section above. These two trades can be viewed together; the difference between them reflects our assessment of how different macroeconomic backdrops affect probabilities in the current market environment.
Price reflects all information, but that does not mean macroeconomic fundamentals are irrelevant. Without context, every identical chart pattern would produce the same result... The macroeconomic backdrop affects the breakout probability of every candlestick equally, from the monthly and daily to the hourly time frame, as well as the extent of moves in different directions...
Unless you're trading intraday random fluctuations at the minute level, pay attention to context.
For more on this, see this week’s Notes 250808 “Gold’s Breakout to a New High... (Temporarily) Fails”
1) Volatility is essentially flat, macro fund participation is declining, and trades with higher Sharpe ratios in the market are gradually eating away at enthusiasm for gold trades. It is currently hard to see a catalyst for gold to break above its present level, and that may be what is needed to force many macro funds to close their long positions, especially at this half-year point, when some funds cannot afford to wait.)
2) For gold, a new price high may have to wait until the months of 10 and 11, after the actual data are released; this is also when we expect the previously discussed XAU/SPX gold–US Dollar Index pair trade to rise (the long-gold, short-US Dollar Index phase).
Seven: Crypto markets
Chart: The rally is slowing
Weekly commentary update: The spot long is showing a small unrealized profit, but we are mentally prepared to exit this trade at breakeven.
1) Inflation risk and the rate-cut debate are two key factors in the crypto market, producing different price responses under different scenarios. Relatively speaking, moderate inflation combined with an easing policy environment is most favorable to the crypto market, while the rate tightening brought about by extreme inflation is instead unfavorable; the market is more inclined to use real rates as its trading benchmark..
2) A bias toward softer growth, together with a tendency toward softer data ahead of the months of 10 and 11, has led us to consider trying to position further for new highs after 9 weeks. However, this trade will also have a tighter stop-loss and will use spot only.
3) Although there was a short squeeze at ETH, Bitco reacted mildly to the passage of stablecoin legislation. As expectations and news around this draw to a close, there may be a point when capital moves to buy the rumor and sell the fact; if that happens, the price may return to around 110500. The worst-case outcome for this trade is breakeven.
Eight: U.S. Dollar Index
Chart: SPX Daily
This week’s commentary update: The lower boundary of the S&P 500 channel and horizontal support together form a support zone spanning 6,157 to 6,250 points.
The major indices are consolidating near their highs; this consolidation will allow capital to change hands and sentiment to diverge.
For specific U.S. equity trades, see this week’s Notes 250805 “Viable Trades on the Daily, Weekly, and Monthly Time Frames”:
1 U.S. equities will enter a period in which hedging trades and thematic trades run in parallel
2 Theme trading exists, but will be limited to the AI sector, insufficient to sustain momentum across a broader range
3 The market environment will feature two structures, one persistent and one relative
4 Persistence is achieved through a hedge-driven rally on the economic downside; in fact, long positions in procyclical valuations on the growth side have already returned to 4.9 highs
point; within the U.S. equity market, hedging will create another persistent sector rotation, with defensive sectors (assets whose beta relative to U.S. GDP growth is lower than the S&P 500 overall beta) outperforming on a relative basis
Chart: NDX
Last week we said that a major downside move would remain unlikely before 10. Taking NDX as an example, the key price 22700 marked in last week’s Wrap produced a precise rebound; if prices later decline, they will first return to 22120.
1) With uncertainty surrounding the conditions for the final decision, micro-level trading will dominate the U.S. equity market: the data-free window as releases continue to be pushed back, combined with the arrival of earnings season, will allow U.S. equities to shed the burden of macro shocks and linger longer near the top. In the near term, there is only one possibility for the smooth decline being anticipated—that a batch of “earnings results far below expectations” emerge first in the micro market.
2) Before the actual assessment data for 10 and 11 months are released, the market will engage in more intense positioning and debate over the rate-cut path for the year and the terminal rate. This means volatility on data-release days will rise again, after nearly half a year of dormancy.
2) The period during which U.S. equities hover near the top is also a period when indexes such as RTY catch up; DJI is expected to complete a false breakout, and this part is unfolding as expected.
Ten: U.S. Treasuries
Chart: Volatility at the bottom
This week's commentary update: continue allocating
1) If extreme market conditions arise, bonds will offer exceptional value
2) Someone may be aggressively buying to build a position; considering the performance of U.S. equities, this possibility is growing
Nine: Chinese assets
Chart: Pullback to around 2760
Weekly commentary update: The weekly chart of the Shanghai Composite 50 still cannot be described as strong.
For a period, the price movements of major equity indices will provide the trading backdrop for individual assets in the market; a strong index breakout means a higher probability of successful right-side trades. Over the past week, the breakout-pattern success rate monitored by our model diverged from index prices, largely because the break above 2760 two weeks ago was not particularly strong.
A pullback to 2760 means the prime time for broad-based right-side trading has not yet arrived; we still cannot fully let loose and go all out,
manage risk properly.
1) Notes 250710 mentions in “From Brazil to China: A Market Tour” that, compared with other indices in the market, the price of the Shanghai Composite 50 is more important to us. A stable weekly close above 2760 is the primary condition for entering later. Once it holds firmly, Chinese 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 Chinese assets, and China-related content will increase starting next week.
Ten: Emerging markets and Brazilian equity indices
Chart: EEM
This week’s commentary update: The key judgment has been validated; the high was 49.96, and we continue with scenario b under the add-on dilemma
We can continue accumulating at the lower end of the trading range.
1) Previously, we had only envisaged one path: continually making new highs. However, the dilemma of adding to positions has now emerged (see Notes 250724, “EM’s Re-Entry Dilemma”), so there are actually two possibilities now... a) a strong breakout above 50, continuing along our previous expectation, with emerging markets remaining the core area of relative outperformance; b) consolidation at the index level, fluctuating between 50 and 47.
2) In terms of the overall tone this year, we are more focused on emerging markets. Since the global asset lows of 20, emerging-market indices have relatively underperformed. However, at this stage, going long EM offers greater return potential. The upper boundary of the EEM trend channel is around 50 and could be the target for the next leg higher. If risk-asset appetite persists, the uptrend could accelerate and relatively outperform.
3) Slower-moving institutional mandate funds are caught in a difficult dilemma about adding to positions. On one hand, market prices have already largely priced in the possibility that they will buy, so entering now means missing out on bargain-priced positions. On the other hand, at present, EM assets really are, relatively speaking, among the better allocation choices in this beauty contest. The dilemma over adding means EM assets may enter an index-level consolidation phase, although further gains remain the expected path.
Chart: Brazilian equity index
This week’s commentary update: Precise support at the key level; likewise, buy near the lower boundary.
1) Longer trading cycles, unchanged expected path. There is quite a lot here, and the background information will be unfamiliar to most readers, so I recommend reading the full text directly; see Notes250710 “From Brazil to China.”
A little promotion: we ask the traders in our trading room to write a single-market note roughly every 2 days, covering U.S. stocks, A-shares and Hong Kong stocks, and commodities. We select the better ones to post in the corresponding small communities,
Interested readers can subscribe as needed (only if you need it; don't waste your money):
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As for the level of detail, we will probably get down to the industry level. In mainland China, we will try to avoid crowded trades; if we write too specifically, someone may front-run us. We may be able to be more specific about U.S. stocks, but readers will still need to think things through and fill in the gaps themselves.
The overall win rate has been pretty good lately...
Note: Everything in this article is for reference only and does not constitute investment advice, nor does it serve as a basis for any laws, regulations or regulatory policies. Investors should not use or rely on this information as a basis for making decisions.