The People’s Bank of China (PBOC) sets the daily midpoint for the yuan, also known as the renminbi. This midpoint is based on various currencies, mainly the US dollar, and affects how the yuan is traded each day. The yuan uses a managed floating exchange rate system, allowing it to fluctuate within a set range of +/- 2%.

Setting The Daily Midpoint

Every morning, the PBOC looks at market supply and demand, economic indicators, and changes in the global currency market to decide on the yuan’s midpoint. This reference point guides trading for the day, enabling controlled adjustments to its value. The trading band allows for a maximum increase or decrease of 2% from the midpoint each day, although the PBOC can modify this range based on economic conditions. If the yuan’s value gets close to the band limit or becomes volatile, the PBOC might step in to stabilize it by trading yuan. These actions help ensure a steady and gradual adjustment of the currency. The system is designed to keep the currency stable while allowing for controlled changes in value. Currently, with a reference rate estimate of 7.1845, the yuan is under pressure to depreciate. This rate, though managed, reflects economic challenges and a strong US dollar. Traders should expect the PBOC to continue using the daily fix to slow, but not fully stop, this gradual weakening. Recent economic data supports this cautious approach. In July 2025, China’s industrial production grew only by 3.9%, which was below market expectations and indicates a slowing economy. This weakness puts pressure on the yuan, yet the PBOC has been consistently setting stronger fixes to keep it stable.

Impact Of A Robust US Dollar

Meanwhile, the US dollar remains strong against most major currencies. Recent US inflation data shows that core prices are still stubbornly high, leading many to believe the Federal Reserve will keep interest rates steady into 2026. This difference in interest rates between the US and China will keep attracting capital to the dollar. For traders dealing in derivatives, this suggests that the yuan may weaken, but the PBOC will control the pace closely. Selling short-term volatility on the USD/CNY pair could be a wise strategy, as the PBOC’s 2% trading band is likely to limit any sudden daily changes. The central bank is focused on maintaining stability above all. Looking back to late 2023, when the yuan faced significant money outflows, we saw the PBOC actively manage the exchange rate for several months. This frustrated traders betting on a sharp decline, showing the bank’s readiness to counter market forces for extended periods. We will closely watch the difference between the onshore yuan (CNY) and the more freely traded offshore yuan (CNH). A widening gap could indicate that market pressure is building beyond what the central bank finds comfortable. This might signal a future policy change or an unexpected adjustment in the reference rate. Create your live VT Markets account and start trading now.

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China’s factory-gate prices fell more than expected in July, while consumer prices stayed the same. This shows ongoing problems due to weak domestic demand and trade uncertainties. Consumer prices had no annual change, compared to a 0.1% rise in June, which was better than the anticipated slight decline. The core consumer price index (CPI) rose 0.8% year-on-year, the highest increase in 17 months, mostly because of non-food items. In contrast, food prices dropped by 1.6%. Monthly CPI went up by 0.4%, which is better than the 0.1% dip in June. The producer price index (PPI) fell by 3.6% year-on-year, matching June’s near two-year low and surpassing expectations of a 3.3% decrease.

Consecutive PPI Contraction

This is the 25th month in a row that the PPI has contracted, mainly due to fierce price competition in important sectors. The monthly PPI fell by 0.2%, improving from June’s 0.4% drop. Authorities are taking steps to tackle competition issues in areas such as automobile manufacturing. Extreme weather, like heatwaves and heavy rainfall, has worsened economic troubles. Some people think deflationary issues may ease, but others fear recovery could stay weak without strong demand-side support. Issues like a housing slump, unstable trade relations with the US, and a weak job market are contributing to this concern. The latest July figures show that China’s economy is still facing weak demand. Consumer prices are flat, and factory prices are dropping faster than expected. This suggests that deflationary pressures are still a problem.

Impact on Global Markets

The 25-month decline in producer prices is alarming for the industrial sector. It indicates continued price wars and excess supply in key industries like autos. This is a negative sign for companies involved in manufacturing and construction. We’ve seen this pattern before in late 2023 and early 2024, when China’s consumer price index fell for several months, marking the longest deflationary period since 2009. This suggests that the current weakness can persist without significant stimulus. In the coming weeks, we should be careful about investing in Chinese stocks, like those in the Hang Seng Index or FXI ETF. During the 2023 slump, the Hang Seng dropped below 15,000 points, a level not seen in over a year. Consider buying put options to protect against or profit from further declines. This weakness also affects global commodities that China relies on heavily. With factory activity slowing, we expect lower demand for industrial metals like copper and iron ore. This may create chances to short commodity futures or stocks of major mining companies. A slowing Chinese economy is bad news for its trading partners, especially Australia. In mid-2024, the Australian dollar fell significantly when dismal Chinese trade data was released. We should consider bearish positions in the AUD/USD pair as this trend is likely to continue. However, the rise in core inflation driven by services shows some strength in the consumer sector. Authorities are trying to curb “disorderly competition,” which could help stabilize prices. We need to monitor any developments from these government actions. With these mixed signals, betting on a clear direction is risky. A smarter approach may be to use derivatives to take advantage of increased volatility. Consider setting up straddles on key indices to benefit from significant price swings in either direction as this situation unfolds. Create your live VT Markets account and start trading now.

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The Reserve Bank of Australia (RBA) will meet on Monday, August 11, 2025, and Tuesday, August 12, 2025. The decision on the cash rate is expected at 2:30 PM local time on Tuesday. After last month’s unexpected choice to keep the cash rate steady, most expect a cut this time.

Expected Rate Cuts

Westpac predicts several rate cuts, aiming for a terminal rate of 2.85% by June 2026. They believe that if inflation and employment goals are met, strict monetary policies are not needed. The Commonwealth Bank of Australia expects a simple 25 basis point cut to 3.60%, as current data and labor reports align with RBA’s expectations. Although a rate cut seems likely, Governor Bullock’s comments in her follow-up press conference are expected to be firm. This is meant to lessen expectations for further rate cuts. With a 25 basis point cut almost certain tomorrow, the markets have likely already accounted for this move. As a result, the initial announcement may not significantly impact the Australian dollar or short-term bond yields. Traders will focus more on future signals. Recent economic data supports this move, boosting market confidence. The latest quarterly CPI data from late July 2025 shows headline inflation dropping to 2.9%, finally within the RBA’s target range. Additionally, an unemployment rate increase to 4.3% gives the bank solid reasons to start easing policy.

Governor Bullock’s Press Conference

After the surprising hold decision in July 2025, using out-of-the-money options could be a smart hedge. If the RBA decides to keep rates steady again, it could cause a sharp rise in the Australian dollar. These low-cost options may offer significant benefits if the consensus is wrong for the second month in a row. The highlight will be Governor Bullock’s press conference after the rate decision. We expect a “hawkish cut,” where she announces the anticipated easing but uses strong language to discourage the idea of a quick series of cuts. If her tone is softer than expected, it could signal traders to sell the Australian dollar and buy bond futures. Looking ahead, the plan is to trade based on the future interest rate path. With Westpac forecasting a terminal rate of 2.85% by mid-2026, we are likely in for a long easing cycle. We can utilize interest rate swaps and futures contracts for late 2025 and 2026 to prepare for a cutting cycle that might proceed faster or slower than current market expectations. Reflecting on the beginning of the 2019 easing cycle, the first cut led to ongoing currency weakness as the bank continued to ease. However, initial reactions can be volatile if forward guidance is not clearly dovish. We need to be prepared for this possibility, expecting that the RBA will carefully manage expectations. Create your live VT Markets account and start trading now.

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Nvidia and AMD will pay the US government 15% of their revenue from chip sales in China. They made this deal to get export licenses for their semiconductors. Many news outlets, like the Financial Times and CNBC, have reported on this agreement. The news comes at a time when there are concerns about how it might affect US equity index futures, which could see changes.

Key Players in Semiconductor Industry

Nvidia and AMD are major players in the semiconductor industry and are facing stricter regulations regarding their business in China. This agreement highlights the complications involved in international trade and compliance with government rules. With the new deal, Nvidia and AMD have a clear cost structure: 15% of revenue from chip sales to China for export licenses. This clarity eliminates the uncertainty of a possible complete ban. Now, the market has a specific number to consider for valuations instead of just guessing. From our view, this 15% revenue cost will directly impact profit margins in an important market. These stocks have reacted sharply to regulatory news in the past, like the significant drops after export control announcements in late 2022. Traders expecting a similar negative reaction in the near term might want to buy put options on NVDA and AMD. Conversely, the removal of uncertainty could be seen as a long-term benefit, creating a stable but pricier route for doing business in China. This clarity may attract institutional investors who had previously stayed away due to regulatory concerns. Those who believe the worst is already priced in could consider buying call options, hoping for a price recovery in the coming weeks.

Anticipated Market Volatility

With these mixed perspectives, we foresee a period of increased volatility for both stocks. The Nasdaq Volatility Index (VXN), which measures expected volatility for the Nasdaq 100, has already risen by over 5% in early August 2025 after initial rumors of the agreement. Traders who anticipate a significant price move but are unsure of the direction may want to use straddles to profit from this uncertainty. China has consistently made up about 20% of data center revenue for these companies, meaning that a 15% tax on this segment will noticeably impact profits. This will be a key topic in the upcoming quarterly earnings calls, scheduled for late October 2025. Using option spreads that expire after these earnings reports could be a smart way to trade the expected outcome. Create your live VT Markets account and start trading now.

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Fed Governor Michelle Bowman has suggested three rate cuts at a bankers’ conference in Colorado Springs. She previously disagreed with the recent FOMC meeting, favoring lower rates. Bowman believes rate cuts are necessary due to a weakening labor market, which is overshadowing inflation risks. She advocates shifting from a moderately restrictive policy to a neutral stance, recommending three cuts in the Fed’s upcoming meetings.

Interest Rate Futures

Earlier reports indicated her push for a rate cut in September, with two additional cuts by the end of the year. Given Governor Bowman’s clear call for three rate cuts, we should expect interest rate futures to reflect a stronger possibility of a September cut. Traders are likely to buy SOFR and Fed Funds futures contracts linked to late 2025 meetings, leading to higher prices. This guidance from a Fed official, even one who dissents, offers a clear signal for market positioning. Her viewpoint is backed by recent economic data. The early August jobs report revealed that the U.S. economy added only 150,000 jobs in July, missing expectations for the third month in a row. This trend supports her argument about the declining labor market, reinforcing her stance for policy easing. Meanwhile, the inflation risks she mentions are currently under control. The latest Consumer Price Index report for July 2025 showed core inflation steady at 3.1%. While this is above the target, it hasn’t shown signs of rising again. This information gives the Federal Reserve room to respond to the evident slowdown in economic growth, which was just 1.4% for the second quarter.

Derivatives Market Strategy

In the derivatives market, this suggests a strategy for lower interest rates and potentially higher stock prices. We should anticipate increased buying of call options on major stock indices, such as the S&P 500, for expirations after the September FOMC meeting. Lower borrowing costs make stocks more appealing. This situation could also reduce market volatility as the Fed’s future plans become clearer. A clear dovish shift usually eases investor concerns, which may lower the VIX index. Consequently, traders might explore shorting volatility through VIX futures or put options in the coming weeks. We have witnessed a similar trend in financial history. In late 2023, markets began to rise significantly simply from the expectation of a Fed pivot, even before the first rate cut occurred. The anticipation of looser monetary policy can be just as impactful as the actual action. Create your live VT Markets account and start trading now.

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US equity index futures show a slight rise, with S&P 500 eminis up by 0.15% and Nasdaq futures increasing by 0.2%. Nvidia and AMD are expected to send 15% of their chip sales in China to the US government. Japan’s Mountain Day holiday has closed markets there, which impacts US bond trading. Fed Board Governor Bowman suggests a rate cut in September due to wider economic factors.

Trade Deal Deadline Approaching

The US is keeping an eye on an upcoming trade deal deadline with Canada, Mexico, and Switzerland. China’s July data shows that consumer price inflation stayed the same year-over-year but exceeded expectations month-over-month. Chipmakers like Nvidia and AMD are directly affected by the new requirement to pay 15% of their China sales to the US government. This will shrink their profit margins in an important international market and may pressure their stock prices. Bearish option strategies, such as buying puts on these companies, could be an attractive approach. For context, back in 2023, China accounted for roughly 20% of Nvidia’s total revenue. During the 2018-2019 trade disputes, similar tariff announcements caused the implied volatility of semiconductor stocks to spike over 30% quickly. We should expect a similar volatility increase, making it risky to sell options on NVDA or AMD until the market adjusts to this news. At the same time, Fed Governor Bowman’s suggestion for a September rate cut could positively influence the overall market. Recent inflation data for July 2025 shows the Consumer Price Index (CPI) at 2.9% year-over-year, which supports this dovish outlook. The CME FedWatch Tool now suggests a nearly 70% chance of a 25-basis-point cut next month, which could bolster index call options.

Market Impacts of Japan Holiday

With Japan’s market closed today, we are seeing lower liquidity, especially in the US bond market. This limited trading environment, along with mixed signals from the tech sector and the Fed, may keep the S&P 500 stable this week. This indicates that setting up range-bound index option strategies, such as an iron condor on the SPY, might be a smart choice until a clearer trend develops. Create your live VT Markets account and start trading now.

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US equity index futures are set to open with significant news. Nvidia and AMD have agreed to pay the US government 15% of their revenue from chip sales in China. This deal allows them to get export licenses for semiconductors in China. The arrangement was negotiated with the Trump administration and got approval last week.

Impact On Technology Sector

Sources, including a US official reported by the Financial Times, shared this information. The news about Nvidia and AMD poses a serious threat to the technology sector. The 15% revenue fee on sales in China will squeeze profit margins and likely lead analysts to reduce future earnings estimates. We expect both stocks and the broader semiconductor ETF (SMH) to open sharply lower when US markets start this week. The best immediate strategy is to buy near-term put options on NVDA and AMD. This strategy benefits from a decline in the stock price. Because this deal has come as a surprise, we anticipate a strong wave of selling that might last for several days. To put this into perspective, Nvidia’s reports from early 2025 indicated that the Greater China region made up 21% of its total revenue. A 15% tax on that revenue means a 3.15% reduction in the company’s total global revenue, hitting the bottom line hard. This makes Nvidia’s earlier optimistic guidance, which helped boost the stock over 80% in 2025, look unrealistic now.

Options Strategy And Historical Context

Implied volatility will likely rise due to this news, driving up options prices. Another strategy for us is to sell bear call spreads, which profit if the stock price drops, remains stable, or increases slightly. This strategy also benefits from the higher premiums and from the eventual drop in volatility after the initial reaction. Reflecting on previous events, when the first major US chip export restrictions were imposed in October 2022, semiconductor stocks saw significant declines for weeks as the market adjusted to geopolitical risks. This historical context suggests that the negative market reaction will persist rather than just last for a day. Given Nvidia’s large presence in the market, this situation will likely pull down the entire Nasdaq-100 index. As a result, we are also considering buying puts on the QQQ ETF as a hedge against a broader market decline. This news may act as a catalyst for the larger market correction that many have expected throughout the summer of 2025. Create your live VT Markets account and start trading now.

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Japanese markets are closed today for Mountain Day. This closure means stock markets are shut, and yen trading activities are lower. It coincides with the United States following guidelines from the Securities Industry and Financial Markets Association (SIFMA). US bond trading stops for U.S. dollar-denominated government securities as part of SIFMA’s holiday recommendations. This includes mortgage- and asset-backed securities, as well as various corporate and municipal bonds.

Impact On Secondary Market Trading

Trading in secondary money markets, like bankers’ acceptances and commercial paper, is also paused. This extends to Yankee and Euro certificates of deposit. These halts might lead to wider implications due to limited trading in these areas. With Japanese and some US markets quiet for the holiday, we can expect low liquidity soon. This can create a challenging situation where even small orders might lead to big price changes, especially in yen-related currency pairs. Derivative traders should consider lowering their position sizes or staying out to avoid sudden price spikes. The USD/JPY pair is currently around the critical 158.50 mark, which concerns Japanese authorities. We recall the major currency interventions in spring 2024 when the yen also weakened. Traders might want to buy short-term options to protect against sharp moves when Tokyo traders return and liquidity increases.

Market Anxiety And Strategies

This quiet phase in the US bond market comes right before key economic data releases. With US inflation at a steady 3.1% year-over-year, the market is anxious for what the Federal Reserve might signal next. Surprises in forthcoming data could lead to significant shifts in interest rate futures and swaps once trading fully resumes. Market worry is high, with the CBOE Volatility Index (VIX) around 18. This is much higher than calmer times last year, showing that investors are on edge. In this low-volume setting, using hedging strategies with index options could be wise to protect portfolios from unexpected changes. The main focus for tomorrow is preparing for the return of full market activity. We should watch for price gaps when the Japanese stock market reopens and bond desks are back to full staff. This holiday pause offers a chance to plan entry and exit points for the anticipated higher volume sessions later this week. Create your live VT Markets account and start trading now.

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Nvidia and AMD could be required to send 15% of their chip sales in China to the US government, according to a report from the Financial Times. Other news sources have not been able to confirm this claim. US equity index futures will open at 6 PM Eastern time, and sales to China may influence these stocks. The possible new payments could negatively affect the companies’ finances.

Impact On Market Volatility

Due to the uncertain nature of this report, we are seeing changes in expected market volatility. This uncertainty signals traders to think about strategies that could profit from market price changes, no matter which way they go. Buying straddles or strangles on Nvidia and AMD could be a smart move in the coming days. The stakes are high because a 15% charge would significantly impact earnings for both companies. In the second quarter of 2025, reports indicated that China made up about 19% of Nvidia’s data center revenue and 22% of AMD’s total sales. This news introduces a big, measurable risk for two key stocks in the market. The options market is already responding to this potential issue. Implied volatility on weekly options for Nvidia and AMD has risen over 25%, according to overnight trading data. This indicates that traders are expecting a much larger price swing than usual before the week ends.

Strategies For Traders

For those who think the reports will be confirmed, buying put options or setting up bear put spreads can allow them to profit from a possible sharp decline. A loss of a fifth of their revenue would likely push these stocks below their recent support levels. A similar situation occurred in early 2024 with export restrictions, causing a temporary 10% drop in AMD before more details were released. On the other hand, if you believe this is just a baseless rumor, buying call options is a smart strategy. A quick and official denial from the companies or the US government would likely lead to a relief rally, punishing short-sellers and benefiting those who are ready for a quick rebound. In the end, this situation presents a binary event where the outcome is still unknown. Traders should brace for rapid changes once US markets open and officials begin to comment. Until there is confirmation, expect higher option premiums for both companies. Create your live VT Markets account and start trading now.

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The United States is set to wrap up trade talks with countries that don’t have formal agreements by the end of October. This announcement was made by Treasury Secretary Scott Bessent in an interview with Nikkei Asia.

Key Partners Involved

Current discussions involve important partners like Canada, Mexico, and Switzerland. These nations want to secure better deals to lessen the impact of new US tariffs and keep their access to the US market. In some cases, the US is using tariffs as a negotiation tool to gain leverage on issues not related to trade. With the deadline for these trade talks fast approaching, we can expect increased market uncertainty. This uncertainty is likely to boost implied volatility, especially in options contracts linked to the affected markets. We saw this trend during the 2018-2019 trade disputes when the VIX index frequently rose above 20 as tariff deadlines came closer. The currencies of countries still negotiating, particularly the Canadian dollar and Mexican peso, are now facing added uncertainty. Traders should think about using options to protect against or profit from sharp movements in currency pairs like USD/CAD and USD/MXN. During the last major trade renegotiation in 2018, the Mexican peso experienced weekly fluctuations over 2%, a level of volatility that could easily return in the near future. We should also pay attention to equity sectors that are vulnerable to tariff risks, such as industrials and materials. Buying put options on ETFs that track these sectors, like the Industrial Select Sector SPDR Fund (XLI), could be a useful protection against potential negative outcomes from the negotiations. The latest jobs report from July 2025 showed a minor slowdown in manufacturing employment, indicating that these sectors are already sensitive to further economic pressures.

Opportunities in the Options Market

For those anticipating volatility but unsure of the direction, option spreads provide a way to trade the news with defined risk. A long straddle on a broad index purchased now could yield profits from substantial market swings, whether a deal is struck or talks fall apart. The key is to enter these positions before implied volatility increases too much, making them pricier. Switzerland’s involvement adds a “safe haven” dynamic for traders to consider. If global risk appetite declines due to these trade discussions, we might see money flow into the Swiss franc for safety, causing it to appreciate. Therefore, call options on the franc could serve as a good hedge against broader market chaos resulting from a breakdown in US negotiations. Create your live VT Markets account and start trading now.

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