Following the stronger-than-expected non-farm payrolls data, the market’s perceived probability of Federal Reserve rate hikes has continued to decline. The market now needs the next payrolls report to establish a new set of expectations. This means that, before the next data release, sentiment is likely to remain constructive. Even without a major trend, the market is likely to stay range-bound.
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Over the weekend, there were further developments related to the Strait of Hormuz. The market has largely abandoned expectations for meaningful progress in negotiations, and there may not be significant movement even before the midterm elections.
The main reason for the current U.S.-Iran impasse is not simply that both sides are unwilling to negotiate. Rather, the United States has yet to determine who holds the authority to speak for Iran, and uncertainty over the appropriate negotiating counterpart, together with internal disagreements, remains the fundamental reason why talks have not made progress.
$Invesco QQQ(QQQ)$ $E-mini Nasdaq 100 - main 2609(NQmain)$ $Micro E-Mini Nasdaq 100 - main 2609(MNQmain)$ $SPDR S&P 500 ETF Trust(SPY)$ $S&P 500(.SPX)$ $Dow Jones(.DJI)$ $E-mini Nasdaq 100 - Sep 2026(NQ2609)$ $Micro E-mini Nasdaq 100 - Sep 2026(MNQ2609)$
Against this backdrop, focusing on the direction of Federal Reserve policy may offer clearer trading opportunities.
U.S. Equity Index Tracking: The Gap Effect Remains Valid
Because U.S. equity index futures trade nearly 23 hours a day, many market events are absorbed during the trading session. As a result, true gap openings are relatively rare in U.S. equity index futures. When they do occur, they are usually caused by major news or events and can therefore provide strong support or resistance levels for subsequent price action.
The gap in S&P 500 futures (ES) formed on August 3 remains unfilled, and the market’s underlying strength is still intact. Investors may use 7,500 as a stop-loss reference point. As long as the market remains above this level, the bullish view remains valid until the next nonfarm payrolls report.
In last week’s livestream, we discussed futures position sizing and methods for calculating risk losses. Investors may set stop orders according to their own risk tolerance.
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Opportunities in Foreign Exchange
Although the probability of a Fed rate hike has continued to decline, the probability of a rate hike this year remains meaningful, at above 50%. If a hike is ultimately delivered, markets may revise their expectations for the pace of future tightening.
Central-bank policy is typically sequential: once rate hikes begin, they may continue over multiple quarters. This could in turn affect price trends across the broader financial markets.
The September policy meeting is a particularly delicate point in the policy calendar. As it approaches the U.S. midterm elections, market attention is likely to rise, and the market may overreact, creating larger swings in volatility. Despite this volatility, the current environment may be an appropriate time to position for trading opportunities related to a potential U.S. rate hike.
$Euro FX - Dec 2027(EUR2712)$ $Euro FX - main 2609(EURmain)$ $SGX USD/CNH - main 2609(UCmain)$ $Mini SGX USD/CNH - Sep 2026(MUC2609)$ $HKEX USD/CNH - main 2609(CNHmain)$ $Mini HKEX USD/CNH - main 2609(MCNHmain)$
With oil prices remaining elevated, inflation may be difficult to bring down. This could make it challenging for the Federal Reserve to cut rates. Keeping rates unchanged is the most balanced compromise, which limits the downside risk to the U.S. dollar against other currencies. If the Fed were to hike rates, interest-rate differentials could strengthen the dollar and create trading opportunities.
As a result, the euro and the RMB could depreciate against the U.S. dollar. From a medium- to long-term perspective, establishing positions for depreciation in the euro or the RMB may represent a relatively prudent profit opportunity in the fourth quarter. Investors may wish to monitor this theme closely.
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