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Crude oil prices have been coiling into a converging triangle since the April peak. As prices approach the apex of the triangle, a decisive break of either boundary would likely set the direction of the next leg.

After a parabolic rise this year, Soybean Oil futures now sit at multiyear highs last seen in the early 2020s. The speed and extent of the advance underscore how far energy-linked prices have travelled, even as crude itself drifts sideways.

Nikkei (USD) futures have advanced within a steep ascending channel since the April low, and the sharp June pullback is now testing the channel’s lower boundary. A breakdown would expose prior resistance zones at 60,000 and subsequently 54,000.

Gold futures have broken decisively below the flat support of a descending triangle formed since January. The breakdown opens a path toward 3,500, the level from which prices broke out in late 2025.

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Throughout the Fresh from the Trading Room series, we have often preferred proxies over the direct instrument. Looking at the same event through another lens can reveal what the headline market obscures. Crude oil is a case in point. Since April, prices have consolidated, whipsawed by alternating headlines of escalation and de-escalation, offering little directional information. Soybean oil tells a cleaner story. A primary feedstock for biodiesel and renewable diesel, it has rallied more than 50% this year to levels last seen in late 2022. Record U.S. biofuel blending mandates have done part of the lifting, but soybean oil would not hold these levels unless the fuels it replaces stayed expensive. The proxy suggests the energy shock is far from over, and few economies have more at stake than Japan.

The reality of the oil market appears dim. Crude sits well below the worst-case forecasts from the war’s outbreak largely because the blockade leaks: an estimated 3 million barrels per day slipped out of Hormuz in May, on vessels paying tolls or sailing with transponders off. Yet even with the leak, and even with the strategic release announced in March, combined U.S. commercial and strategic inventories have fallen roughly 90 million barrels from their peak and the reserve is heading toward its lowest level since the early 1980s. The release itself expires in early July. Supply is also not a switch that can simply be flipped back on, as wells shut in for months lose pressure and some capacity never returns. With Saudi Arabia now rerouting most of its exports through the Red Sea, a corridor the Houthis are openly threatening, the calm in the oil market is not stable. It is a market running down its buffers.

We have previously written about Japan’s reliance on crude oil from the Middle East. Today, Japan pays for those barrels in dollars with a currency knocking on 160. Every dollar of crude costs more yen than it did a year ago, and the weak currency amplifies the energy squeeze. The cure carries its own cost. Authorities have spent roughly ¥11.7 trillion defending the yen since late April with little to show for it, and markets have fully priced a hike to 1% at the Bank of Japan’s (BOJ) June 16 decision, a day after this publication. With the hike a foregone conclusion, what matters more is the voting breakdown: are the hawks pushing for larger hikes? They have dissented in favor of faster tightening before, and the 10-year JGB at 2.66% shows funding costs already repricing across the economy. Defending the currency has become the second squeeze.

And yet the Nikkei 225 crossed 66,000 in late May, up roughly 30% this year. The rally is not irrational. The index is heavy with exporters and technology names, a weak yen flatters their overseas earnings, and the AI capital-expenditure cycle is delivering real orders. But the advance is narrow, and markets offered a preview of the downside on June 5, when a hot U.S. jobs report repriced Fed expectations and sent AI names tumbling globally, Tokyo’s names included. The rally we doubted in April has extended much further than we expected, but it has not broadened.

The question is not whether the AI story is real, but how much of the index it can carry, and for how long. A narrow cohort of technology names is pulling a market whose underlying economy faces squeezed margins, costlier credit and a central bank defending its currency. The irony is that a successful defense of the yen would remove the very tailwind those exporters have been riding: the bull case rests on the weak yen the BOJ is now fighting. Records are set at tops as well as on the way to new ones. When an index makes history while its economy absorbs two squeezes at once, it is worth asking which blinks first.

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We conclude with the following hypothetical trades:¹

Case study 1: Short Nikkei (USD) Index futures

If one holds a bearish view of Nikkei 225 Index, one could consider taking a short position in Nikkei (USD) futures (NKD) at the current level of 64,300, with a stop-loss above 68,000, a hypothetical maximum loss of 68,000 - 64,300 = 3,700 points. If BoJ’s voting breakdown turns a lot more hawkish and/or energy prices remain elevated, Nikkei 225 prices have the potential to fall to previous resistance zone at 60,000 and subsequently to 54,000, resulting in 64,300 – 60,000 = 4,300 points, and 64,300 – 54,000 = 10,300 points. Each point move in the Nikkei 225 (USD) futures contract is valued at $5. Micro Nikkei (USD) futures (MNK) contract is also available at 1/10 of the standard size.

Case study 2: Short Gold futures

If one holds a bearish view of gold, one could consider taking a short position in the Micro Gold (MGC) futures at the current price of $4,100, with a stop-loss above $4,300, a hypothetical maximum loss of 4,300 – 4,100 = 200 points. Looking at Figure 4, gold has the potential to fall back to its previous support level at $3,500, resulting in 4,100 – 3,500 = 600 points. Each point move in the Micro Gold futures contract is $10. The standard Gold futures contract is also available with each point move being $100.

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¹ Examples cited above are for illustration only and shall not be construed as investment recommendations or advice. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. Please refer to full disclaimers at the end of the commentary.

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