Impact of Inflation Expectations

Japan’s foreign investment in local stocks surged to ¥2,479.9 billion in early October, a significant increase from last month’s ¥-963.3 billion. This indicates growing interest in Japanese equities. West Texas Intermediate crude oil dropped to around $61.50 due to a rise in EIA oil inventories. At the same time, the Japanese Yen is struggling, partly because of possible delays in interest rate hikes by the Bank of Japan. The Australian Dollar has gained strength after the release of consumer inflation expectations. The US Dollar Index has fallen below 99.00 as the US government faces an ongoing shutdown. China is set to impose stricter regulations on rare earth exports, and the People’s Bank of China has set the USD/CNY reference rate at 7.1102, up from 7.1055. The EUR/USD is testing the 1.1600 support level, backed by a stronger US dollar. GBP/USD has slightly increased, holding above 1.3400, affected by the US government shutdown and upcoming comments from Federal Reserve Chair Jerome Powell. Gold remains steady at a $4,000 support level, even after a peace deal was reached between Israel and Hamas. Bitcoin, currently around $123,000, could benefit from rising interest in BTC ETFs. Meanwhile, Ethereum is back above $4,500 as Bit Digital has expanded its holdings to 150,244 ETH.

Pressure on the US Dollar

With the US government shutdown and dovish comments from the Federal Reserve, the US Dollar is under significant pressure. The Dollar Index (DXY) has dropped below 99.00, and past events, like the 2013 shutdown, when the index fell over 2%, suggest more weakness ahead. It may be wise to consider shorting the dollar, possibly using put options on USD futures, especially with Chair Powell’s upcoming speech that could increase volatility. The Euro faces challenges too, primarily due to political instability in France, keeping the EUR/USD pair around 1.1600 even with the broad weakness of the dollar. This indicates that the Euro might not be the best option for bearish dollar trades. Instead, it could be smarter to favor currencies with stronger fundamentals, like the British Pound, which has already shown resilience above 1.3400. Gold remains stable at $4,000, buoyed by the ongoing US fiscal issues, even though news of an Israel-Hamas peace deal led to a brief dip from its all-time high. This continues to create volatility, making long positions risky. Using long-dated call options could be a sensible way to keep exposure to gold while limiting potential losses if the shutdown resolves quickly. There’s a tremendous influx of foreign investment in Japanese stocks, with a net inflow reaching ¥2.48 trillion. This reflects a clear shift among international investors towards bullish sentiment on Japan, continuing from when the Nikkei 225 reached a four-decade high back in 2024. We should consider gaining exposure through call options on the Nikkei or related ETFs to benefit from this positive trend. The recent sharp decline in WTI crude oil to around $61.50, driven by increased inventories, signals weakening demand in line with a murky US economic outlook. With crude inventories rising by over 5 million barrels as reported by the EIA, this is a bearish sign worth noting. Buying puts on energy sector ETFs could be a smart move as it may indicate the start of a broader economic slowdown. China’s decision to tighten restrictions on rare earth exports brings geopolitical risks back into play, reminiscent of the trade tensions in 2019. This could disrupt global supply chains, especially for tech and electric vehicle manufacturers. To mitigate this uncertainty, we could buy puts on semiconductor indexes or explore volatility products that would benefit from broader market anxiety. The cryptocurrency market is showing significant strength, with Bitcoin trading near $123,000 and institutional ETF inflows expected to grow as the year ends. Historical patterns indicate that the upcoming fourth quarter might be strong as institutional interest rises, especially given how the 2024 spot ETF approvals pushed Bitcoin above $70,000. We may want to build leveraged long positions through options to take advantage of this clear institutional demand. Create your live VT Markets account and start trading now.

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