Japan’s Tankan survey reports a rise in capital spending among large companies, showing actual growth of 12.6% in the fourth quarter, which exceeds the expected 12%. The Bank of Japan’s survey reveals a drop in trade concerns but an uptick in cost pressures.

Exchange Rate Movements

The PBOC has set the USD/CNY reference rate at 7.0656, a slight increase from the previous rate of 7.0638. The EUR/USD pair is trending negatively, trading around 1.1730 as the USD strengthens. Gold remains steady above $4,300, benefiting from geopolitical uncertainties and expectations of rate cuts from the US Fed. In the upcoming week, the market will focus on the US Non-Farm Payrolls (NFP) and Consumer Price Index (CPI) data, as well as meetings from the Bank of England (BoE), European Central Bank (ECB), and Bank of Japan (BoJ). Aave’s price is nearing a breakout point, trading above $204, with strong bullish indicators.

Investment Decisions and Risks

FXStreet highlights the need for thorough research before making investment choices and warns of the risks tied to open market investments. It clarifies that the opinions shared do not represent FXStreet’s official stance and advises caution when interpreting the information provided. The strong Tankan capital expenditure figure of 12.6% shows that Japanese corporations are willing to spend more, despite rising cost pressures. This marks a significant change from the cautious approach seen in recent years and strengthens the argument for a Bank of Japan rate hike. We see this as a chance to consider purchasing call options on the Japanese Yen, betting that the central bank will take steps to strengthen its currency. We believe the recent Federal Reserve rate cut is the main factor pushing the S&P 500 up, especially in non-tech sectors. However, with the Non-Farm Payrolls and CPI reports delayed until this week, volatility could rise, challenging the market’s expectation of two more rate cuts next year. To manage this risk, we are buying short-dated S&P 500 put options as a cost-effective hedge against unexpectedly strong job or inflation reports. Gold’s stability above $4,300 per ounce reflects the Fed’s dovish stance, driven by serious concerns about currency depreciation compared to the $2,400 highs of 2024. Geopolitical tensions, such as the attack in Bondi, further boost demand for this safe-haven asset. We believe that buying call spreads on gold futures allows us to enjoy potential gains while managing risk in this high-priced environment. The pound is weak because the market now sees a greater than 70% chance of a dovish interest rate cut by the Bank of England on December 18th. This follows disappointing UK economic data, including a surprising drop in last month’s GDP. The divergence from the ECB, which is expected to keep rates steady, makes buying put options on the GBP/USD pair a smart strategy for the upcoming days. In addition to the major central banks, we’re closely monitoring China’s retail sales and industrial production figures. A weak performance, particularly after the PBOC’s recent decision to weaken the yuan, could indicate a broader economic slowdown and negatively impact risk assets like the Australian dollar. The ongoing peace talks in Ukraine add further uncertainty, reinforcing the need to hold hedges even as equity markets continue to rise. Create your live VT Markets account and start trading now.

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