The S&P Global Services PMI for Australia increased to 53.1 in October, up from 52.4 the month before. This suggests that the services sector is growing. China’s central bank set the USD/CNY reference rate at 7.0928, down from 7.1235 previously. In Japan, talks are ongoing about the possibility of raising the financial income tax.

US Dollar Index

The US Dollar Index dipped slightly, falling below 99.00 as investors anticipate upcoming US CPI inflation data. The NZD/USD exchange rate remained stable around 0.5750, while USD/JPY strengthened above 152.50. Japan’s national CPI rose by 2.9% year-on-year in September, with the core CPI increasing as expected. Meanwhile, the EUR/USD pair traded steadily at around 1.1617 as traders awaited US inflation data. In the UK, the GBP/USD dropped for the fifth straight day due to poor retail sales expectations. Gold prices tried to recover, stabilizing around $4,150 per troy ounce. Ethereum whales increased their holdings despite weak metrics, adding over 200,000 ETH since Saturday. Aster’s price surged above $1.00, reflecting positive feelings in the crypto market. Leaders Bitcoin and Ethereum also rose, trading above $109,000 and $3,800, respectively.

Potential for Volatility

As the market awaits US inflation data, there is a strong chance for volatility. Looking back at the high inflation period of 2022-2023, we know the Federal Reserve reacts strongly to any upward surprises. This makes options strategies that profit from sharp price swings, such as straddles on the S&P 500, appealing. A higher-than-expected CPI could quickly shift rate hike expectations. The US Dollar Index is currently below 99.00, but this may just be a temporary pause. The Federal Reserve previously raised its benchmark rate above 5% to tackle inflation. Any new signs of rising prices would likely push the dollar higher. Derivative traders should consider positioning for a potential dollar breakout, possibly through call options on dollar-tracking ETFs. Conversely, Australia’s service sector is showing solid strength, with the PMI at an encouraging 53.1. This economic stability might lead the Reserve Bank of Australia to maintain a hawkish approach, creating a good position for the Australian dollar. There’s an opportunity to bet on AUD strength against currencies with a more dovish outlook, especially if US CPI data comes in low. Gold is holding steady near $4,150 per ounce, serving as an indicator of inflation concerns. Its high price reflects the ongoing price pressures seen in recent years. A strong US inflation report would confirm gold’s role as a safe haven and could push it to new highs, making long futures contracts or call options a sensible choice. The Japanese Yen faces mixed signals as markets consider the new Prime Minister’s fiscal plans along with the Bank of Japan’s gradual shift away from easy monetary policy. With USD/JPY above 152.50, the pair is sensitive to changes in US Treasury yields, which will be influenced by the inflation data. This uncertainty points to potentially profitable volatility trades on the yen. We continue to see strong momentum in the crypto markets, with Bitcoin maintaining its position above $109,000 and large wallets accumulating more Ethereum. This shows a robust risk appetite, although the sentiment may be fragile. If inflation data comes in low and the dollar weakens, we could see further gains, but a hawkish surprise could quickly lead to a sharp correction in these assets. Create your live VT Markets account and start trading now.

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