In October, Japan’s labor cash earnings rose by 2.6% from the previous year, exceeding expectations of a 2.2% increase. This positive news comes even as Japan’s GDP fell by 0.6% in the third quarter of 2025, which was slightly worse than the predicted 0.5% drop. The USD/JPY exchange rate has dropped below 155.50 due to an upcoming interest rate cut by the U.S. Federal Reserve and rising military tensions between Japan and China. Reports indicate that Chinese fighter jets have targeted Japanese aircraft near Okinawa, increasing these tensions. In other news, the Canadian dollar has gained strength after a good labor report, while the Dow Jones Industrial Average has risen amid expectations of a Federal Reserve rate cut, especially as PCE inflation cools. The EUR/USD pair faced some selling pressure after hitting previous highs but remains higher than its low in November. In the commodities market, gold prices have climbed above $4,200 as many anticipate a Federal Reserve rate cut. Silver has reached an all-time high, even as gold and mining stocks experience some reversals. Meanwhile, Ripple is still under bearish pressure, despite steady inflows into XRP spot ETFs. Japan is experiencing stronger-than-expected wage growth at 2.6%, which usually signals a more aggressive approach from the Bank of Japan. This is the fastest wage inflation since early 2024, post-pandemic. However, this growth contrasts with the recent GDP report showing a 0.6% contraction in the economy for Q3 2025. With a potential Fed rate cut and increasing military tensions with China, the USD/JPY is likely to continue its downward trend. The dollar is weakening globally, and the yen might attract safe-haven interest if tensions around Okinawa escalate, reminiscent of late 2024. Traders could consider buying put options on USD/JPY to profit if it dips below the 155.00 level. The market’s attention is on the Federal Reserve’s decision this Wednesday, with the CME FedWatch Tool showing more than a 90% chance of a rate cut. This expectation is backed by recent data indicating Core PCE inflation, the Fed’s preferred measure, fell to 2.8% year-on-year in October 2025. As a result, we expect further weakness in the US Dollar, making call options on pairs like EUR/USD and GBP/USD more appealing. Gold’s rise above $4,200 per ounce reflects the anticipation of lower interest rates, continuing the rally that began when the Fed shifted away from its tightening cycle in 2022-2024. However, a warning sign has emerged: while silver has hit a new all-time high, gold has not followed suit. This divergence suggests that some traders might consider call options on gold while being cautious about silver’s speculative surges.

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