Italy’s industrial sales month-on-month saw a decline in August, dropping from a previous 0.4% to -0.7%. This reflects the ongoing fluctuation in the industrial sector within the region.

Elsewhere in the economic landscape, Germany’s annual CPI inflation for October slightly decreased to 2.3%, compared to the anticipated 2.2%. The British Pound maintained a steady course, albeit with a softer undertone, due to market shifts. The Euro demonstrated some strength, assisted by stronger Eurozone GDP figures.

Eurjpy Nears Record Levels

The EUR/JPY neared record levels as the Japanese Yen weakened following the Bank of Japan’s actions, with attention turning to the ECB’s upcoming decision. The Canadian Dollar moved back to the mid 1.39 range, and the US Dollar showed a mixed response post-Federal Reserve decision.

In the Editors’ Picks, currency pairs such as EUR/USD and GBP/USD showed notable moves, and the gold market remained under wider market influences. The crypto market saw a positive turn amid trade discussions between the US and China. Bittensor’s price forecast highlighted increased momentum, aiming for higher targets.

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The Eurozone is sending mixed signals, which makes directional bets on the EUR tricky. We see weakness in core industrial data, such as the 0.7% drop in Italian sales reported for August, yet German inflation remains persistent at 2.3%. This puts the European Central Bank in a bind, likely keeping them on hold and capping the upside for the euro in the coming weeks.

Given the Bank of Japan’s persistent dovish stance, the yen remains the favored funding currency. This continues to make long EUR/JPY positions attractive, especially as the pair holds near record highs. We are looking at this as a carry trade opportunity, benefiting from the significant interest rate differential as long as market volatility, currently reflected by the VIX index holding below 15, stays low.

The Pressure On Sterling

We continue to see sterling under pressure, with GBP/USD testing six-month lows around the 1.3100 level. Recent data showed UK GDP growth for the third quarter was a meager 0.1%, confirming a slowdown and suggesting the Bank of England will be unable to raise rates. Therefore, we view any short-term strength in the pound as an opportunity to build bearish positions using put options.

The recent easing of US-China trade tensions has shifted sentiment, reducing demand for the safe-haven dollar. While the Fed’s latest decision left the market without clear direction, the improved risk appetite is evident in rebounding equity and crypto markets. We anticipate this will put a ceiling on the US dollar in the near term, especially against commodity currencies like the CAD.

Despite the risk-on mood, gold holding just under $4,000 signals underlying uncertainty about central bank policy. We recall the stubborn inflation that markets dealt with back in 2022 and 2023, making many wary of central banks declaring victory too soon. We see value in using options contracts on gold to hedge against any unexpected market shocks or a sudden reversal in sentiment.

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