Insights 
VT 
The S&P Global Services PMI for Australia rose to 53.1 in October, up from 52.4 in the previous month. This indicates an expansion in the services sector during this period.
China’s central bank set the USD/CNY reference rate at 7.0928, which is a reduction from the previous rate of 7.1235. In Japan, discussions are ongoing about the potential for increasing the financial income tax.
Us Dollar Index
The US Dollar Index experienced modest declines, settling below the 99.00 mark, with attention turning to forthcoming US CPI inflation data. The NZD/USD exchange rate remained stable near 0.5750, while USD/JPY strengthened above 152.50.
Japan’s national CPI rose by 2.9% year-on-year in September. The core CPI increased as anticipated. Meanwhile, the EUR/USD pair traded steadily around 1.1617 as players awaited US inflation data.
In the UK, the GBP/USD fell for the fifth consecutive day amid weak retail sales prospects. Gold prices sought recovery, anchored around $4,150 per troy ounce. Ethereum whales increased their holdings despite weak on-chain metrics, with over 200,000 ETH added since Saturday.
Aster saw its price rise above $1.00, reflecting positive sentiment in the crypto market. Cryptocurrency leaders Bitcoin and Ethereum also increased, trading above $109,000 and $3,800, respectively.
Potential For Volatility
With the market holding its breath for US inflation data, we see significant potential for volatility. Looking back at the high inflation period of 2022-2023, we know the Federal Reserve is sensitive to any upside surprises, making options strategies that profit from sharp price swings, like straddles on the S&P 500, particularly attractive. A higher-than-expected CPI number could trigger a rapid repricing of rate hike expectations.
The US Dollar Index is idling below 99.00, but this is likely a temporary pause. After the Federal Reserve aggressively raised its benchmark rate above 5% in the years prior to 2025 to combat inflation, any fresh sign of price pressures would likely send the dollar higher. Derivative traders should be positioned for a potential breakout in the dollar, possibly through call options on dollar-tracking ETFs.
In contrast, Australia’s service sector is showing clear strength, with the PMI rising to an expansionary 53.1. This economic resilience could push the Reserve Bank of Australia to maintain a hawkish stance, creating a favorable setup for the Australian dollar. We see an opportunity in positioning for AUD strength against currencies with a more dovish outlook, especially if the US CPI data comes in soft.
Gold is consolidating near $4,150 an ounce, acting as a barometer for inflation fears. Its high valuation reflects the persistent price pressures we have seen over the past few years. A strong US inflation report would reaffirm gold’s role as a hedge and could propel it toward new highs, making long futures contracts or call options a logical play.
The Japanese Yen faces crosscurrents as markets weigh the new Prime Minister’s fiscal plans against the Bank of Japan’s slow move away from its ultra-easy monetary policy. With USD/JPY above 152.50, the pair is sensitive to shifts in US Treasury yields which will be directly impacted by the inflation data. This uncertainty suggests volatility trades on the yen could be profitable.
We are seeing continued strength in the crypto markets, with Bitcoin holding above $109,000 and large wallets accumulating Ethereum. This indicates a strong risk-on appetite, but this sentiment could be fragile. A soft inflation number and a weaker dollar would likely fuel another leg up, but a hawkish surprise from the CPI data could trigger a sharp correction in these assets.
