The Eurozone Harmonized Index of Consumer Prices (HICP) showed a monthly increase of 0.2% in October, up from 0.1%. The annual inflation rate for the HICP decreased slightly to 2.1% in October, aligning with expectations.

Forex Market Reactions

The EUR/USD pair held above 1.1550 following the inflation data release. On the other hand, GBP/USD saw weekly losses, trading below 1.3150, influenced by the US Dollar’s strength following hawkish commentary from Fed Chair Powell.

Gold prices stabilised above $4,000 after a rebound on Thursday, maintaining this level amidst easing US-China tensions. However, the lack of remarks from Federal Reserve officials kept the precious metal in a consolidation phase with limited momentum.

Cryptocurrencies such as Dogecoin, Shiba Inu, and Pepe are at risk of breaking their monthly support levels. The broader cryptocurrency market sell-off has led to notable losses for these meme coins, putting them in a vulnerable position.

Artificial intelligence continues to play a dominant role in global markets, overshadowing other economic developments. Despite various geopolitical events, AI remains the primary force driving global market dynamics.

The Eurozone’s annual inflation rate is at 2.1%, which keeps pressure on the European Central Bank to avoid cutting rates too soon. This persistent inflation, reminiscent of the stubborn figures we saw through 2023, suggests the path of least resistance for the EUR/USD is lower. We should consider buying put options targeting a break below the 1.1550 support level in the coming weeks.

Impact of Federal Reserve Policies

A hawkish Federal Reserve continues to fuel US dollar strength, pinning down currencies like the British pound. With GBP/USD struggling below 1.3150, the environment is similar to late 2022 when the US Dollar Index (DXY) traded strongly above 105 on the back of aggressive Fed policy. This backdrop supports building short positions in GBP futures, anticipating further downside.

We must acknowledge that artificial intelligence is the market’s primary driver, more so than central bank policy or geopolitics. This mirrors the market of 2023, where the seven largest tech stocks accounted for the vast majority of S&P 500 gains. The most direct play remains using call options on AI-focused equities and ETFs to maintain exposure to this leading theme.

Gold’s consolidation above the $4,000 level shows the market is pausing after the significant run-up from its sub-$2,500 price in 2024. With traders awaiting fresh signals from Fed officials, a period of heightened volatility is likely to follow this calm. An options straddle, which profits from a large price move in either direction, is a prudent way to position for the breakout.

In the cryptocurrency space, the sell-off in meme coins like Dogecoin and Shiba Inu serves as a clear risk-off signal for speculative assets. A breakdown of their current support levels could trigger a sharp decline, similar to the crypto market downturn of 2022 which saw many altcoins lose over 50% of their value in a short period. This makes purchasing puts or shorting futures on these assets a viable hedge against wider market weakness.

Create your live VT Markets account and start trading now.