Insights 
VT 
The Eurozone’s HCOB Composite PMI increased to 52.5 in October, compared to the previous 52.2. This data indicates expansion in manufacturing and service sectors within the region.
In other financial market updates, West Texas Intermediate (WTI) oil rebounded due to geopolitical risks countering a bearish US inventory buildup. The US ISM Services PMI is expected to rise in October, while the EUR/USD remains near three-month lows amid risk aversion.
Employment Data Shows Mixed Scenario
Employment data showed a mixed scenario, with the ADP Employment Report anticipating slight job gains in October following a decline in September. The NZD/USD is stabilising, with support above the 0.5600 mark deemed secure.
The week ahead looks at shifting risk sentiment with a focus on upcoming US economic data. Meanwhile, Stellar’s price forecast sees a potential 15% drop in demand, posing risks of further correction.
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Economic Expansion and Policy Divergence
We saw the Eurozone’s October Composite PMI edge up to 52.5, confirming a modest but steady economic expansion. However, with Eurostat’s flash estimate for October inflation also ticking up to 2.9%, the European Central Bank is unlikely to signal rate cuts soon. This suggests a floor for the Euro, making deep out-of-the-money puts on EUR/USD look less attractive.
This policy divergence is stark when compared to the US, where October’s ISM Services PMI beat expectations at 54.1. This strength in the US economy supports the Federal Reserve’s restrictive stance, keeping the dollar in demand. The continued pressure on EUR/USD, which we noted was near three-month lows around 1.1500 in October, is therefore likely to persist.
The broader market is clearly nervous, as evidenced by gold prices holding near the $3,970 level we saw last month. This risk-aversion is confirmed by the VIX index, which has remained elevated around 22, well above its historical average from 2020-2024. For options traders, this implies that premiums are rich, presenting opportunities to sell volatility if you expect a period of range-bound trading.
Geopolitical risks, which were already pushing up WTI crude prices, continue to be a major factor, with ongoing tensions in the Strait of Hormuz. This sustained pressure on energy prices acts as a headwind for the European economy, which is heavily reliant on energy imports. It complicates the inflation picture and may cap the upside for European equities, suggesting bearish positions or hedging through index futures might be prudent.
Looking at specific pairs, the EUR/GBP cross continues to test the 0.8800 support level we were watching. Given the slow-moving nature of both the Eurozone and UK economies, this level may hold in the near term. This could be a scenario for selling short-dated put options at strikes just below this support, collecting premium on the expectation that the floor will not break in the coming weeks.
