Major currency pairs were subdued into the final trading day of the third quarter, though attention was on a US calendar featuring ADP private payrolls for September alongside the Bureau of Economic Analysis’ final revision to second-quarter GDP and August PCE Price Index figures. Tuesday’s releases showed JOLTS job openings falling to 7.07 million in August from 7.33 million, below the 7.23 million consensus. The Conference Board’s Consumer Confidence Index eased to 81.9 in September from 88.6, while the Expectations Index slid 5.9 points to 63.6. The USD Index retreated from a three-month high above 101.60 but still ended higher, supported by hawkish Federal Reserve commentary, including a 7.1/10 FXS Speechtracker reading for Chicago Fed President Austan Goolsbee.
In Asia, Australia’s CPI rose to 4% year on year in August from 3.5%, matching expectations, while the Trimmed Mean CPI increased 0.2% month on month versus a 0.3% estimate; AUD/USD traded below 0.7000. EUR/USD hovered near 1.1350 ahead of Germany’s September CPI. USD/JPY slipped to around 156.70, down more than 0.3% on the day. Sterling firmed after the UK’s annualised second-quarter GDP was revised to 1.4% from 1.2%, with GBP/USD near 1.3270. Gold extended a rebound after gaining over 1.5% on Tuesday, trading around $4,200.
Volatility Outlook and Trading Recommendations
We need to brace for heightened volatility in the coming weeks as the market digests the divergence between cooling US labor data and hawkish Federal Reserve rhetoric. With JOLTS job openings slipping to 7.07 million and consumer confidence dropping to 81.9, the market’s aggressive pricing of four rate hikes over the next year looks vulnerable. We should utilize short-term straddles on the US Dollar Index around its 101.60 level to capture sudden swings from the upcoming PCE and employment reports.
Gold’s impressive surge to near $4,200 highlights a powerful market hedge against sticky inflation and growing global deficits. Given that the precious metal has rebounded over 1.5% recently, we should look to buy call options on dips rather than chasing the current peak. Historically, when central banks signal a “higher for longer” stance but broader economic data begins to cool, gold futures see sharp short-term pullbacks followed by massive continuation rallies.
Cross-Asset Opportunities in Currencies and Metals
In the European space, we should focus on long Sterling positions after the UK’s annualized GDP was revised upward to 1.4%. Buying GBP/USD call options near the 1.3270 mark allows us to capitalize on the UK’s relative economic strength compared to the rest of Europe. Meanwhile, EUR/USD derivative traders should closely monitor upcoming German CPI results to see if the pair can hold its recovery gains near 1.1350.
For the Australian Dollar, we recommend playing the defensive side with bearish put spreads on AUD/USD while it remains capped below the 0.7000 threshold, even with Australia’s inflation rising to 4%. On the other hand, USD/JPY’s recent slide toward 156.70 presents a prime opportunity to buy Yen call options. Historically, Yen strength accelerates rapidly when US economic indicators begin to miss expectations, making this a highly favorable risk-reward setup.
