Market sentiment remained strong on Tuesday, continuing the optimism from the start of the week as traders reacted positively to growing expectations of trade deals between the U.S. and major economies, particularly China and Japan. This optimism was fueled by weekend news suggesting a potential framework for a U.S.-China trade deal, ahead of U.S. President Donald Trump's meeting with Chinese President Xi Jinping on Thursday in South Korea. U.S. equities also saw an upbeat start, with strong third-quarter earnings and a solid performance on Wall Street. Additionally, the Dallas Fed Manufacturing Survey for October showed improvement, contributing to the positive mood. However, there was caution ahead of major economic data and events this week, alongside concerns over a potential U.S. government shutdown and geopolitical tensions with Russia.
That said, the Dallas Fed's October Manufacturing Survey showed an improvement, with general business activity at -5.0, up from -8.7 previously.
Trump's visit to Japan added to the optimism, where he met the newly appointed Japanese Prime Minister Sanae Takaichi and the Japanese Emperor. Both sides expressed positivity and outlined how they would move forward with previous trade and investment agreements.
U.S. President Trump and Prime Minister Takaichi signed a framework agreement aimed at securing critical minerals and rare earths. Both leaders appeared to have a positive meeting, with Takaichi praising Trump during their first meeting. Japan's Economy Minister also made remarks supportive of a stable yen, signaling possible verbal intervention.
The news about a possible U.S.-China trade framework pushed major indices higher. The fear of missing out (FOMO) also played a role, especially with several big earnings reports expected this week, including Amazon, Apple, Alphabet, Meta, and Microsoft. In doing so, the U.S. equities ignored grim news that Amazon plans to cut as many as 30,000 white-collar jobs starting Tuesday. Still, Amazon's shares rose 1.1% as part of the broader market rally.
Ukraine’s President Volodymyr Zelenskyy announced more long-range strikes on Russian refineries, warning that Russia will face an even higher cost for its actions in the war. Ukraine is also seeking longer-range U.S. Tomahawk missiles to support its efforts.
China's central bank reaffirmed its ban on cryptocurrency trading, warning of the risks posed by offshore stablecoins. At the same time, the People's Bank of China (PBOC) is expanding the digital yuan, with new operational centers in Beijing and Shanghai.
Elsewhere, tensions between China and Germany were evident after a German minister canceled a planned trip to China, following disagreements over Chinese export curbs and Berlin's criticism of China's ties with Russia. Both sides emphasized the importance of continued dialogue, though business groups warned that further escalation could harm Germany’s fragile economy and trade relations with China, which exceeded $200 billion last year.
In the U.K., shop prices fell for the first time in seven months in October, driven by a sharp decline in food prices. Overall, prices dropped by 0.3% from September, providing some relief to households and policymakers. However, the British Retail Consortium (BRC) warned that higher taxes could reignite inflation, challenging the GBPUSD buyers.
OPEC+ is likely to agree on a modest increase in oil output of 137,000 barrels at the upcoming Sunday meeting, with some countries calling for a pause in the increase. As a result, crude oil prices rose by $0.16, or 0.22%, to $61.66.
S&P Global Ratings assigned a "B-" credit rating to Michael Saylor's Bitcoin-focused company, Strategy, citing its heavy reliance on Bitcoin and limited liquidity. This rating places the company in the speculative, non-investment-grade category.
Amid these developments, the U.S. Dollar Index (DXY) eased to a week's low, while gold prices reached a two-week bottom. Notably, USDJPY saw its first daily loss in eight days, retreating from its highest level since February. Meanwhile, EURUSD and AUDUSD marked five-day winning streaks, GBPUSD extended its previous gains, and NZDUSD rose to a two-week high. USDCAD remained under pressure at its lowest level since October 9, following President Trump's decision to impose an extra 10% tariff on Canada.
Crude oil began the week on a strong note, supported by hopes for a cautious output increase from OPEC+ during their meeting. Cryptocurrencies retreated after hitting a multi-day high. Meanwhile, U.S. equity benchmarks continued to hit record highs, driven by overall optimism and strong earnings reports, as investors look forward to top Q3 results from major U.S. companies.
USDJPY caught attention by breaking its seven-day winning streak, posting its biggest daily drop since October 10, driven by a weaker U.S. Dollar and growing optimism around U.S.-Japan relations. This optimism followed U.S. President Trump's visit to Japan and positive comments from Japan’s new Prime Minister, Takaichi, who showed strong enthusiasm for future ties between the two countries. Despite this, USDJPY overlooked concerns that the Bank of Japan (BoJ) might be hesitant to raise rates further under Takaichi's leadership, as she is a strong supporter of the dovish policies of former Prime Minister Shinzo Abe and is likely to focus more on fiscal measures. The currency pair seems to be positioning itself ahead of the upcoming FOMC meeting on Wednesday and the BoJ meeting on Thursday.
EURUSD ignored dovish comments from the European Central Bank (ECB) and concerns over the China-Germany relationship, mainly benefiting from a softer U.S. Dollar as it geared up for this week's Federal Reserve (Fed) and ECB monetary policy decisions. As a result, EURUSD reached a weekly high, extending its five-day winning streak.
Similarly, GBPUSD continued its gains from the previous day, marking the first increase in seven days, despite disappointing UK shop price index data from the British Retail Consortium (BRC). The recent rise in the British Pound could be attributed to a weaker U.S. Dollar, broader market optimism, and positioning ahead of key events later this week.
Driven by global optimism and China's readiness to introduce more stimulus, along with preparations for key central bank meetings and the upcoming Trump-Xi summit in South Korea, the Australian Dollar, New Zealand Dollar, and Canadian Dollar all gained against the U.S. Dollar, despite no significant positive developments at home. As a result, AUDUSD and NZDUSD surged to their highest levels in two weeks, while USDCAD remained under pressure, hitting a weekly low. Although the Reserve Bank of Australia's recent statements lacked the previous optimism, they couldn't dampen the overall risk-on sentiment, which supported the Aussie. Similarly, NZDUSD followed the same trend. Meanwhile, USDCAD dropped for the second consecutive day, even as crude oil prices retreated after Monday’s gains driven by OPEC+ news, with the broader market's risk-on mood and a softer U.S. Dollar continuing to weigh on the pair.
Gold prices struggled under the weight of broad market optimism, despite a softer U.S. Dollar, and fell to a two-week low after breaking an ascending support line that had been in place since late August. This marked the third consecutive day of declines for gold.
On the other hand, WTI crude oil started the week on a positive note, driven by OPEC+ news and a weaker U.S. Dollar. However, it retreated early on Tuesday as traders reassessed concerns over China’s demand and considered the possibility of more supply from major producers, alongside rising U.S. oil inventories.
After a strong week, major cryptocurrencies posted their first daily loss in five days on the previous day and remained under pressure early Tuesday as market participants reevaluated the earlier optimism. Adding to the bearish sentiment were news from China, reaffirming its ban on cryptocurrency trading while simultaneously supporting the growth of stablecoins.
Meanwhile, U.S. equities continued to climb, with Wall Street benchmarks hitting new record highs, which helped push Asia-Pacific shares higher. Optimism around a potential U.S.-China trade deal and bets on a dovish Federal Open Market Committee (FOMC) stance supported the rally. Additionally, strong third-quarter earnings reports from top companies further boosted expectations of solid results this week, fueling positive sentiment in the U.S. stock market.
Looking ahead, Tuesday’s economic calendar will feature the ECB Bank Lending Survey, followed by the U.S. Housing Price Index for August, October’s Consumer Confidence, and the Richmond Fed Manufacturing Index. However, the main focus will be on Wednesday’s Federal Reserve meeting and Thursday’s summit between U.S. President Trump and Chinese leader Xi Jinping, which could provide clearer guidance on future market direction.
As a result, the U.S. Dollar, Gold, and USDJPY could face further downside pressure, while risk assets like equities and the Antipodean currencies may continue to benefit from a favorable environment. Cryptocurrencies are likely to trade in a mixed fashion, and crude oil could experience a slight pullback, making it a potentially more active day than Monday.
May the trading luck be with you!
