Financial Market Volatility Driven by Quadruple Witching Expiry

The expiry of $4.2 trillion in options contracts on Friday generated significant market volatility, leading to unusual fluctuations in stock markets. Despite better-than-expected consumer sentiment in the University of Michigan Consumer Sentiment Index, investors sought safe havens going into the long weekend.

Key factors for today

• Markets adopt a cautious stance ahead of the long US weekend, driven by uncertainty stemming from the quadruple witching expiry.
• Consumer inflation expectations in the US drop as the University of Michigan Consumer Sentiment Index surprises to the upside at 63.9, with respondents projecting lower inflation of 3.3% next year.
• China announces additional measures to support its economy, providing financial assistance to tech firms.
• The Canadian dollar reaches a nine-month high against the greenback, supported by both crude prices and expectations of further action by the Bank of Canada.
• The Bank of Japan's decision to maintain its loose policy in support of economic recovery leads to the yen weakening against the US dollar and other currencies with stable interest rates.

Market movers

• US markets demonstrate caution in the face of the long weekend, impacted by the quadruple witching expiry and potential market uncertainty.
• The US dollar improves slightly as the dollar index rises by 0.2%, closing at 102.30.
• The yield curve flattens, reflecting the cautious market sentiment.
• Gold remains largely unchanged, while WTI crude oil experiences volatility, initially advancing to $71.60 per barrel before retracing some gains.

Economic calendar

• US markets are closed for the holiday.
• The European Central Bank (ECB) is set to publish a survey of monetary.

Consumer Inflation Forecast Drops

The University of Michigan Consumer Sentiment Index surprises to the upside, reaching 63.9 compared to the expected 60.8. Survey respondents anticipate lower inflation in the US next year, projecting 3.3% compared to the 4.2% projected last month. This reading marks the lowest level since March 2021. As a result, the dollar index rises by 0.2% to close at 102.30, with potential resistance at 103.00.

China's New Economic Support Package Boosts WTI

The Chinese State Council approves plans to increase financial support for tech firms, emphasizing the need for forceful measures to bolster the country's economy. This decision contributes to WTI crude oil's advance, touching $71.60 per barrel. While early trading in Asia sees crude prices retracing some gains, support is expected at $68 per barrel.

Loonie Hits 9-month High on Crude and Rates Outlook

Following the Federal Reserve's decision to hold rates steady, traders factor in potential action by the Bank of Canada alongside an increase in crude prices. Consequently, the Canadian dollar reaches a nine-month high against the US dollar, breaking support turned resistance at $1.3240. The next support level is anticipated at $1.3138, with $1.3270 serving as resistance should bulls recapture $1.3450.

USD/JPY at Fresh 7-Month High Following BOJ Decision

Despite core inflation exceeding the Bank of Japan's target, the central bank maintains its loose policy to support economic recovery and achieve its inflation goals. As a result, the Japanese yen weakens against the US dollar and currencies with stable interest rates. The USD/JPY pair hits a fresh seven-month high at 141.88, surpassing the post-decision breakout of 141.95. The next resistance level is expected at 142.30.