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October rally resumes on Monday

China's stock market correct is ''almost over'' says senior central banker

CFDs are a leveraged product and can result in losses that exceed deposits. Trading CFDs may not be suitable for everyone, so please ensure you fully understand the risks and take care to manage your exposure.

Risk trades continued to move equity markets higher, extending last week gains as China Securities Journal quoted a senior central banker saying that China’s stock market correction is "almost over", and investors continue to bet on further stimulus. China’s Shanghai Composite Index rose more than 4% to trade about 16% above its recent lows.  Japan’s markets closed for a public holiday, and Wall Street might see low liquidity on Columbus Day (Bond Markets Closed), making for a quiet trading session.

BoJ Kuroda supported the Yen in early trades as he ended speculations on fresh round of quantitative easing in October’s meeting but kept the door opened for further stimulus afterwards.

When talking about Japan's economy probably the first thing that could come to one’s mind is inflation.  For the 19 years from 1995-2014 Japan battled deflation with only 1997, 2008 and 2014 posting inflation above 1%. Although Abenomics resulted in inflation rising above 3% last year, oil and other commodity prices managed to pull it down again, with recent data showing prices only gained 0.2% in August. However, it seems Governor Haruhiko Kuroda is not so worried and told CNBC in an interview on the sidelines of an International Monetary Fund meeting that Japan’s inflation was in line with the central bank’s expectations, and expects 2% inflation to be reached gradually sometime next year.

We continue to believe that BoJ is buying some time before pulling the trigger on additional stimulus, and likely increase asset purchases to ¥85 – ¥90 trillion from current ¥80 trillion probably in 18 Nov or 17 Dec BoJ meetings. Therefore any gains in the Japanese currency will be muted and range bound trading seems to continue in the foreseeable future.

Speeches from the Federal Reserve are not providing any clarity on timing of first rate lift-off with Vice Chairman Stanley Fischer saying that both the timing of the first rate increase and any subsequent adjustments to the federal funds rate target will depend critically on future developments in the economy.

Those mixed signals from the Fed will put any dollar rally on pause until they start providing strong hints on first-rate hike.

With no major economic data on the calendar today, expect FX markets to take its cue from equities, with risk appetite to continue lifting high yielding currencies. 

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CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.