ADP payroll figures recently surprised many, coming in at 42k instead of the expected 30k. Along with strong ISM services results, this has left the markets guessing about a possible Federal Reserve rate cut in December. Despite these positive signs, the US Dollar didn’t react much and even saw a correction. This behavior suggests that investors had already priced in the good news for the dollar, especially considering safe haven flows amid fluctuations in the stock market. The US Dollar is regaining its appeal as a safe haven amid changes in equity markets. However, the Japanese yen is still favored for defensive strategies in forex, despite comments from Japanese officials that haven’t translated into effective action. If the market sentiment remains cautious, we might see the USD/JPY rise, pushing the Bank of Japan to react. Currently, signs show that the dollar’s rally might be slowing down, with few opportunities to increase dollar short positions, leading to potential range-bound trading.

Supreme Court Review

The Supreme Court’s examination of tariffs from the Trump era is drawing attention, but it seems likely that tariffs will stay in place regardless of the outcome. Upcoming data on Challenger job cuts may negatively affect the dollar and could lead to further valuation corrections. Markets are keeping a close watch on these developments. The dollar rally appears to be losing momentum, despite recent positive job and service data. The tepid market response suggests investors may have already anticipated this good news, indicating that the dollar could be overvalued in the short term. A similar pattern occurred around late 2024, leading to a notable pullback, which feels familiar. For now, we see the Japanese Yen as the stronger safe-haven asset compared to the dollar. Although the dollar benefits from uncertainties in the stock market, the Yen offers a more defined defensive option. With USD/JPY nearing 155, we are monitoring it closely, recalling the Bank of Japan’s interventions when it surpassed 151 in 2022 and 2024.

Range-Bound Trading Strategy

With no strong trend emerging, we anticipate range-bound trading in major dollar pairs in the coming weeks. For options traders, selling volatility through strategies like strangles on EUR/USD could yield profits. This approach benefits when the pair stays within a predictable range, enabling traders to earn premiums from both call and put options sold. We must also brace for a possible downward correction in the dollar, especially with the Challenger job cuts report coming soon. A significant rise in layoffs could lead to a sell-off, similar to when weaker labor data affected the market in the third quarter of 2025. Purchasing out-of-the-money put options on the US Dollar Index (DXY) could be an affordable way to hedge against or capitalize on this risk. Looking at the broader situation, the Supreme Court’s assessment of the Trump-era tariffs might not alter our expectations. We believe tariffs will continue, creating a persistent challenge for global growth and putting pressure on risk-sensitive currencies. This ongoing trade friction supports maintaining longer-term defensive positions. Create your live VT Markets account and start trading now.

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