The EUR/USD currency pair rose to a five-day high as the US Dollar weakened. The Euro gained strength due to the decline of the Greenback, with EUR/USD trading around 1.1543 after recently hitting a three-month low. The US Dollar Index, which compares the Dollar to six major currencies, fell to 99.75. This drop was driven by concerns about the ongoing US government shutdown, which has now set a record for its length.

Economic Data and Reports

The shutdown has delayed key economic data releases, so traders are relying on private sector reports for insights. The Challenger Job Cuts report revealed that there were 153,074 job cuts in October, indicating stress in the labor market. As a result, traders are reevaluating the Federal Reserve’s monetary policy after a recent rate cut. Even though inflation exceeds 2%, mixed labor data has lowered expectations for more aggressive cuts. Currently, there’s a 70% chance of another rate cut in December. Additionally, Eurozone Retail Sales data showed a 0.1% decline in September, but this did not faze the Euro. Today, the US Dollar performed well against the New Zealand Dollar while losing value against other currencies like the Euro and British Pound.

Strategies and Market Actions

The US Dollar is clearly struggling, presenting a chance to favor the Euro in the short term. The ongoing US government shutdown, now over 40 days long, is the main reason for dollar weakness. This political deadlock is prompting us to short the dollar against major currencies, especially the Euro and the Japanese Yen. The uncertainty is leading to increased market volatility, which signals opportunities for options traders. With official data like the October Non-Farm Payrolls report currently postponed, we are relying on mixed private-sector reports, heightening the likelihood of significant market movements. We are considering buying straddles on EUR/USD, a strategy that profits from large price swings in either direction, which is ideal for this unpredictable environment. The Federal Reserve’s future actions are also becoming less certain, which supports volatility-based strategies. While Fed Chair Powell has been cautious, the recent job cuts data, showing the highest layoffs since 2003, has raised expectations for a December rate cut to 70%. We see buying EUR/USD call options that expire after the December Fed meeting as a smart way to prepare for ongoing dollar depreciation. Looking at past performance, the dollar was volatile during the 35-day shutdown of 2018-2019, but it didn’t crash long-term, suggesting some caution is needed. Thus, while we are positioning for dollar weakness, we are also utilizing put options on the US Dollar Index (DXY) to protect against any remaining long-dollar exposure. This adds a layer of protection against a sudden resolution in Washington or unexpected moves from the Fed. Create your live VT Markets account and start trading now.

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