The US Dollar Index (DXY) fell on Thursday, reaching lows of around 98.30. This decline came as US Treasury yields decreased and worries about a long government shutdown grew. Key upcoming events include net long-term TIC flows and speeches from Fed officials Kashkari and Musalem. The EUR/USD rose to seven-day highs, approaching 1.1700, thanks to the ongoing weakness of the US Dollar. Important events to watch include the euro area’s final inflation rate and a speech from the ECB’s Donnery.

GBP/USD Performance

GBP/USD built on Wednesday’s gains, moving past 1.3400 and testing its 55-day SMA close to 1.3460. We expect speeches from the BoE’s Pill and Breeden amid a slow UK calendar. USD/JPY dropped to seven-day lows around 150.00, marking its third consecutive day of decline. The upcoming weekly Foreign Bond Investment figures and a speech by the BoJ’s Uchida are on the horizon. AUD/USD showed some fluctuations but found support near 0.6470, with a speech by the RBA’s Jones scheduled for October 21. WTI crude oil fell to $57.40 per barrel, its lowest in five months. This decline was driven by a rise in US crude inventories and potential shifts in India’s oil imports from Russia. Gold approached $4,300 per troy ounce, while silver hit a record just over $54 due to geopolitical tensions and uncertainties related to the US shutdown. We view the US Dollar’s drop to 98.30 on the DXY as a key trend for the next few weeks. The ongoing government shutdown and increasing expectations of a Federal Reserve rate cut are contributing to this weakness. Historically, the dollar dropped nearly 2% during the 16-day government shutdown back in October 2013, suggesting this trend might continue.

Currency Opportunities

With the dollar under pressure, we see potential in currencies like the euro and the pound. Call options on EUR/USD with targets above 1.1700 look appealing, especially since Eurozone inflation remains steady at around 2.9%, creating a gap in policies compared to a potentially cutting Fed. For GBP/USD, considering positions that could benefit from moves above 1.3460 could be worthwhile. The decline of USD/JPY towards 150.00 is another significant move we’re observing. This relates to falling US Treasury yields, with the 10-year note dropping 40 basis points in the last month to 4.15%. Traders should think about put options to take advantage of a possible break below this key support, which was a major intervention area for the Bank of Japan in 2022 and 2023. In the energy market, the outlook for WTI crude is bearish, with prices reaching a five-month low near $57.40. The latest Energy Information Administration report showed an inventory increase of over 5 million barrels, contradicting expectations of a small decline, indicating weakening demand. Traders might consider selling call spreads to profit from potential further drops while managing risk from geopolitical issues. The shift to safer assets appears to continue, with gold moving toward $4,300 and silver surpassing $54 for the first time. This strong rally is supported by falling real yields and significant uncertainty from Washington. Buying call options on gold and silver ETFs seems like a direct way to leverage this upward trend. Create your live VT Markets account and start trading now.

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