The US Dollar has gained strength, hitting its highest point in two months due to concerns about a US government shutdown and a cautious FX market. The Dollar Index surpassed 99.00 as US Treasury yields picked up. Important upcoming events include the U-Mich Consumer Sentiment index and speeches from Fed officials Goolsbee and Musalem.

Currency Movements

The EUR/USD fell to multi-week lows near 1.1550 for the fourth straight day. On October 14, we’ll see Germany’s Inflation Rate and Economic Sentiment data. Similarly, the GBP/USD dropped below 1.3300, with the UK labor market report set for release on the same day. The USD/JPY reached eight-month highs over 153.00, with Japanese Producer Prices and Bank Lending data coming up. The AUD/USD slipped below 0.6600, while speeches from the RBA’s Bullock and Kent are anticipated in Australia. WTI crude oil prices dropped to around $61.00 per barrel as geopolitical concerns eased and US oil inventories rose. Gold prices fell sharply below $4,000 per troy ounce, affected by uncertainties in geopolitics, a strong US Dollar, and expectations of Fed rate cuts. Meanwhile, silver hit $51.00 per ounce for the first time but ended with minor gains. With the US Dollar’s strength and a risk-averse mindset, there are potential opportunities to buy call options on the DXY or related ETFs. The ongoing government shutdown creates uncertainty, which could ironically strengthen the dollar as a safe haven, similar to what we saw during the 2018-2019 shutdown. Today’s preliminary U-Mich Consumer Sentiment figure will be a key test for this bullish dollar outlook.

Trading Opportunities

The ongoing weakness in EUR/USD and GBP/USD is likely to continue, making put options on these pairs appealing ahead of next week’s important data. We’re particularly keeping an eye on the German inflation figures and the UK labor report on October 14 to validate this downward trend. A disappointing jobs number from the UK, like the slowdown we noted in late 2024, would likely push GBP/USD significantly lower. While the USD/JPY is showing a strong upward trend past 153.00, derivative traders should exercise caution. We recall that the Bank of Japan heavily intervened to defend the yen back in 2022 when it crossed the 151 mark. Opting for call spreads to limit risk is a more cautious approach than outright calls, given the heightened risk of sudden intervention. The decline in both AUD/USD and WTI crude oil prices is linked, reflecting widespread concerns about a global slowdown. Following a report of a larger-than-expected increase in US crude inventories, with the EIA noting over 4 million barrels last week, we expect oil to test the $60 support level. Traders might want to consider buying puts on WTI futures expiring in the next few weeks. Gold’s sharp drop from its highs above $4,000 is a result of the strong dollar and rising US real yields, which elevate the opportunity cost of holding non-yielding assets. This has led to profit-taking. For silver, the significant volatility after hitting a record high above $51 has raised option premiums. Strategies that sell volatility, such as short strangles, are worth considering if there’s a belief that prices will stabilize from this point. Create your live VT Markets account and start trading now.

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