The US Dollar lost some ground ahead of the Federal Reserve’s expected 25-basis-point rate cut on Wednesday. Similarly, the Bank of Canada is set to lower its rate from 2.50% to 2.25%. The US Dollar Index peaked around 99.00 as US Treasury yields pulled back before the FOMC meeting. Key upcoming events include the Fed’s interest rate decision, MBA Mortgage Approvals, Pending Home Sales, and the EIA’s crude oil inventory report.

Euro In Focus

EUR/USD climbed for the fifth day in a row, moving closer to its 100-day simple moving average at 1.1660-1.1670. The European calendar is looking forward to the ECB’s rate decision and reports on Germany’s flash CPI, Q3 GDP Growth, and the labor market on October 30. GBP/USD is trending downward, approaching recent lows near 1.3250, as we await the Bank of England’s Consumer Credit figures and other financial data. USD/JPY fell to multi-day lows at 151.70, and Japan’s Consumer Confidence index is also on the horizon. AUD/USD stayed near the 0.6600 resistance as Australia’s Inflation Rate data is released. USD/CAD dipped below its 200-day simple moving average due to a weaker US Dollar, especially with the expected BoC rate cut. WTI oil slipped below $60.00 per barrel, while Gold dropped to four-week lows near $3,870 per ounce. Silver prices bounced back a bit from five-week lows.

Federal Reserve Decision Approaching

Today’s anticipated 25-basis-point rate cut from the Federal Reserve seems very likely. This is mainly because September’s Non-Farm Payrolls report showed only a gain of 95,000 jobs, falling short of expectations. With core inflation recently cooled to 2.8%, the Fed has clear reasons to ease its policy. This situation should lead traders to expect more volatility in dollar-denominated investments. We view this as a signal for more dollar weakness, as this rate cut is probably not a one-time event. It reminds us of the Fed’s shift in 2019, which led to a prolonged period of dollar softness. Traders might consider using options to position for a potential drop below the 98.50 support level in the Dollar Index (DXY) in the coming weeks. The Bank of Canada is also in a similar boat and we expect a quarter-point cut to 2.25% today. The recent drop in WTI crude below $60 per barrel and the sluggish domestic Q3 GDP growth of only 0.5% annualized is putting pressure on the Canadian economy. This makes shorting USD/CAD a popular strategy, so traders should be aware of a possible sharp reversal if the BoC’s guidance is less dovish than anticipated. In light of the European Central Bank decision tomorrow, implied volatility on EUR/USD options is likely to stay high as the pair tests its 100-day moving average. For those focused on commodity currencies, Australia’s upcoming inflation data is crucial for AUD/USD’s efforts to break the 0.6600 resistance. A weaker-than-expected inflation figure could halt that rally and open up an opportunity to short the pair. Despite the dollar’s weakness, gold’s recent decline to around $3,870 suggests that some traders are cashing in after its sizable increase. We believe its high price reflects the significant inflation issues we encountered throughout 2024, which are now easing. However, a dovish Fed today could provide some support for prices, making this dip an appealing entry point for long-term bulls looking to utilize futures contracts. Create your live VT Markets account and start trading now.

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