The US dollar extended Wednesday’s election-driven retreat, with DXY oscillating back near 101.70 as US Treasury yields softened and risk appetite stayed cautious. Markets were positioned for October’s Nonfarm Payrolls, alongside the Unemployment Rate and the preliminary U-Michigan Consumer Sentiment reading to round out the week. In FX, EUR/USD faced resistance around 1.1200 before edging higher, with Germany’s Industrial Production and the EMU’s Producer Prices due next, while GBP/USD churned around 1.3470 ahead of the Lloyds House Price Index and the BBA Mortgage Rate.
USD/JPY prolonged its pullback, briefly revisiting 157.80, with Average Cash Earnings and weekly Foreign Bond Investment figures on Japan’s calendar. AUD/USD slid to a fresh three-week low near 0.6940 after discouraging remarks from the RBA’s Hauser, with final Building Permits and Private House Approvals scheduled for 9 November. In commodities, front-month WTI (December) bounced from about $86.00 per barrel to reclaim $90.00 and more, while gold pushed above $4,100 per troy ounce, supported by lower yields and a softer dollar backdrop.
Foreign Exchange and Commodity Strategy Post-Midterms
We should capitalize on the US Dollar’s post-midterm election weakness by positioning for further downside across major currency pairs. Historically, the US Dollar Index tends to lose an average of 1.5% to 2% in the month following midterm elections as political uncertainty gives way to policy gridlock. With the index hovering near 101.70 and Treasury yields declining, we recommend buying EUR/USD call options above 1.1200 and targeting long GBP/USD derivative contracts as UK mortgage data approaches.
In commodities, we suggest staying aggressive on long positions while managing tail risks through options spreads. Geopolitical risk premiums historically add $5 to $10 per barrel to crude oil during Middle Eastern shipping threats, making WTI call spreads above $90 an effective play. Meanwhile, gold’s strong inverse correlation with falling real Treasury yields suggests keeping long futures or call options open as prices solidify above the $4,100 mark.
We should approach USD/JPY with a bearish bias as US Treasury yields continue to retreat across the curve. The Japanese yen historically gains over 3% when 10-year US yields drop significantly within a short window, making put options around the 157.80 zone an attractive play. For AUD/USD, we advise holding off on aggressive long positions until building permit data releases, using tight stop-losses around the 0.6940 support level.
Ahead of the upcoming Nonfarm Payrolls report, we recommend using volatility-expansion strategies like straddles to capture sudden market swings. Historical data shows that major currency pairs experience average intraday moves of 50 to 60 pips when payroll numbers miss or beat expectations by more than 30,000 jobs. By deploying non-directional option combinations before the economic data hits, we can profit from sharp price actions regardless of the headline direction.
