Insights 
VT 
The US Dollar (USD) is showing a slight increase as the week closes, with the Euro being the only currency to experience a minor gain. The AUD and NZD currencies have lagged due to weaker-than-expected Chinese Manufacturing PMI data, impacting local stocks.
Despite positive trade and monetary policy developments, the DXY index has struggled to break past the mid-99 range. The lack of a driving theme or trend in the market means sustained momentum for the USD has not materialised. Correlations with factors like risk, volatility, and yields remain weak.
US Government Shutdown
The ongoing US government shutdown has reached Day 31, surpassing the previous record of 35 days. This has resulted in the absence of key data releases, such as Personal Income/Spending/PCE data. An end to the shutdown remains uncertain, while the Chicago PMI report is expected shortly. With the Fed’s quiet period concluding, Federal Reserve speakers might soon make appearances on television.
The US Dollar is holding firm as we end the month, but it’s struggling to find new momentum. The Dollar Index (DXY) has repeatedly failed to break above the 107.00 resistance level this week, signaling exhaustion among buyers. We’re seeing weakness in currencies like the AUD, which fell after the latest Caixin Manufacturing PMI for October came in at a disappointing 49.8, just below the growth threshold.
It appears the market lacks a central theme to push the dollar decisively in one direction. Correlations between the DXY and traditional risk indicators, like the VIX index, have weakened considerably over the past month. How we close this final week of October will be critical in telling us if there’s enough strength for a move higher into November.
We’ve noted before that if the dollar’s price action from 2022-2023 serves as a guide, this period of strength could be nearing its end. That historical pattern saw a strong dollar peak followed by a lengthy period of consolidation and eventual decline. The current stabilization since this summer feels very similar and suggests the rebound might run out of steam soon.
Impact On Derivatives Trading
The ongoing US government shutdown, now on its 36th day, is adding a major layer of uncertainty. This has now officially surpassed the 35-day shutdown we saw back in 2018-2019, making it the longest on record. As a result, we will not receive key data points like the Personal Consumption Expenditures (PCE) report, which was due this morning, leaving traders without a crucial inflation gauge.
For derivative traders, this suggests a move away from directional bets on sustained dollar strength. Given the DXY’s struggle at the 107.00 level, buying put options on the dollar or establishing put spreads could be a prudent way to hedge or position for a potential pullback. Implied volatility on major currency pairs has ticked up to an average of 8.5% this week, reflecting the growing uncertainty from the shutdown and making strategies that profit from price swings, like straddles, more attractive.
