Insights 
VT 
The USD experienced a pullback after reaching the resistance level at the 200-day moving average. Despite no significant policy-relevant data being released, multiple speeches from Federal Reserve officials could cause some market fluctuations.
The Challenger job cut report revealed a sharp increase in US job cuts, with 153,074 announced in October. This figure marks a 175% increase year-on-year and 183% month-on-month, making it the highest total for October in over two decades.
Adps Employment Change And Labor Demand
ADP’s October employment change exceeded expectations with a rise of 42k, though overall labor demand is still weak. Over the past three months, an average of only 10k jobs were added monthly.
Projections remain that the Federal Reserve will implement a 25bps rate cut in December, expected to be between 3.50% and 3.75%. This forecasted policy shift is amid ongoing concerns about inflation not showing increasing risks, suggesting future downward pressure on the USD.
The US Dollar is showing signs of weakness after failing to break above its 200-day moving average, a key technical resistance level. This pullback is occurring as we see a significant and rapid deterioration in the US labor market. Traders should view this combination as a signal that the path of least resistance for the dollar is lower in the coming weeks.
We are seeing clear signs of economic distress, particularly in the October job cuts report. The 153,074 announced cuts are the highest for any October in over two decades and the worst single month in a fourth quarter since the 2008 financial crisis. For context, during the slowdown of 2023, monthly cuts rarely exceeded 85,000, underscoring the severity of the current situation.
Fed Interest Rate Cut Projections
This employment fragility strengthens our view that the Federal Reserve will be forced to cut interest rates again in December. The market is already pricing in a 67% probability of a 25-basis-point cut, and traders should position for this by using interest rate derivatives. Buying March 2026 SOFR futures would be a direct play on this expectation, as their value increases when the market anticipates lower rates.
In the foreign exchange market, this outlook makes shorting the US Dollar an attractive strategy. We believe traders should consider buying call options on the EUR/USD pair, which provides upside exposure if the Euro strengthens against the weakening dollar. Using options rather than futures allows for a defined risk, limiting potential losses to the premium paid for the contract.
While the data points to a clear downward trend for the dollar, speeches from Fed officials could introduce short-term volatility. Therefore, using options can be a prudent way to express a bearish view on the dollar. This approach protects against any unexpected hawkish comments that could cause a temporary spike in the currency before the broader downtrend resumes.
