Insights 
VT 
The US Dollar strengthened, reaching two-month highs amid US government shutdown issues and a risk-averse FX market. The Dollar Index exceeded the 99.00 mark as US Treasury yields recovered. Key events include the U-Mich Consumer Sentiment gauge and speeches by Fed officials Goolsbee and Musalem.
Currency Movements
The EUR/USD dropped to multi-week lows near 1.1550 for the fourth consecutive day. Upcoming on October 14 are Germany’s Inflation Rate and Economic Sentiment data from Germany and the Euroland. Meanwhile, the GBP/USD fell below 1.3300, with the UK labour market report anticipated on the same day.
USD/JPY reached eight-month highs above 153.00, with Japanese Producer Prices and Bank Lending data on the horizon. The AUD/USD declined beneath 0.6600, while speeches from the RBA’s Bullock and Kent are expected in Australia.
WTI crude oil prices decreased toward $61.00 per barrel due to diminishing geopolitical concerns and increased US oil inventories. Gold prices fell sharply below $4,000 per troy ounce, influenced by geopolitical uncertainty, a strong US Dollar, and Fed rate cut expectations. Silver hit $51.00 per ounce for the first time but ended with only minor gains.
Given the US Dollar’s strength and the risk-off mood, we see opportunities in buying call options on the DXY or related ETFs. The ongoing government shutdown is creating uncertainty, which historically, like during the 2018-2019 shutdown, can paradoxically boost the dollar as a safe haven. Today’s preliminary U-Mich Consumer Sentiment figure will be the first major test of this bullish dollar thesis.
Trading Opportunities
The weakness in EUR/USD and GBP/USD appears set to continue, making put options on these pairs attractive ahead of next week’s key data. We are watching for the German inflation data and the UK labor report on October 14 to confirm this downward trend. A weak jobs number from the UK, similar to the slowdown we observed in late 2024, would likely push GBP/USD decisively lower.
While the USD/JPY uptrend past 153.00 is strong, derivative traders should be extremely cautious. We remember the Bank of Japan intervening heavily to defend the yen back in 2022 once the rate crossed the 151 level. Buying call spreads to cap risk is a more prudent strategy than buying outright calls, as the threat of sudden intervention is now very high.
The decline in both AUD/USD and WTI crude oil prices is interconnected, reflecting broad fears of a global slowdown. Following reports of a larger-than-expected build in US crude inventories, which the EIA pegged at over 4 million barrels last week, we expect oil to test the $60 support level. Traders could consider buying puts on WTI futures expiring in the next few weeks.
Gold’s sharp retreat from its highs above $4,000 is a direct result of the strong dollar and rising US real yields. This increases the opportunity cost of holding the non-yielding metal, prompting profit-taking. For Silver, the massive volatility after hitting a record high above $51 has inflated option premiums, making strategies that sell volatility, such as short strangles, worth considering if we believe prices will consolidate from here.
