Insights 
VT 
Recent ADP payroll figures exceeded expectations, with 42k compared to the anticipated 30k. This data, coupled with robust ISM services results, kept markets uncertain regarding a potential Federal Reserve rate cut in December. Despite positive economic indicators, the US Dollar exhibited limited reaction, followed by a correction. This suggests markets had already accounted for much of the positive outlook for the dollar, partly influenced by safe haven flows amidst equity market variance.
The US Dollar has regained some safe haven appeal, benefiting amid potential fluctuations in equity markets. Despite verbal interventions by Japanese officials, without follow-through actions, the yen remains preferred for defensive strategies in FX. If risk-off scenarios do not support the yen, upward speculation of USD/JPY is expected, testing the Bank of Japan’s tolerance levels. Signals indicate the dollar rally is waning, with limited market objectives to build dollar shorts, leading to potential rangebound trading.
Supreme Court Review
The ongoing Supreme Court review of Trump-era tariffs attracts attention, but outcomes suggest tariffs will remain regardless of rulings. Upcoming Challenger job cuts data may negatively impact the dollar, potentially fuelling further corrections in valuation. Markets remain watchful amid these developments.
The dollar rally is showing signs of running out of steam, even with recent positive data on jobs and services. The muted market reaction suggests this good news was already priced in, pointing to an overvalued dollar in the short term. We saw similar exhaustion in the dollar’s rally back in late 2024 before a significant pullback, so this pattern is familiar.
This has pushed us to see the Japanese Yen as the preferred safe-haven asset over the dollar for now. While the dollar still benefits from stock market jitters, the Yen offers a clearer defensive play. With USD/JPY approaching 155, we are watching closely, remembering the Bank of Japan’s interventions when the pair crossed 151 back in 2022 and 2024.
Range-Bound Trading Strategy
Given the lack of a strong directional story, we expect range-bound trading in major dollar pairs in the coming weeks. For derivative traders, this suggests selling volatility through options strategies like strangles on EUR/USD could be profitable. This strategy benefits from the pair staying within a predictable range, allowing traders to collect premium from both the call and put options sold.
However, we must prepare for a potential downward correction in the dollar, especially with Challenger job cuts data on the horizon. A surprisingly high number of layoffs could trigger a sell-off, much like the weaker-than-expected labor data did in the third quarter of 2025. Buying out-of-the-money put options on the US Dollar Index (DXY) could be a low-cost way to hedge against or profit from this risk.
Looking at the bigger picture, the Supreme Court’s review of the Trump-era tariffs is unlikely to change the landscape. Our view is that tariffs will remain, creating a persistent headwind for global growth and a cap on risk-sensitive currencies. This baseline of trade friction supports holding some longer-term defensive positions.
