Insights 
VT 
Federal data releases are absent due to the US government shutdown, emphasising private sector data and Federal Reserve communications. The DXY was last seen at 98.43 levels, according to OCBC’s FX analysts.
This week features several Federal Reserve speeches, including one from Powell. Recent data, including a softer-than-expected ISM services report and a cooling labour market, suggest a continuation of interest rate cuts by the Fed.
Expectations Of Ongoing Rate Cuts
The JOLTS report indicated more unemployed individuals than job vacancies, reinforcing expectations for ongoing rate cuts. Potential federal worker layoffs could occur if government negotiations remain stalled.
The USD is expected to take a moderately soft path with mild bullish momentum noted on the daily chart. Resistance is at the 98.00/40 levels and 99 levels, while support is at 97.60 and 97.20, with no scheduled data releases today.
With the ongoing US government shutdown halting official data, we must focus on private sector numbers to gauge the economy’s health. The US Dollar Index is currently trading around 98.43, and the latest ISM Services report, which came in at a contractionary 49.2, confirms the cooling trend. This environment forces us to rely heavily on Fedspeaks and alternative data points to guide our strategy.
The Federal Reserve’s clear bias toward easing monetary policy is the dominant factor driving the dollar lower. Based on recent fed funds futures data from the CME Group, markets are now pricing in an 85% probability of a 50-basis-point rate cut at the next meeting. This aggressive expectation, fueled by repeated calls from Fed officials for significant cuts, suggests any strength in the dollar will likely be short-lived.
Increased Volatility Ahead
Recent labor market data reinforces this bearish outlook for the US dollar. Last week’s ADP private payrolls report showed a gain of only 95,000 jobs, falling far short of expectations and pointing to a distinct slowdown in hiring. This follows the JOLTS report which, as we noted in 2025, showed for the first time in years that there were more unemployed persons than available jobs.
This mix of political uncertainty and weakening economic data points to increased volatility in the coming weeks. The Cboe EuroCurrency Volatility Index (EVZ) has already climbed to a 12-month high, indicating that options premiums are rising. This makes strategies like buying straddles on currency pairs like EUR/USD attractive, as they can profit from a large price move in either direction without needing to predict the exact timing.
Despite the potential for short-term bounces, the medium-term path for the dollar appears weak, so we should view any rallies as selling opportunities. Using derivatives, this means considering buying put options or establishing bearish put spreads on the DXY as it approaches resistance near the 99.00 level. This strategy allows for participation in the expected downside while defining risk.
The powerful rally in gold, which has now surged past $3,950 an ounce, provides strong confirmation of the market’s risk-off sentiment. This flight to safety is a classic reaction to US dollar weakness and domestic political turmoil, a pattern we also observed during the debt ceiling crises of the 2010s. For traders, this reinforces the case for shorting the dollar or taking long positions in precious metals as a hedge.
