The US Dollar Index (DXY) declined on Thursday, hitting multi-day lows around 98.30 as US Treasury yields retreated and concerns over a protracted government shutdown persisted. Upcoming events include net long-term TIC Flows and speeches from the Fed’s Kashkari and Musalem.

The EUR/USD increased to seven-day highs, nearing the 1.1700 mark due to the persistent weakness in the US Dollar. The euro area’s final inflation rate and a speech from the ECB’s Donnery are key upcoming events.

Gbp Usd Performance

GBP/USD built on Wednesday’s gains, surpassing 1.3400 and challenging its 55-day SMA near 1.3460. Speeches from the BoE’s Pill and Breeden are anticipated amid a quiet UK calendar.

USD/JPY fell to seven-day lows, hovering near 150.00, marking its third day of decline. The weekly Foreign Bond Investment figures and a speech by the BoJ’s Uchida are upcoming.

AUD/USD fluctuated but found support near 0.6470, with a speech by the RBA’s Jones expected on October 21.

WTI crude dropped towards $57.40 per barrel, its lowest in five months. A build-up in US crude inventories and potential changes in India’s oil imports from Russia influenced crude prices. Gold approached the $4,300 mark per troy ounce, while silver reached a record just over $54.00 due to geopolitical tensions and US shutdown uncertainties.

We see the US Dollar’s decline to the 98.30 level on the DXY as a primary trend for the coming weeks. The ongoing government shutdown and growing bets on a Federal Reserve rate cut are fueling this weakness. We saw a similar dollar dip of nearly 2% during the 16-day shutdown back in October 2013, suggesting this trend has historical precedent.

Currency Opportunities

With the dollar under pressure, we are looking at opportunities in currencies like the euro and the pound. Call options on EUR/USD targeting strikes above the 1.1700 level seem attractive, especially as Eurozone inflation remains steady around 2.9%, creating a policy divergence against a potentially cutting Fed. For GBP/USD, positions that benefit from a move above the 1.3460 resistance could be considered.

The drop in USD/JPY towards the key 150.00 level is also a significant move we are watching. This is driven by falling US Treasury yields, with the 10-year note having shed 40 basis points in just the last month to trade at 4.15%. We believe traders should consider put options to capitalize on a potential break below this critical support, which was a major intervention zone for the Bank of Japan in 2022 and 2023.

In the energy markets, the mood for WTI crude is decidedly bearish, having hit a five-month low near $57.40. The latest Energy Information Administration report showing a crude inventory build of over 5 million barrels, against expectations of a small draw, confirms weakening demand. Traders might look to sell call spreads to profit from further downside while capping risk from any geopolitical flare-ups.

We see the flight to safety continuing, pushing gold toward $4,300 and silver past $54 for the first time ever. This powerful rally is supported by falling real yields and the deep uncertainty emanating from Washington. Buying call options on gold and silver ETFs appears to be the most direct way to ride this upward trend.

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