Insights 
VT 
The EUR/USD currency pair rose to a five-day high as the US Dollar weakened. The Euro gained strength following the Greenback’s decline, with EUR/USD trading around 1.1543 after hitting a three-month low earlier.
The US Dollar Index, which measures the Dollar against six major currencies, fell to 99.75. The decline was influenced by worries over the extended US government shutdown, setting a new record for duration.
Economic Data and Reports
The shutdown has postponed important economic data releases, relying instead on private sector reports for insights. Additionally, the Challenger Job Cuts report showed 153,074 job cuts in October, indicating labour market stress.
Traders are reassessing the Federal Reserve’s monetary policy after a recent rate cut. While inflation is above 2%, mixed labour data has dampened expectations for more aggressive cuts.
The probability of another rate cut in December stands at 70%. Eurozone Retail Sales data showed a 0.1% decline in September, but the Euro remained unfazed by these figures.
US Dollar performance against major currencies today saw it gaining against the New Zealand Dollar while losing value against others like the Euro and British Pound.
Strategies and Market Actions
The US Dollar is clearly on the back foot, creating an immediate opportunity to favor the Euro in the short term. The ongoing US government shutdown, which has now stretched past 40 days, is the primary driver of this dollar weakness. This prolonged political stalemate is forcing us to short the dollar against major currencies, particularly the Euro and the Japanese Yen.
The uncertainty is causing market volatility to spike, which is a key signal for options traders. With official data like the October Non-Farm Payrolls report now indefinitely postponed, we are relying on conflicting private-sector reports, increasing the chance of a sharp market move. We are therefore considering buying straddles on EUR/USD, a strategy that profits from a large price swing in either direction and is well-suited for this unpredictable environment.
The Federal Reserve’s path is also becoming less clear, which further supports strategies built around volatility. While Fed Chair Powell has been cautious, the latest job cuts data, showing the highest number of layoffs since 2003, has pushed market expectations for a December rate cut to 70%. We believe buying EUR/USD call options expiring after the December Fed meeting is a viable way to position for sustained dollar depreciation.
Looking back, the dollar’s performance during the 35-day shutdown of 2018-2019 was choppy but did not lead to a long-term collapse, which advises some caution. Therefore, while we are positioning for dollar weakness, we are also using put options on the US Dollar Index (DXY) to hedge any remaining long-dollar exposure. This provides a necessary layer of protection against a sudden resolution in Washington or a hawkish surprise from the Fed.
