The US Dollar (USD) continued to rise, challenging new three-month highs as expectations grow that the Federal Reserve might hold rates in December. The US Dollar Index climbed for the fourth day, nearing the psychological 100.00 mark.

EUR/USD declined near the 1.1500 level, the lowest since August, amidst awaited economic data from Germany and the Eurozone. GBP/USD stayed close to seven-month lows around 1.3100, influenced by strong USD momentum and domestic concerns.

Forex Market Fluctuations

USD/JPY fluctuated near the 154.00 mark, with the BoJ set to release its meeting minutes. AUD/USD saw its fourth day of losses, nearing 0.6520, with the RBA expected to maintain its interest rate.

WTI oil struggled below $61.00 per barrel as traders evaluated OPEC+ plans on output hikes. Gold increased past $4,000 per ounce, regaining previous losses, while silver fell slightly, continuing last week’s decline.

The RCM/TIPP Economic Optimism Index report and US crude oil inventory data are awaited. ECB’s Lagarde and Fed’s Bowman are scheduled to speak. Meanwhile, the RBA decision and German economic data are upcoming highlights.

With the US Dollar Index pushing towards the 100.00 mark, we see continued strength as a primary trend. Recent US inflation data, with core CPI stubbornly holding around 3.8%, suggests the Federal Reserve has little reason to signal a dovish pivot, supporting this dollar rally. Therefore, we should consider buying near-term call options on the DXY to ride the upward momentum driven by interest rate expectations.

Market Strategies and Positioning

The weakness in European currencies appears set to continue, with EUR/USD threatening 1.1500 and GBP/USD near 1.3100. We recall how fragile German industrial data throughout 2023 and 2024 weighed on the euro, and with new factory orders due, the risk is skewed to the downside. Similarly, memories of the UK’s 2022 fiscal crisis make traders sensitive to budget concerns, making put options on both pairs a prudent way to position for further declines.

For the Australian dollar, the policy divergence between central banks is the key driver of its slide towards 0.6520. With the Reserve Bank of Australia expected to hold its cash rate at 4.1%, the wide and attractive yield differential compared to the Fed’s 5.5% funds rate will continue to pressure the currency. We should view any short-term rallies as opportunities to enter short positions via futures contracts.

In energy markets, West Texas Intermediate crude oil breaking below $61 a barrel is significant. This move comes as worries over slowing global demand are beginning to overshadow the production cuts that OPEC+ enacted over the last couple of years. We believe buying put options on WTI is a viable strategy to hedge against a further slide toward the mid-$50s if economic pessimism grows.

Gold’s resilience above $4,000 per ounce signals its appeal as a safe-haven asset amid the ongoing US government shutdown and general market uncertainty. We saw a similar flight to quality during the 2018-2019 shutdown, which provided a strong floor for gold prices. Holding long positions through futures or purchasing call options could offer protection and upside if market anxiety deepens in the coming weeks.

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