EUR/USD rose for the fifth day, nearing its 1.1660-1.1670 in 100 days as markets experienced heavy dollar selling. Investors dumped the greenback in anticipation of a US Fed rate cut.
The euro strengthened for the fourth consecutive session yesterday, the longest advance in a couple of months. The pair gains were extended today to slightly above $1.1665, but it is struggling to sustain the upside momentum. It failed to settle above $1.1655.
The dollar is mixed against the G10 currencies, fanned by Japanese official caution about exchange rate developments. After successful trade relation between President Trump and Japanese Prime Minister Takaichi, the dollar snapped a seven-day advance against the yen.
The European calendar awaits the ECB’s rate decision and Germany’s flash consumer price index including third quarter GDP growth report as well as well as labour market report on October 30.
GBP/USD shifted focus downwards, nearing recent lows around 1.3250, with the BoE’s Consumer Credit figures and other financial statistics pending. USD/JPY dropped to multi-day lows at 151.70, and Japan’s Consumer Confidence gauge is expected next.
AUD/USD traded near the 0.6600 resistance amid Australia’s Inflation Rate data. USD/CAD fell below a 200-day SMA due to a weaker US Dollar, with BoC’s rate cut expected.
WTI oil dropped below $60.00 per barrel, and Gold hit four-week lows near $3,870 per ounce. Silver prices recovered slightly from five-week lows.
The expected 25-basis-point rate cut from the Federal Reserve today seems all but certain, especially after September’s Non-Farm Payrolls report showed a gain of only 95,000 jobs, missing expectations.
With core inflation recently cooling to 2.8%, the Fed has the justification it needs to ease policy. This environment should prompt traders to prepare for heightened volatility in dollar-denominated derivatives.
Analysts at Marc to Market see this as a signal to position for further dollar weakness, as this cut is unlikely to be a one-off event.
“This environment is reminiscent of the Fed’s policy pivot back in 2019, which initiated a multi-month period of dollar softness. Traders could consider using options to play a potential break below the 98.50 support level in the Dollar Index (DXY) over the coming weeks”.
With the European Central Bank decision this week, implied volatility on EUR/USD options will likely remain elevated as the pair challenges its 100-day moving average.
Despite the dollar weakness, gold’s recent drop to near $3,870 suggests some traders are taking profits after its massive run-up.
Analysts attribute its high valuation to the significant inflationary wave navigated through 2024, which is now subsiding. A dovish Fed today could, however, put a floor under prices, making this dip a potential entry point for long-term bulls using futures contracts.