In contrast to previous historical trends, the USD has emerged strengthened from the longest US government shutdown, even though it has relinquished some ground in recent days within the G10 FX market. As we discussed in our earlier FX Weekly, the normalisation of the USD liquidity premium and the US TGA may have reduced some excess in the currency, along with the negative sentiment observed in recent US private data, like the newly released weekly ADP jobs report.
One significant effect of this year's shutdown, unlike the 2018-2019 shutdown, is that US federal statistical agencies have been unable to release most economic indicators, except for the September CPI. With fewer market-moving indicators, the realised volatility of the USD has notably decreased, nearing its lowest point in five years. However, we anticipate that the backlog of US macroeconomic releases will soon be resolved; for example, after the 2013 shutdown, the US jobs report was the first to be published just three business days later. Option traders are keenly awaiting updates from the BLS and other agencies, and it is reasonable to believe that 1W tenors should now reflect the September NFP release.
Focusing on EUR/USD, despite a slight recent uptick, the 1W ATM implied volatility remains at its lowest since August 2024 when compared to any five-day duration leading up to the US jobs report. While September figures may seem outdated given the private indicators for October that have already come out, we contend that as US money markets are uncertain about a potential Fed rate cut in December, any notable divergence from market expectations could significantly impact market pricing, particularly since another comprehensive US jobs report might not be available by the 10 December Fed meeting.
For the euro, the upcoming flash PMIs for November next Friday could be crucial, especially to confirm whether the improvement in the German services sector from last month has persisted.
Looking ahead, the schedule for the coming week appears comparatively sparse. Further indications that UK inflation peaked last quarter could enhance the likelihood of a December BoE rate cut and keep the GBP under pressure, particularly as political uncertainties loom ahead of the 26 November Budget.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!