The biggest story in financial markets this week is the political breakthrough in Washington. After a record-breaking 41-day stalemate, the U.S. Senate has voted to advance a funding bill to reopen the government.
While this news removes the immediate risk of a full-blown political crisis, the market’s reaction has been swift and, for some, counter-intuitive: the U.S. Dollar is falling.
Why is the Dollar Dropping?
For the past 41 days, the U.S. Dollar (USD) acted as a “safe haven.” Global investors, worried about the shutdown, parked their money in the Dollar for safety.
Now that the crisis appears to be ending, that “safe haven” money is leaving. This is a classic “sell the news” event. The market’s focus has pivoted, instantly and sharply, from political risk (which is resolving) to the economic damage caused by the 41-day impasse.
Trading in the Dark: The “Data Drought”
A critical consequence of the shutdown is that U.S. data agencies, like the Bureau of Labor Statistics, were also closed. This means all major economic reports for October—Non-Farm Payrolls, inflation (CPI), and retail sales—were canceled.
We are essentially “flying blind” without official data.
To fill this information vacuum, the market has become hyper-sensitive to any and all private-sector data, and the news isn’t good.
- A Challenger report showed corporate layoffs in October were the highest for that month since 2003.
- A new weekly ADP report on November 11 showed an average loss of 11,250 private-sector jobs per week over the last month.
This negative private data, combined with the economic drag from the shutdown, has convinced the market of one thing: the Federal Reserve will likely be forced to cut interest rates at its next meeting in December.
Key FX Levels We Are Watching
This shift is creating clear winners and losers in the currency markets. Here are the key technical levels on our radar.
U.S. Dollar Index (DXY)
- Driver: The Dollar is under pressure as its safe-haven appeal unwinds and rate cut bets rise.
- Key Level: The most important technical event was the DXY’s failure to sustain a break above the critical 100.00 psychological level. This failure at a major resistance node is a significant bearish signal.
EUR/USD - Driver: The Euro is the primary beneficiary of the Dollar’s weakness. It also received a boost from its own positive data this week: a better-than-expected ZEW Economic Sentiment survey for the Eurozone.
- Key Support: The pair is finding strong support at the 1.1500 level, which is near its 200-day moving average.
- Key Resistance: The next upside target is the 50-day moving average, near 1.1700.
GBP/USD - Driver: The British Pound is the “weakest link” this week. While the USD is weak, the Pound is weaker. A terrible UK labor report on November 11 showed the unemployment rate rising to a four-year high.
- Central Bank Watch: This poor data makes a Bank of England (BoE) rate cut in December highly probable, weighing heavily on the currency.
- Key Support: 1.3100
- Key Resistance: 1.3200
USD/JPY - Driver: The long-standing bullish trade on USD/JPY (based on a “strong Fed” vs. a “weak Bank of Japan”) is “fading.” With the market now pricing in Fed cuts, the U.S. side of that policy divergence is crumbling.
- Key Resistance: The pair has repeatedly “stalled” and failed to break above the 154.00 level.
- Key Support: A break below 152.50 would be a strong signal that a correction lower has begun.
JDR Securities Outlook
We are navigating a volatile period where the market is operating in an information vacuum. The end of the shutdown is a positive development, but it has unmasked the economic slowdown that was happening beneath the surface.
Our strategy is positioned for a weaker U.S. Dollar, favoring the Euro and remaining cautious on the Pound due to its own poor domestic data.
JDR Securities continues to monitor this evolving situation, and we advise clients to contact their advisor to review their positioning.
