Dollar Hits 18-Month High as Oil Risks Persist and Markets Await US Jobs Data – Comments from Century Financial

A key macro tailwind is the sharp decline in expectations for further monetary tightening. According to the CME FedWatch Tool, the probability of a Fed rate hike has fallen to 24.9% from 68.6% a week ago. This significant repricing reduces the immediate risk of tighter financial conditions and provides a more supportive backdrop for equities. Secondly, despite the strong performance of AI and technology stocks, valuations remain relatively reasonable. Alphabet (GOOGL), Meta Platforms (META), and Microsoft (MSFT) all trade at price to earnings ratios below 30x, suggesting that valuations remain supported by underlying earnings growth. Thirdly, October seasonality remains supportive. Since 1950, the S&P 500 has averaged a 3.0% gain in October during midterm years, with the index finishing higher 73.7% of the time. November has also been strong, averaging a 2.7% gain and delivering positive returns 78.9% of the time. Looking ahead, all eyes will be on today’s NFP data, with traders seeking further clues on the Fed’s policy path and the direction of US equities.

Technically, the Nasdaq 100 Index has immediate support at the last session’s low of 30,258, followed by 30,079, the current week’s low. On the upside, immediate resistance is at 30,801, last week’s high, followed by the all-time high of 30,876, which also marks the previous session’s high. The S&P 500 Index has immediate support at the current week’s low of 7,613, while resistance is seen at 7,708, the previous session’s high, followed by 7,741, the current week’s high.

US Dollar Index
The U.S. Dollar Index (DXY) continued its run-up on Thursday, rising another 0.57% by the close, reaching an 18-month high, while EUR/USD fell sharply, down 0.77%. Friday’s Asian session is seeing the DXY trade 0.15% lower while a similar recovery can be seen in the EUR/USD pair.

The dollar is easing today as markets have trimmed lofty expectations of a rate hike, with the CME FedWatch tool indicating 28.2% odds of a 25-bps rate hike at the October FOMC meeting, down from 37.6% a day ago and 64.2% a week ago. Fed governor Philip Jefferson said the central bank might need more time to assess the economy’s direction before making any additional policy adjustments, following similar remarks from New York Fed President John Williams earlier this week. Despite this, the dollar’s rise this week shows that reduced rate-hike probabilities have yet to meaningfully weaken demand for the currency. The 10-year Treasury yield remains near 5.25%; after briefly reaching 5.34%, its highest since 2002, it is keeping the bullion supported. European concerns are providing another source of dollar support. French government bonds have come under pressure as investors question the country’s fiscal position, while the euro lost 2.5% in September. The euro carries 57.6% of the dollar index’s weight, making European developments influential for DXY and the EUR/USD pair. Meanwhile, all eyes will shift to today’s Nonfarm Payrolls report, which will influence rate-hike odds again and add volatility to the dollar’s move.

Technically, the dollar index is seeing strong buying momentum, with RSI on the 4-hour just retreating below the 70 mark with today’s price action after rising to the overbought zone. On the same timeframe, the index remains above the 9-EMA level, suggesting short-term demand. Below that, the highs from 29th September coincide with the 21-EMA on the same timeframe near the 101.61 level, providing potential support. Meanwhile, EUR/USD has decisively broken and closed below the support of 24th June lows around 1.1324, suggesting a weak market structure and with RSI on the daily indicating oversold levels, the momentum remains bearish.

Brent fell around 2% near $104.7 a barrel after adding more than 4% in the prior two sessions, while WTI also fell 2% and is near $93.6. The Pentagon is deploying an additional aircraft carrier and 10,000 sailors and Marines, according to a US official, giving more options should President Trump choose to increase attacks on Iran.

Oil futures have swung this week as traders weighed the improving Middle East flows against the risk of escalation. Brent remains almost 70% higher this year as the US-Iran war stretches into an eighth month, with little progress toward a diplomatic resolution.

The oil market is highly susceptible to another spike in prices, with inventories at low levels following six months of drawdowns. Further, investors are increasingly concerned that Iran will respond to the military buildup with attacks on US assets and energy infrastructure in the region.

The renewed tensions come just as concerns over Middle East supply had begun to ease. Wall Street analysts said earlier this week that flows from the region were nearing pre-war levels, although fuel supplies have yet to recover to the same extent.

From a technical perspective, Brent is trading above the 9 and 21 EMA, while WTI is sharply below both these short term moving averages on the daily time frame. Daily RSI is on the downtrend for both the benchmarks. Today, Oil presents a bearish bias.

For WTI, on the 4-hour chart, the $95 level remains a strong resistance. Failure to clear this level can push WTI to $92, which is the trendline support joining the lows of 26th and 30th September and 1st October 2026. A break below this level can push prices to $89.5. On the flip side, a sustained break above the $95 level can push prices to the $97 level which is the top of the downward trendline connecting 15th and 28th September.  A break above these levels can open the way for $100.

Brent is showing a breakout retest of the trendline joining the highs of 14th, 15th, and 24th September. A break below the trendline can push prices to $102 and then next to $100 (200 EMA). A rebound from the trendline can push prices to $107 which was yesterday’s high.

Gold & Silver
Gold is trading near $4,190 (+0.4%), holding a modest gain as reduced expectations of an October Fed rate hike provide some relief. Fed officials have signalled that more time may be needed before further tightening, with markets now pricing in only around a 28% chance of a hike this month. However, a firmer US dollar and elevated yields continue to cap upside.

For investors, a key data point to watch is today’s US NFP report, with markets expecting around 90K jobs added in September. A weaker-than-expected reading could further reduce rate-hike expectations and support gold, while a stronger print could lift the dollar and yields, putting renewed pressure on bullion.

Meanwhile, escalating Middle East tensions and potential disruptions to energy flows are keeping geopolitical risks elevated, although the resulting strength in the dollar remains a headwind for gold.

Technically, gold retains a bearish near-term bias below $4,230. Resistance is seen at $4,230 on a descending trendline formed by joining the highs of Aug 25, Aug 26 and Sept 23, followed by the 20 EMA at $4,275. Support lies near $4,115, a previously tested level. Silver is trading in a tight range near $61.45, with resistance around $62.40-$62.90 and support near $59.50.