Fundamental Backdrop and Market Sentiment
I wrote on 27th September that the best trades for the week would be:
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Long of the S&P 500 Index following a daily close above 7803. This did not set up.
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Short of the EUR/USD currency pair following a daily close below 1.1358. This set up on Tuesday and gave a weekly return of 0.78%.
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Long of Soybeans. Soybean futures fell by 3.11%.
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Long of Ethereum. Ethereum was unchanged over the week.
The total loss of 2.33% averages 0.58% per asset.
A summary of last week’s most important data in the market:
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US Core PCE Price Index – this came in lower than expected, at a month-on-month increase of only 0.2% compared to the expected increase of 0.3%. Dovish for the USD.
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US Average Hourly Earnings – this came in considerably lower than expected, at a month-on-month increase of only 0.1% compared to the expected increase of 0.3%. Dovish for the USD.
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US Final GDP – higher than expected at 2.2% instead of the expected 1.5%. Somewhat hawkish for the USD.
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US Non-Farm Employment Change – notably lower than expected. Dovish for the USD.
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RBA Cash Rate & Rate Statement – the RBA hiked 0.25%, but the dovish language left it as a dovish hike for the AUD.
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Australia CPI (Inflation) – this was expected to rise from an annualized rate of 3.5% to 4.1% but rose only to 4.0%, so this was just fractionally dovish.
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US Unemployment Rate – unexpectedly rose a fraction, from 4.1% to 4.2%. Dovish for the USD.
The USD turned more dovish last week as weak US employment data sharply reduced expectations for another near-term Fed increase. CME FedWatch pricing for an October 0.25% rate hike fell from 64.2% a week earlier to roughly 17–23% after payrolls, while futures implied only about 0.22% of total additional tightening through end-2026, down from roughly 0.255% before the jobs report.
US non-farm payrolls rose only 29,000 in September, far below the 90,000 consensus forecast, prior months were revised lower, and unemployment increased to 4.2%. The data pushed Treasury yields lower and supported risk appetite: US equities rallied into Friday, with technology and smaller-cap shares benefiting most, while the USD lost some ground as markets unwound immediate Fed-hike expectations.
Earlier in the week, markets had been dealing with a more inflationary—and USD-supportive—mix: elevated energy prices and higher global government-bond yields, amid the US-Israel/Iran conflict had revived concern that central banks might have to keep policy restrictive. The Fed’s recently hawkish tone, the RBA’s rate hike, and firmer euro-area inflation had reinforced that concern.
Geopolitical risk remained the principal counterweight to the softer US data narrative. The conflict-driven oil shock had helped fuel the bond sell-off, but Friday brought relief as expectations of recovering Middle Eastern supply and discussions of releasing European diesel reserves pushed WTI down 3.7% to $89.43 and Brent down 2.7% to $99.45. Lower crude reduced immediate inflation anxiety, aided bonds and equities, and compounded the post-payrolls dovish repricing of Fed expectations.
Markets ended the week favouring a softer-US-growth / less-imminent-Fed-tightening narrative, weakening the USD’s rate advantage. However, oil and geopolitical developments remain capable of quickly reversing that move by reviving global inflation and rate-hike concerns. We may now be entering a period where risk assets will strengthen, and the US Dollar will begin to decline.
The Week Ahead: Key Data and Events to Watch
Next week will see very few highly important data items. The coming week’s most important data points, in order of likely importance, are:
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FOMC Meeting Minutes
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BoJ Governor Ueda Speaks
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Canada Unemployment Rate and Employment Change
It is a public holiday in Australia on Monday and in China from Monday to Wednesday.
Monthly Forex Forecast: October 2026 Overview
For the month of September, I made no forecast, as the US Dollar had no real long-term trend.
For the month of October, I forecast that the EUR/USD currency pair will decline in value.
Weekly Forecast 4th October 2026
There were no excessive moves in currency crosses last week, so I make no forecast.
Volatility remained low last week, with 19% of the notable currency pairs and crosses moving by more than 1% in value. Next week’s volatility is likely to be similarly low, or maybe even lower.
You can trade these forecasts in a real or demo Forex brokerage account.
Technical Overview and Key Levels
Key Support and Resistance on Major FX Pairs
Key Support and Resistance Levels
US Dollar Index
The US Dollar printed a bullish candlestick of healthy size last week, which reached a new 18-month high and closed above the resistance level at 101.39. This is a significant bullish breakout, and just a few days ago things were looking extremely bullish for the USD, but that may be starting to change with the lower than expected PCE Price Index and Average Hourly Earnings data, which suggest that the US economy is slowing down, and that the Fed only need to make one further hike of 0.25% before the end of 2026.
Despite these dovish factors, it is worth noting that the greenback held up quite well towards the end of last week, even after these data surprises. This is a sign of real strength in the USD, although it may not last.
Turning back again to technical factors, there is a clear long-term bullish trend on most momentum metrics, which gives Dollar bulls a tailwind. Additional supportive factors include relatively high US Treasury Yields, with even the 10-Year reaching well above 5.20%.
I think there are good reasons to take a bullish bias here, but be cautious as this could change, especially if there is any more dovish news for the USD. It might be best to focus on other assets and to just be neutral on the USD over the coming week.
US Dollar Index Weekly Price Chart
EUR/USD
The EUR/USD currency pair fell strongly last week, making a significant technical bearish breakdown to a new 16-month low and reaching close to the 1.1200 handle before clawing back some of its losses towards the end of the week.
The Euro weakened mainly because Europe-specific risk overwhelmed the supportive effect of higher euro-area inflation: France’s fiscal concerns triggered a sharp widening of French/German bond spreads, while markets also scaled back expectations of an imminent ECB hike.
The US Dollar has been strong as markets were expecting further rate hikes, although that has evaporated after last weeks US economic data releases which had a dovish impact upon those expectations. Yet the Dollar remained strong even after that.
This currency pair has historically tended to trend very reliably. It also likes to pull back within trends, so when it moves this quickly, that is significant.
Note in the weekly price chart below, how there is a clear sequence of lower highs and lower lows, supporting a bearish interpretation.
It might be somewhat late to enter a new short trade now, but it is worth holding on to this short trade if you are already in it and using a trailing stop – I like to use three times the ATR (100) from the lowest daily close.
EUR/USD Weekly Price Chart
NASDAQ 100 Index
The tech-based NASDAQ 100 Index briefly reached another short-term high price before pulling back. This is interesting as the broader S&P 500 Index has not been able to make a new record high for a while, so we are seeing tech outperformance, although this is nothing unusual over the long term.
In tech, focus remains on the AI sector and the incredible valuations, although this has started to become a drag as many analysts see that collapses of some companies are bound to start as revenue is not yet matching valuations – prices are being driven by expectations, and many see it as likely that the smaller and more exposed AI companies will start to go under, with the first being a catalyst for more.
Despite that negative outlook, the tape or chart if you prefer, still looks bullish, as can be seen below. The US stock market has historically shown a tendency to keep rising even when analysts start to say it shouldn’t.
As a trend trader, I am long here, but I will not “bet the farm” on tech. However, as we are seeing data which is going to make the Fed less hawkish, I am somewhat more optimistic on the outlook for the US stock market.
NASDAQ 100 Weekly Price Chart
WTI Crude Oil
WTI Crude Oil has reached a very interesting technical point, which suggests higher prices are on the way. The price chart below shows that the key support level at $87.68 has held, and the confluent lower trend line of the ascending price channel evidenced by the linear regression analysis drawn from the end of the major phase of the Iran war has also held. This is significant, and points to the line of least resistance being upwards.
As has been the case for many months, what happens militarily and geopolitically in the Strait of Hormuz and in the Gulf is the main driver here, making trading unpredictable.
It is obvious that President Trump will do all he can to keep the price of crude oil from going overly high, but while the situation with Iran remains unresolved, that is going to be difficult to achieve – it is a Sisyphean task.
Longer-term traders might do well to look for buying opportunities if they think a resumption of the war is going to happen after the mid-terms, but they might need to be quick to take profit, as President Trump tends to make moves pretty quickly to bring down the price of Crude Oil once it exceeds $100.
WTI Crude Oil Spot Daily Price Chart
Ethereum
This cryptocurrency has continued to consolidate, and it looks like a tight and exciting consolidation which could produce an explosive breakout to the upside. Look in the daily price chart shown below and note how well the resistance turned support levels are being respected and have been respected.
Many trend traders will already be long, but there is a case for tightening the stop and adding to this position if we get a strongly bullish daily close above $2,800, where a recent high and a round number are confluent.
I don’t think Ethereum is especially useful or even much practical use at all, but it is widely traded and it looks like a great breakout candidate. There are even micro Ethereum futures available at the CME.
I will be holding on to my long Ethereum position.
Ethereum Daily Price Chart
Bitcoin
I can say all the same things about Bitcoin that I just wrote about Ethereum above. Arguably, Bitcoin is even more important, as it leads the crypto market both psychologically and by market capitalization.
The level to watch for a new entry (adding to the position, if you want to and already have some) is the high at $78,293.
Bitcoin Daily Price Chart
Bottom Line
I see the best trades this week as:
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Long of the S&P 500 Index following a daily close above 7803.
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Long of the NASDAQ 100 Index.
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Short of the EUR/USD currency pair.
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Long of Bitcoin.
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Long of Ethereum.
