FX OVERVIEW
Dovish repricing of the Federal Reserve is the dominant FX driver, after soft U.S. PPI, retail sales and inflation data sharply reduced expectations for a September hike and weakened the dollar across major pairs. The move is being reinforced by ECB and RBNZ tightening expectations and rising BoJ intervention risk, although escalating tensions around the Strait of Hormuz are sustaining pockets of safe-haven USD demand and limiting broader risk appetite.
MAJOR PAIRS
EURUSD — EURUSD has extended its bullish run toward 1.1600 as markets price a 57% probability of a final 25bp ECB hike in September while Fed hike expectations have fallen to roughly 35%. Stronger Eurozone growth, a June trade surplus and wider Germany-U.S. two-year spreads reinforce the move; a sustained break above 1.1600–1.1630, including the 200-day SMA at 1.1630, would expose 1.1700, while 1.1500 remains key support.
GBPUSD — GBPUSD is consolidating near 1.3500–1.3550 after resilient U.K. Q2 GDP and a weaker dollar lifted the pair from 1.3474. The bias is modestly bullish, but a sustained close above 1.3550 is required to open 1.3600; failure would return focus to 1.3474 and the 50-day EMA near 1.3477.
AUDUSD — AUDUSD remains supported near 0.7055–0.7080 by fading Fed hawkishness and the RBA’s restrictive stance, which preserves the Aussie’s carry appeal. Upside is capped by resistance at 0.7090 and the 100-day SMA around 0.706; a clean break above 0.7090 would target the May high near 0.7250, while rejection risks a pullback toward 0.7050–0.7060.
NZDUSD — NZDUSD has pushed above 0.5880 as the probability of a September Fed hike falls to around 30%, with markets also expecting another RBNZ hike. The structure remains bullish above the 200-day SMA, but 0.5900–0.5920 is the decisive resistance zone; failure there would expose 0.5850–0.5830, while a break could extend toward 0.6000.
USDJPY — USDJPY is under pressure from a sharp rise in September BoJ hike pricing to 76%, alongside warnings that joint U.S.-Japan intervention could occur “at any time.” The pair remains capped near 159.60–159.85; a break below 158.58 and 157.30 would strengthen the yen reversal, while a move above 159.85 would reopen 160.65 and 162.12.
USDCAD — USDCAD remains in a structural downtrend after breaking below the 50- and 100-day SMAs and falling below 1.4000, supported by softer Fed expectations and higher oil prices. Despite oversold RSI readings near 29, bearish momentum remains intact; a break below 1.3700 would target 1.3542, with 1.3850—the 200-day SMA—an intermediate support level.
USDCHF — USDCHF has ended a four-day advance and turned lower, although it remains above the pivotal 0.8100 level. The short-term bias is negative as Fed repricing weighs on the dollar and SNB intervention risk limits franc appreciation; a break below 0.8100 would undermine the broader bullish structure.
USDCNY — The PBOC set the central rate at 6.7878 versus 6.7888 previously, signaling a marginally firmer yuan while maintaining tight control over volatility. The bias is stable to modestly lower in USDCNY, but the restrained fixing reflects a preference for gradual adjustment rather than a decisive yuan appreciation campaign.
USD/KRW — USD/KRW has fallen sharply from the July peak near 1,559 to around 1,421 as semiconductor exports, a stronger Kospi and $1.9 billion in foreign inflows support the won. 1,407 is the critical technical pivot: a break below it could extend the decline toward 1,388–1,385 and possibly 1,375, while a recovery above 1,425 would signal exhaustion of the won rally.
USD/SGD — USD/SGD remains range-bound around 1.2800 as softer U.S. data pressure the dollar but Middle East tensions generate safe-haven demand. The pair has support at 1.2770–1.2740 and resistance at 1.2830–1.2840; geopolitical escalation would favor an upside break, while calmer risk conditions would restore the bearish fundamental bias.
AUDJPY — AUDJPY is under pressure near 112.55 as yen strength linked to BoJ tightening and intervention expectations outweighs the carry support for the Australian dollar. Resistance near 112.70 is acting as a ceiling, leaving the cross biased lower while Japanese policy expectations continue to firm.
CENTRAL BANK WATCH
- Federal Reserve: Soft PPI, retail sales and inflation data have sharply reduced expectations for an imminent rate hike. September hike pricing has fallen to roughly 30–35%, shifting the market toward a pause or dovish pivot.
- Bank of Japan: September hike pricing has risen to 76% from 24% a week earlier. Former senior diplomat Mitsuhiro Furusawa’s warning that joint U.S.-Japan intervention could occur “at any time” has increased downside risks for USDJPY.
- European Central Bank: A September 25bp hike is now expected by 57 of 69 economists, sustaining euro support through both policy expectations and wider Eurozone-U.S. rate spreads.
- Reserve Bank of New Zealand: Markets continue to anticipate another hike, reinforcing NZD support despite the rally being driven primarily by broad dollar weakness.
- Swiss National Bank: Intervention remains a material risk if franc appreciation becomes excessive, limiting the scope for sustained CHF gains.
- Bank of Canada: The BoC remains cautious and broadly dovish, but higher oil prices and resilient domestic conditions are currently supporting CAD against a weakening U.S. dollar.
MACRO DRIVERS
- U.S. rate repricing is driving the broad dollar decline. Softer wholesale inflation and retail sales have pulled Treasury yields and Fed hike expectations lower.
- European and Antipodean currencies are benefiting from policy divergence. ECB and RBNZ tightening expectations contrast with a Fed moving toward a wait-and-see stance.
- Yen strength is becoming a policy-driven risk rather than a conventional carry unwind. Higher BoJ hike odds and credible intervention threats are tightening conditions for short-yen positions.
- Geopolitical escalation is creating a two-sided FX impulse. Strait of Hormuz disruption and attacks on energy infrastructure support oil-linked CAD but also sustain defensive USD demand and threaten a renewed inflation shock.
POSITIONING IDEAS
Bullish
- Long EURUSD: ECB tightening expectations, stronger Eurozone activity and wider Germany-U.S. yield spreads support a break above 1.1600, with 1.1630 and 1.1700 as upside markers.
- Long USDCAD downside / short USDCAD: A weakening Fed profile, higher oil prices and CAD resilience favor a move through 1.3700 toward 1.3542, though oversold conditions argue for disciplined entry.
- Long NZDUSD: The RBNZ’s expected tightening bias and falling Fed hike odds support the pair above 0.5880, targeting 0.5900–0.5920.
- Long AUDUSD: The RBA-Fed policy contrast supports AUD carry demand, with 0.7090 the breakout trigger.
Bearish
- Short USDJPY: Rising BoJ hike expectations and explicit intervention risk favor yen appreciation; sustained trade below 158.58 would strengthen the downside signal.
- Short AUDJPY: Yen policy risk is overwhelming carry support, with 112.70 acting as a clear resistance ceiling.
- Short USDCHF below 0.8100: Fed dovishness and potential SNB action against excessive franc strength create asymmetric downside risk if the key threshold fails.