FX OVERVIEW
FX is being driven by a clash between a softer U.S. rate outlook and intensifying Middle East risk. Weak U.S. inflation and labor data have reduced expectations for a September Fed hike, supporting AUD, GBP and SGD, but Strait of Hormuz tensions, rising oil prices and safe-haven demand are limiting broader dollar downside. The result is a two-speed market: risk-sensitive currencies remain vulnerable, while currencies with strong domestic or policy support continue to outperform.
MAJOR PAIRS
AUDUSD — AUDUSD is pressing toward 0.7100 after breaking above the 20-day EMA at 0.7043, supported by the broad dollar decline and the collapse in Fed hike expectations. A break above 0.7130 would target 0.7200, while the upcoming Australian jobs report is the key near-term risk to the bullish bias.
EURUSD — EURUSD is consolidating near 1.1570–1.1600 as prospective ECB tightening and resilient German data support the euro, but geopolitical risk and safe-haven dollar demand cap the rally. The pair needs a sustained break above 1.1614–1.1650, particularly the 1.1630 200-day moving average, to open 1.1684–1.1700; failure there keeps downside risk tied to an oil-driven dollar rebound.
GBPUSD — GBPUSD retains a constructive bias as a hawkish BoE stance contrasts with a Fed increasingly expected to pause. Support at 1.3475–1.3500 remains intact, with a break above 1.3559 targeting 1.3617 and 1.3670.
USDJPY — USDJPY has risen to around 159.70 as resilient U.S. dollar demand offsets growing expectations for a September BoJ hike, now priced at 81%. A break above 159.89 would expose 160.67 and 162.14, but weak Japanese GDP, consumption and capital expenditure undermine the durability of yen weakness and make the BoJ decision the central directional catalyst.
USDCHF — USDCHF has rebounded sharply to 0.8127 after testing trendline and moving-average support, with RSI recovering above 50. A break above 0.8135 would invalidate the bearish flag and target 0.8200 and 0.8207; a close below 0.8100 would reopen downside toward 0.8084 and 0.8049.
NZDUSD — NZDUSD has fallen to 0.5880 as the breakdown in U.S.-Iran diplomacy drives risk aversion and pressures high-beta currencies. A break below the 200-day SMA at 0.5834 would expose 0.5760, while only a recovery above 0.5916 would materially improve the near-term outlook.
USDCAD — USDCAD remains trapped near 1.3870 between oil-supported CAD strength and a recovering dollar. The technical bias remains mildly bearish while below 1.3902, but 1.3848–1.3845 is critical support; a break below targets 1.3822 and 1.3708, while a move above 1.3902 would shift focus to 1.3982.
USDCNY — The PBOC’s 6.7905 fixing, well above the 6.7452 consensus, signals tolerance for measured yuan depreciation to support exports amid weak domestic momentum. The wide fix-market gap raises volatility and intervention risk, but the immediate directional signal favors modest upside in USDCNY.
USDKRW — USDKRW is biased higher after TD Securities initiated a short-KRW position through NDFs, citing stretched valuation, fading momentum and weakening support from AI-linked equity inflows. The 1,400 area is the key upside reference and could attract further selling if foreign equity flows deteriorate.
USDSGD — USDSGD remains structurally bearish near 1.2780 as Singapore’s July NODX surged 24.2% year-on-year, led by AI-related electronics demand, while MAS continues to steepen the S$NEER appreciation path. Sustained trade momentum would bring 1.2740 into focus; the 1.2760–1.2795 range is near-term consolidation rather than evidence of a trend reversal.
CENTRAL BANK WATCH
- Federal Reserve: Soft CPI and labor data have pushed September hike pricing down to roughly 32–35%. HSBC and TD Securities now expect an extended pause, reinforcing a dovish Fed repricing and weakening the dollar’s rate advantage.
- Bank of Japan: September hike pricing has risen to 81%, supported by political signaling and expectations that Japan may begin to unwind its ultra-cheap carry regime. Weak GDP, consumption and business investment leave the market vulnerable to a disappointment at the BoJ.
- European Central Bank: A September hike remains supported by resilient Eurozone activity and strong German ZEW sentiment, maintaining a favorable policy differential against the Fed.
- Bank of England: The BoE continues to carry a relatively hawkish stance, helping sustain GBP support against the dollar.
- Monetary Authority of Singapore: MAS has actively steepened the S$NEER appreciation path in May and July, reinforcing SGD strength alongside the export boom.
- People’s Bank of China: The materially weaker-than-expected yuan fixing indicates a controlled depreciation bias, while the gap between the official fix and market pricing increases the risk of future intervention.
MACRO DRIVERS
- U.S. rate repricing: Benign inflation and weak employment data have reduced Fed hike expectations, lowering front-end U.S. yields and weakening the dollar against higher-yielding currencies.
- Geopolitical risk and oil: The collapse of the U.S.-Iran memorandum and attacks on shipping around the Strait of Hormuz have lifted crude above key levels, increased inflation fears and generated safe-haven demand for USD and CHF.
- Asia’s policy and trade divergence: Strong Singaporean AI-related exports and active MAS support contrast with cautious PBOC yuan management and deteriorating KRW momentum.
- Carry-trade vulnerability: Expectations of BoJ tightening are challenging the yen’s traditional funding role, while risk aversion is simultaneously pressuring NZD and other high-beta currencies.
POSITIONING IDEAS
Bullish
- Long AUDUSD: The Fed’s dovish repricing, broad dollar weakness and favorable carry dynamics support a break above 0.7130, with 0.7200 as the next technical target.
- Long GBPUSD: BoE-Fed policy divergence and firm UK growth favor a break above 1.3559 toward 1.3617 and 1.3670.
- Short USDSGD: Singapore’s 24.2% NODX growth and MAS appreciation policy provide a strong structural catalyst for a move toward 1.2740.
- Long USDCHF: A break above 0.8135 would confirm a bullish technical reversal toward 0.8200 and the yearly high at 0.8207.
Bearish
- Short NZDUSD: Escalating Middle East risk is pressuring the Kiwi; a break below 0.5834 would target 0.5760.
- Short KRW versus USD: TD Securities’ NDF positioning, stretched KRW valuation and fading AI-equity support favor upside in USDKRW toward 1,400.
- Short USDCAD below 1.3848: Strong crude prices and Canadian inflation support CAD, with a confirmed break targeting 1.3822 and potentially 1.3708.