FX OVERVIEW
FX is being driven by broad structural dollar weakness, as markets reassess US fiscal credibility, Treasury bond-buyback plans and the prospect of a more dovish Federal Reserve. The euro and selected Asian currencies are benefiting, while the yen remains a major exception as BoJ policy restraint sustains carry demand; geopolitical and trade risks are adding volatility rather than defining the primary trend.
MAJOR PAIRS
EURUSD — German GDP was revised up to 1% year-on-year and the IFO index strengthened, reinforcing expectations of a 25-basis-point ECB hike in September and up to 42 bps of tightening by year-end. EURUSD retains a bullish bias above 1.1630–1.1650, but 1.1711–1.1712 remains the decisive resistance zone; a break would open 1.1737, while overbought RSI near 67–70 argues for consolidation first.
GBPUSD — Sterling is holding near 1.3640 as persistent UK inflation at 2.9% offsets weak labour and retail data, while a softer Fed outlook weighs on the dollar. The bias remains bullish above 1.3550 and the 20-day EMA at 1.3531; a sustained break above 1.3650 would target 1.3713 and strengthen the path toward 1.41.
USDJPY — USDJPY has pushed above 159.30 toward the critical 160.00 level as the US-Japan rate gap and carry demand continue to favour the dollar. Momentum remains bullish toward 160.90, but a move through 160.00 carries material intervention risk, especially given Japan’s late-July response to similar yen weakness.
GBPJPY — GBPJPY’s rise above 217.00 reflects the same BoJ-BoE divergence and persistent yen underperformance. The cross retains an upside bias while carry positions remain intact, although any dovish Fed signal or direct Japanese intervention would expose the rally to a sharp reversal.
USDCAD — Canada’s planned retaliatory tariffs on C$27.6 billion of US goods reinforce the pair’s structural downside narrative, but falling oil prices, Iran-related safe-haven demand and renewed US inflation concerns have driven a rebound toward 1.3865. Near-term bias has turned bullish above 1.3852, with 1.3900 the next confirmation level, followed by 1.3925–1.3930; a failure back below 1.3803 would restore the broader bearish trend.
USDCNY — The PBOC fixed USD/CNY at 6.7852, above the 6.7219 consensus, signalling tolerance for a controlled yuan depreciation to support exports. The bias is modestly higher in USD/CNY, but the small adjustment confirms that Beijing is prioritising stability over an aggressive devaluation.
USDKRW — The won’s 12% year-to-date appreciation reflects powerful capital inflows tied to AI and semiconductor demand, alongside Samsung and SK Hynix buybacks. The bias remains lower in USD/KRW, although the move is stretched and vulnerable to a sharp reversal if chip demand or corporate repatriation flows weaken.
USDSGD — USDSGD is consolidating around 1.2700 as strong Singaporean fundamentals keep the downside bias intact, while pre-Jackson Hole positioning creates scope for a temporary dollar squeeze. Support lies at 1.2680 and 1.2650; a break above 1.2740 would signal a shift toward a broader range rebound, with 1.2790 the next resistance.
CHFUSD — The franc’s more than 10% estimated overvaluation against the dollar is increasingly damaging Swiss pharmaceuticals, chemicals and other export sectors. That structural imbalance supports a bearish CHFUSD bias over the medium term, with policy intervention or a shift in safe-haven demand the key risks to a franc reversal.
CENTRAL BANK WATCH
- ECB: Stronger German activity has reinforced expectations for a 25-basis-point September hike and as much as 42 bps of tightening by year-end, supporting the euro’s rate differential.
- Federal Reserve: Markets remain in a dovish limbo ahead of US PCE inflation and Fed Chair Kevin Warsh’s Jackson Hole speech. A dovish signal would likely accelerate the dollar sell-off; a hawkish message would trigger a short-term dollar rebound.
- Bank of Japan: The BoJ remains structurally dovish despite yen weakness, leaving USDJPY vulnerable to further upside toward 160.00 and keeping intervention risk elevated.
- Bank of England: Rates are expected to remain unchanged, while markets have priced out meaningful additional hikes. Sterling strength therefore depends more on dollar weakness than on a fresh BoE tightening cycle.
- PBOC: The above-consensus USD/CNY fixing indicates controlled yuan softness, but the modest move confirms continued preference for managed stability.
- MAS: The Monetary Authority of Singapore remains comfortable with current settings after earlier tightening, limiting the scope for a new policy-driven SGD rally.
MACRO DRIVERS
- Dollar credibility is weakening: Treasury bond-buyback plans and concerns over fiscal overreach are encouraging diversification away from US assets and reducing the dollar’s traditional safe-haven support.
- European rate expectations are improving: Strong German data and renewed ECB tightening expectations are widening the relative rate advantage in favour of the euro.
- Carry remains powerful in yen crosses: The BoJ’s dovish stance, Japan’s fiscal vulnerabilities and sustained risk appetite continue to fund gains in USDJPY and GBPJPY, despite intervention risk.
- Trade and geopolitical fragmentation are raising volatility: Canada’s retaliatory tariffs, US-China technology restrictions and uncertainty around the Strait of Hormuz are reshaping capital and commodity flows; any Hormuz escalation would revive oil-driven inflation and a broader risk-off move.
POSITIONING IDEAS
Bullish
- Long EURUSD: Stronger German data and rising ECB tightening expectations support the euro, with a break above 1.1711–1.1712 targeting 1.1737.
- Long GBPUSD: Persistent UK inflation and broad dollar weakness support a move through 1.3650, targeting 1.3713 and potentially higher.
- Long USDJPY: US-Japan policy divergence and carry demand favour a test of 160.00–160.90, subject to intervention risk.
- Long USDCAD tactically: Falling oil prices, US inflation concerns and safe-haven dollar demand support a move above 1.3900, despite the pair’s longer-term trade-related downside risks.
- Long KRW / short USDKRW: Semiconductor-linked inflows and large Korean corporate buybacks provide a structural catalyst for further won appreciation.
Bearish
- Short USD broadly against EUR and GBP: Treasury-related fiscal concerns and a potentially dovish Fed signal leave the dollar vulnerable, particularly around PCE and Jackson Hole.
- Short USDKRW: Korea’s technology capital inflows and corporate repatriation flows support continued downside in the pair.
- Short CHFUSD: The franc’s extreme valuation and damage to Swiss export competitiveness create a medium-term reversal risk, particularly if safe-haven demand fades.
- Short USDSGD: SGD fundamentals remain firm and the pair’s downside structure is intact below 1.2740, although near-term dollar short-covering may produce volatility.