FX OVERVIEW
FX is being driven by competing policy divergence and rising geopolitical risk. The Fed’s hawkish recalibration supports the dollar, while firmer Eurozone inflation and a more hawkish BoJ are preventing a uniform USD advance; meanwhile, U.S.-Iran tensions and Brent above $90 are reinforcing volatility, supporting safe-haven demand and commodity-linked currencies unevenly.
MAJOR PAIRS
EURUSD — The pair remains under pressure after Kevin Warsh’s hawkish Jackson Hole signal lifted Fed tightening expectations and pushed the dollar higher. EURUSD broke below 1.1640 and the 50-day EMA, with support at 1.1550 and 1.1480; a sustained recovery requires a break back above 1.1600–1.1625, while stronger German or Eurozone CPI could revive the euro and target 1.1700.
GBPUSD — Sterling is weakening as BoE inaction contrasts with the Fed’s hawkish pivot. The break below 1.3550, the 50-day EMA, and the 200-day EMA leaves the bias decisively bearish; a move below 1.3526 would expose 1.3481 and lower.
USDJPY — The yen is gaining as rising Tokyo core CPI and Deputy Governor Himino’s comments strengthen expectations for a BoJ hike as early as September. Intervention risk is now a live market variable after reported $96.4 billion intervention and U.S. readiness to coordinate with Japan; USDJPY has fallen to 159.65, with 158.05 the key policy and technical threshold, while resistance sits at 160.20, 160.88, and 162.09.
AUDUSD — AUDUSD is holding near the mid-0.7100s, but the rebound reflects temporary dollar softness rather than renewed Australian strength. A slightly better Chinese manufacturing PMI at 49.8 versus 49.7 failed to offset yen strength, risk aversion, and Fed hike expectations; the pair remains vulnerable below 0.7200, with the 200-period EMA at 0.7082 the next downside reference.
NZDUSD — NZDUSD remains range-bound around 0.5900, with only modest support from a softer dollar and intermittent risk appetite. The pair lacks a domestic catalyst and has no confirmed upside impulse; a sustained move above 0.5900 requires clearer Fed easing or stronger New Zealand data.
USDCAD — The pair remains caught between oil-driven Canadian dollar support and renewed Fed hawkishness. Brent above $90 amid U.S.-Iran tensions favors CAD, while trade uncertainty and BoC expectations limit conviction; the technical bias is bearish, but the pair remains exposed to sharp USD reversals if risk aversion intensifies.
USDCNY — The PBOC set the central rate at 6.7828, weaker than Friday’s 6.7811 and well above the Reuters consensus of 6.7344. The fixing indicates tolerance for gradual yuan depreciation to support exports, but the deviation from market expectations also shows that Beijing continues to prioritize orderly adjustment over a disorderly selloff.
USDSGD — USDSGD’s rise to 1.2754 marks a material break from its recent range as the dollar recovers after Jackson Hole. Singapore’s S$NEER framework and domestic fundamentals remain supportive of SGD, but the break higher raises the risk that MAS may need to respond if currency weakness adds to inflation or undermines competitiveness.
CENTRAL BANK WATCH
- Federal Reserve: Kevin Warsh’s Jackson Hole remarks reinforced the inflation threat and lifted the implied probability of a September hike toward 50/50. The dollar retains a policy advantage unless upcoming labor data weaken materially.
- Bank of Japan: Three consecutive months of higher Tokyo core CPI and Deputy Governor Ryozo Himino’s inflation concerns have raised expectations for a hike as early as September. The BoJ’s tightening narrative is strengthening the yen and undermining one-way USDJPY carry positions.
- ECB: Markets price a 97% probability of a 25 bp September hike, with further tightening priced over the next year. The credibility of that pricing now depends heavily on German HICP and Eurozone CPI, with a headline outcome near 3.1%–3.3% potentially extending euro support.
- Bank of England: The BoE’s failure to respond more forcefully to persistent inflation leaves sterling exposed to the Fed’s hawkish pivot.
- PBOC: The higher USD/CNY fixing signals controlled yuan depreciation rather than an aggressive one-off adjustment.
- MAS: The USDSGD surge toward 1.2754 places the S$NEER framework under closer scrutiny and increases the risk of future policy communication or intervention.
MACRO DRIVERS
- U.S.-Iran escalation and Strait of Hormuz risk have pushed Brent above $90, increasing inflation risk and supporting safe-haven demand for the dollar and yen while providing selective support to CAD.
- Rate differentials are fragmenting FX performance: hawkish Fed expectations favor USD against GBP and risk-sensitive currencies, while BoJ tightening expectations are driving yen strength.
- European inflation is challenging the dollar narrative. A firm German or Eurozone CPI print could force further ECB tightening repricing and reverse EURUSD’s technical deterioration.
- China’s weak PMI and gradual yuan depreciation bias continue to constrain the Antipodeans, despite the small upside surprise in manufacturing data.
POSITIONING IDEAS
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Bullish:
- Short USDJPY: BoJ tightening expectations, credible U.S.-Japan intervention risk, and 158.05 as the key downside trigger support further yen appreciation.
- Short GBPUSD: The pair’s break below 1.3550, 50-day EMA, and 200-day EMA confirms policy-driven downside momentum.
- Long USDSGD: The break to 1.2754 signals renewed dollar momentum, though MAS policy response is the principal risk.
- Long USDCNY: The PBOC’s higher fixing supports a controlled depreciation bias in the yuan.
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Bearish:
- AUDUSD: Maintain a downside bias while the pair remains below 0.7200; yen strength, geopolitical risk, and Fed hawkishness outweigh the marginally better Chinese PMI.
- EURUSD: Tactical downside remains favored below 1.1600–1.1625, with 1.1550 and 1.1480 exposed. The main upside risk is a materially stronger Eurozone inflation print.
- USDCAD: Oil strength and elevated geopolitical risk favor CAD, leaving the pair technically biased lower despite the Fed’s dollar support.