FX OVERVIEW
FX is being driven by a two-sided policy divergence: cautious Fed guidance is weakening the dollar, while the BoJ’s hawkish repricing is generating broad yen strength. The ECB and BoE retain firmer policy biases, but geopolitical risk around US-Iran tensions and China’s rare-earth restrictions is limiting outright risk appetite and keeping safe-haven demand active.
MAJOR PAIRS
EURUSD — The pair initially fell to 1.1585 after US payrolls reached 162K versus a 56K forecast, but recovered toward 1.1620–1.1630 as dovish Fed commentary capped the dollar rebound. A close above the 200-day SMA at 1.1634 would target 1.1700 and 1.1720; failure there keeps 1.1564 and 1.1508 in play. The medium-term bias is turning bullish as ECB tightening expectations contrast with a potential Fed pause.
GBPUSD — Sterling is supported by the BoE’s increasingly hawkish tone, with Huw Pill warning that an energy shock linked to the Iran crisis could require abrupt rate hikes. The pair is testing 1.3565; a sustained break above 1.3584–1.3585 would expose 1.3606, 1.3656 and 1.3676, while a failure below 1.3526 would reopen 1.3477. Bias is modestly higher, but fiscal concerns and safe-haven dollar demand keep the breakout fragile.
USDJPY — The yen is benefiting from a structural BoJ repricing rather than intervention expectations alone. USDJPY remains below firm resistance at 156.70; a break under 155.00 would target 154.00 and 152.20, with the broader bias decisively bearish despite the rebound from 155.30.
AUDUSD — Softer US yields and reduced expectations of a September Fed hike have lifted AUDUSD toward 0.7203. The pair remains above the 20-day EMA at 0.7136, with the four-year high near 0.7280 as the next upside reference. The bias remains bullish while Fed guidance stays cautious, though yen strength and broader geopolitical risk temper the risk-on signal.
AUDJPY — The cross is under sustained pressure as the BoJ’s hawkish shift overwhelms resilience in AUDUSD. Resistance near 113.40 is capping rebounds, while breaks below 111.33 and 110.01 would confirm deeper downside; the technical and fundamental bias is bearish.
USDCHF — USDCHF briefly rose to 0.8126 after strong US payrolls and remains above the 50-day SMA, but sellers are testing the pivotal 0.8100 level. A sustained break above 0.8100 would target 0.8150 and 0.8207; failure would expose 0.7949 and the 200-day SMA near 0.7932. Direction is conditional on 0.8100, rather than a confirmed upside breakout.
USDCAD — Fed caution has supported the Canadian dollar, keeping USDCAD near 1.3790 and below the 100-day SMA at 1.3920. A break below the August low at 1.3732 would extend the decline, although the RSI near 38 leaves the pair technically oversold and vulnerable to a sharp reversal if US payroll momentum returns.
USDCNY — The PBOC set the central rate at 6.7787, a modest yuan appreciation from 6.7807 but still well above the 6.7098 market forecast. The fixing signals managed yuan stability rather than a decisive appreciation campaign; USD/CNY therefore retains a controlled downside bias, with policy signaling likely to prevent an aggressive move.
CENTRAL BANK WATCH
- Federal Reserve: John Williams and Christopher Waller emphasized cooling inflation and data dependence, reducing the perceived probability of a September hike to roughly 50% from 63.2%–70%. The guidance has softened US yields and weakened the dollar, although the 162K payroll result keeps the tightening debate active.
- Bank of Japan: Board member Hajime Takata called for a more nimble approach to rate hikes. Markets are now pricing a potential 25 bp hike in September and further normalization extending toward 2027, creating a structural bullish catalyst for the yen.
- European Central Bank: Persistent inflation at 3.3%, including a 14.3% rise in energy prices, supports expectations of a September hike to 2.50%. The ECB’s restrictive bias is increasingly favorable for EUR.
- Bank of England: Huw Pill highlighted the risk that an energy shock could force abrupt rate increases. That message reinforces sterling’s rate-supportive narrative, although UK fiscal fragility remains a constraint.
MACRO DRIVERS
- Japan is driving the largest cross-market repricing. A credible BoJ normalization path is unwinding yen shorts and pressuring USDJPY and AUDJPY.
- US rate expectations have softened despite strong payrolls. Fed caution has capped Treasury yields and reduced the dollar’s ability to sustain gains from the employment surprise.
- European inflation is preserving the region’s rate advantage. ECB tightening expectations and firm German factory orders are improving the euro’s relative valuation against the dollar.
- Geopolitical risk is becoming a two-way FX force. US-Iran tensions support the dollar’s safe-haven role, while China’s rare-earth shipment restrictions raise supply-chain and inflation risks that could undermine high-beta currencies.
POSITIONING IDEAS
Bullish
- EURUSD: Favor upside above 1.1634, supported by ECB tightening expectations and a Fed pause narrative. Initial targets are 1.1700 and 1.1720.
- GBPUSD: Sterling retains upside potential through 1.3585 as BoE energy-shock risks contrast with Fed caution. Targets are 1.3606 and 1.3656.
- AUDUSD: Long bias while the pair holds 0.7136, with softer US yields supporting a move toward 0.7280.
Bearish
- USDJPY: Short bias below 156.70, targeting 155.00, 154.00 and potentially 152.20 as BoJ normalization expectations build.
- AUDJPY: Yen strength is overwhelming the Aussie’s dollar gains; breaks below 111.33 would expose 110.01.
- USDCAD: Bias remains lower below 1.3920, with 1.3732 the key downside trigger. A strong US payroll follow-through is the main reversal risk.
- USDCHF: Sell a confirmed break below 0.8100, targeting 0.7949 and 0.7932; the pair lacks a durable bullish signal unless 0.8100 is reclaimed decisively.