FX OVERVIEW
The US dollar is broadly supported by resilient US data and expectations of further Fed tightening, while European vulnerabilities and fading Australian rate-hike expectations weigh on their currencies. Geopolitical energy risks—with oil above $100 a barrel—add a risk premium, though risk-on sentiment has supported selected crosses such as GBPJPY.
MAJOR PAIRS
EURUSD — The pair remains under pressure from the dollar’s rate advantage and the eurozone’s weak external position, including an August trade deficit of €16.1bn. The bearish technical picture remains intact below major moving averages; 1.1340–1.1350 is a consolidation zone, while forecasts cited in the news point to 1.10 by year-end and 1.08 in early 2027.
EURGBP — Stronger UK GDP, including a fourth consecutive month of outperformance in August, has strengthened expectations that the BoE has room to tighten further; EURGBP has fallen to a one-year low. The UK budget is the key risk to that sterling-positive view, particularly the proposed bank surcharge increase.
AUDUSD — Risk-on sentiment and lower US Treasury yields have supported short-term gains, but weak Australian labour data and fading RBA hike expectations leave the pair vulnerable. The technical bias is bearish, with 0.6865 identified as a downside test.
EURJPY — Capital outflows into Japanese equities are weighing on the yen, despite hawkish BoJ rhetoric. The supplied technical read, however, flags a break below 175.65 as a downside signal for EURJPY, with 172.27 next; that level is the key inflection given the conflicting fundamental and technical signals.
GBPJPY — A wider rate differential and risk-on sentiment have lifted the cross to its highest level since late September. Resistance at 211.66–213.54 caps the near-term rally; absent a breakout supported by UK data or BoE signals, the cited downside levels are 209.19 and 206.89.
USDINR — The pair reversed nearly 2% to 95.00 after RBI restrictions limited derivatives to hedging, curbing speculative pressure on the rupee. The move supports near-term rupee strength, with export growth and a manageable current-account deficit also cited as supportive.
CENTRAL BANK WATCH
- ECB: Eurozone CPI is expected to confirm inflation at 3.8%, well above target, and markets price nearly 75bp of further tightening. The ECB’s hawkish forecasts support the euro at the margin, but commentary suggests only one further hike may be warranted, with French bond-market conditions a key constraint.
- Bank of England: Strong UK GDP has given the BoE more room to consider further tightening. The upcoming budget—and the proposed bank surcharge increase—poses a fiscal and confidence risk to sterling.
- Federal Reserve: Markets retain expectations of a December hike, supporting the dollar. Dovish comments from Warsh and lower Treasury yields have provided temporary relief to risk-sensitive currencies.
- Bank of Japan: Hawkish rhetoric has not offset the yen pressure from reported capital outflows into Japanese equities.
MACRO DRIVERS
- Energy and geopolitics: Oil above $100 a barrel, amid attacks on shipping and energy infrastructure, raises the risk of an inflationary supply shock and adds to market volatility.
- Rate divergence: Fed tightening expectations and resilient US data contrast with fading RBA hike expectations and uncertainty over the ECB’s remaining tightening capacity.
- European fragility: The €16.1bn trade deficit and French fiscal and bond-market risks weigh on confidence in the euro, despite above-target inflation.
- Capital flows and regulation: Japanese equity inflows are pressuring the yen, while RBI derivatives restrictions have reversed speculative pressure on the rupee.
POSITIONING IDEAS
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Bullish
- GBP vs EUR (short EURGBP): UK GDP resilience and scope for further BoE tightening have driven EURGBP to a one-year low.
- INR vs USD (short USDINR): RBI restrictions on speculative derivatives activity triggered a sharp rupee rebound, supported by export growth and a manageable current-account deficit.
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Bearish
- EURUSD: The dollar’s rate advantage and eurozone external and fiscal vulnerabilities support a lower bias.
- AUDUSD: Weak Australian labour data and reduced RBA hike expectations leave the pair exposed despite short-term risk-on support.