Forex News
- DXY climbs on Fed hike bets and stalls at its usual ceiling, near 99.50 and up 0.4%
- 10-year Treasury yield above 5% for the first time since October 2023, two days before the Fed
- Euro near 1.1500 at a one-month low, 57.6% of the basket, a week after the ECB hiked to 2.50%
The Dollar Index trades near 99.50, up 0.4% on the day, and it made the whole of that gain while America was asleep. A 5% Treasury yield sounds like the best thing that could happen to the Dollar, and New York has spent the morning selling it.
That is because a currency is paid for the gap between its interest rates and everyone else's, not for the level, and the gap isn't widening: the European Central Bank (ECB) raised rates last week, the Bank of Japan (BoJ) does it on Friday, and the Bank of England (BoE) has a move priced for November.
A 5% yield isn't the gift it looks like
The Dollar climbed half a point between the Sunday open in Asia and the London morning, from just above 99.05 to near 99.60 by 08:00 GMT, added a further 0.16 into the New York stock market open, and has given the New York part back since. The high came at 14:00 GMT, the same hour the 10-year yield crossed 5%. That is the moment the Dollar stopped going up.
The reason is what is pushing the yield. Investors aren't paying up for American bonds because the economy is booming. They are demanding more to hold them, because the government is borrowing more, companies are borrowing hundreds of billions to build artificial intelligence (AI) data centres, and Crude Oil above $103 a barrel keeps inflation above target.
Friday's expanded Treasury buyback, the operation designed to hold long-term yields down, bought $5.2 billion against a $6 billion cap, and the 10-year went up anyway. There is a difference between the world paying more to own American bonds and America paying more to borrow. The Dollar spent New York's morning working out which one this is.
Three of the six currencies in the basket have a central bank moving this month
The Euro is 57.6% of the index, so the Dollar Index is mostly the Euro upside down. The Euro trades near 1.1500, its lowest since mid-August and down about half a percent today, and that is where the Dollar's gain came from. The ECB raised its rate to 2.50% last Thursday, as all 65 economists in one poll expected, and a quarter-point from the Fed on Wednesday against a quarter-point from the ECB leaves the gap between the two exactly where it was.
The Yen is 13.6% of the basket and the BoJ is expected to lift its rate to 1.25% on Friday. The Yen is up 4% this month, Tokyo has spent $96.4 billion buying it, and speculators hold more bets on it rising than falling for the first time since February.
The Pound is 11.9%, and the BoE holds at 3.75% on Thursday with a 30% chance of a hike and a November move almost fully priced. The Dollar's own hike is priced at 90%. It is the only one of the four still being called a bet.
Crude Oil above $103 ought to help too, because America sells energy abroad and Europe and Japan buy it, so every extra dollar on the barrel moves money from the Euro's economy to the Dollar's. Since late August the barrel has gone from the low $80s to above $103 and the Dollar Index from around 99.15 to near 99.50. The same barrel is the reason the ECB and the BoJ are raising rates, and a hike abroad cancels the energy dividend.
Wednesday decides the gap, not the hike
The Fed decides at 18:00 GMT on Wednesday, and futures put roughly 90% on a quarter-point increase that would lift the Fed's rate from 3.50-3.75% to 3.75-4.00%. The hike itself is in the price. What isn't is the chart of rate projections the Fed publishes with it, which in June showed 3.8% for the end of this year, 3.6% for next year and 3.4% for 2028, a hike now and cuts later.
If Wednesday's version shows more hikes, the gap with Europe and Japan widens next year and the Dollar gets a reason to leave its box. If it repeats June, the Fed hikes once while the ECB and BoJ keep going, and the gap narrows.
August retail sales land first, at 12:30 GMT on Wednesday, with the forecast at 0.9% after a 0.6% fall. Retail sales are counted in dollars, so pricier gasoline flatters the headline, and the control group, which strips out fuel, cars and building materials, was last at a 0.4% fall and tells you which.
British inflation for August arrives Wednesday morning, a day before the BoE decides at 11:00 GMT on Thursday, and the BoJ follows on Friday. Jobless claims are seen at 205K on Thursday at 12:30 GMT, and a Fed governor speaks at 07:30 GMT on Friday.
Levels and bias
Resistance: Today's high just under 99.75 is the ceiling, and the two long-run averages, the 50-day and 200-day Exponential Moving Averages (EMA), sit on top of each other near 99.65 just beneath it. The index has been turned back from that line five times since August 28, and only the September 2 high just short of 99.90 sits above.
Support: The 99.05 area where the week began is the first floor. Under it sits the 98.80 area where most of last week traded, then the August low near 98.55.
Bias: Bearish while 99.75 caps, with the 99.05 area the first objective and 98.80 behind it. The daily Stochastic Relative Strength Index (Stoch RSI), a momentum gauge, reads near 68 and has been flat for four sessions after climbing from 16 on August 19, so the rally has already spent its momentum without leaving the box. A daily close above 99.75 voids the case and puts the September 2 high in play.
DXY daily chart
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
- USD/JPY edges higher as Fed rate hike bets support the Greenback.
- Higher energy prices add to US inflation concerns and lift Treasury yields.
- Friday’s BoJ decision could determine whether the Japanese Yen resumes its recovery.
USD/JPY climbs on Monday as US Dollar (USD) demand picks up ahead of the Federal Reserve’s (Fed) interest rate decision on Wednesday. Attention is also on the Bank of Japan’s (BoJ) policy announcement on Friday, where a 25-basis-point rate hike is fully priced in, helping limit deeper losses in the Japanese Yen (JPY). At the time of writing, the pair trades around 156.40, up roughly 0.50% on the day.
Markets are increasingly convinced that the Fed will raise borrowing costs, with the CME FedWatch Tool showing a 90% probability of a quarter-point increase. The view is supported by recent US inflation data, which showed price pressures staying stubbornly above the central bank’s 2% target. Fed Chair Kevin Warsh also stressed the importance of restoring price stability during his speech at the Jackson Hole Symposium in August.
A Reuters poll published on Monday showed that 86 of 101 economists expect the Fed to raise its policy rate by 25 basis points to 3.75%-4.00% at the September 15-16 meeting, which would mark the first increase since July 2023. Among a smaller group of respondents, 37 of 70 expect at least one additional increase by the end of March 2027.
The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, trades around 99.53, up 0.45% on the day, after touching an intraday high of 99.74, its strongest level in nearly two weeks.
Higher energy prices due to escalating tensions in the Middle East are adding to concerns that inflation could stay elevated for longer. Reflecting these concerns, US Treasury yields extend their rise across the curve. The benchmark 10-year yield trades near 4.97% after briefly touching 5.00%, its highest level since October 2023.
The Japanese Yen has strengthened sharply since the start of the month amid expectations that the BoJ will tighten policy at a faster pace, narrowing the yield gap with other major economies. With a rate hike fully priced in, the focus will be on the BoJ’s forward guidance about the timing of future policy moves.
Yen faces downside risks as markets fully price BoJ hike and eye Fed signal
Analysts at ING expect the Bank of Japan to deliver a rate increase on Friday, noting that the BoJ "looks likely to hike rates by 25bp," with markets "fully discounting the move" and "little risk of a surprise hold." They add that, if anything, there is "a small outside chance of a larger 50bp increase," though such a move would likely be "met with some discontent from the growth-oriented government."
Despite the anticipated tightening, ING warns that "we see downside risks for the yen this week." A "hawkish Fed hike on Wednesday" could prompt "a rebuilding of speculative USD/JPY long positions," while the BoJ itself "may fall short of validating market expectations, with a December hike already fully priced in." The bank also flags a potential source of disappointment for JPY bulls, noting that "some JPY bulls may also be looking for an announcement on a domestic shift in GPIF portfolio allocation as early as this week and could be disappointed if none materialises."
Japanese Yen Price Today
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.43% | 0.25% | 0.57% | 0.28% | 0.44% | 0.61% | 0.12% | |
| EUR | -0.43% | -0.15% | 0.09% | -0.14% | 0.00% | 0.19% | -0.31% | |
| GBP | -0.25% | 0.15% | 0.27% | 0.02% | 0.18% | 0.34% | -0.22% | |
| JPY | -0.57% | -0.09% | -0.27% | -0.29% | -0.10% | 0.04% | -0.48% | |
| CAD | -0.28% | 0.14% | -0.02% | 0.29% | 0.15% | 0.31% | -0.22% | |
| AUD | -0.44% | -0.01% | -0.18% | 0.10% | -0.15% | 0.18% | -0.40% | |
| NZD | -0.61% | -0.19% | -0.34% | -0.04% | -0.31% | -0.18% | -0.56% | |
| CHF | -0.12% | 0.31% | 0.22% | 0.48% | 0.22% | 0.40% | 0.56% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
- DJIA loses another round, down around 200 points just under 52,400 as bond yields climb
- 10-year yield tops 5% for the first time since October 2023, two days before the Fed
- WTI Crude Oil above $103 after Saudi Arabia shuts its 7 million barrel-a-day Hormuz bypass
The Dow Jones Industrial Average is down around 200 points and trades just under 52,400, and the reason is less exciting than the headlines. Those are about artificial intelligence (AI) and a sell-off in chip stocks, and that story belongs to the Nasdaq Composite, down about 1%. The Dow's problem is plainer. Treasury yields are hitting their highest levels since 2023, and a government bond that pays 5% is a good reason not to buy a stock.
Why a 5% bond yield costs the Dow money
The 10-year Treasury yield sits just above 5%. Almost everything Americans borrow is priced off that number: the average 30-year mortgage is 6.76%, up from 6.15% at the start of the year, and car loans, credit cards and corporate debt reprice off the same line. It also changes the math of owning stocks. The fund that tracks the Dow pays about 1.4% a year in dividends, and the government now pays 5% to borrow your money for a decade.
The bill lands on the Dow's housing names first. Home Depot (HD) and Sherwin-Williams (SHW) sell lumber and paint into a market where fewer people move at 6.76%, so the bond market is doing the Fed's job on housing two days before the Fed votes. The 10-year last touched 5% in October 2023 and managed it for one day.
The Dow fell less because it owns the customers, not the suppliers
The AI story is real, and it started on Saturday, when the head of Anthropic published a long essay arguing that AI companies should slow how fast they make their best models more capable. The head of OpenAI agreed, and so did Elon Musk, and OpenAI ruled out a stock market listing this year. The market read that as fewer chips and data centres getting bought, which is the trade that has carried tech stocks for three years.
Nvidia (NVDA) is down around 3%, the only chipmaker the Dow owns. Broadcom (AVGO), Advanced Micro Devices (AMD), Intel (INTC) and Marvell Technology (MRVL) are down between 4% and 7%, and none of them is in the index. Microsoft (MSFT) and Amazon (AMZN), the Dow's other big tech names, buy the chips rather than sell them, and they are holding up better. The three loudest rivals in the business agreed inside a day, and the chip stocks decided that was the alarming part.
Crude Oil at $103 is a bill for 29 of the 30
Saudi Arabia shut its East-West pipeline on Friday after drone strikes, and West Texas Intermediate (WTI) Crude Oil is up about 3% above $103 a barrel, with Brent above $108. The pipeline carries up to 7 million barrels a day to the Red Sea, the kingdom's main way out since the Strait of Hormuz effectively shut in March. Saudi Arabia built it so it would not depend on the strait. It now depends on neither.
For the Dow, pricier Crude Oil is a cost. Chevron (CVX) is the one Dow company that earns more when the barrel goes up. Walmart (WMT) and McDonald's (MCD) sell to people who just paid more at the pump, and Caterpillar (CAT) sells machines that run on diesel. Crude Oil is also why the bond market is nervous: energy is most of the gap between headline inflation at 3.4% and core at 2.4%, and the bond market prices the headline.
Wednesday's hike is priced, Wednesday's chart is not
The Fed decides at 18:00 GMT on Wednesday, and futures put roughly 90% on a quarter-point increase that would lift the Fed's rate from 3.50-3.75% to 3.75-4.00%, the first hike since 2023. A hike is the Fed charging banks more to borrow overnight, and everything else follows. The decision isn't the risk, because 90% means the market has already moved for it, and part of today's 5% is that move. The risk is the chart the Fed publishes alongside it.
The Fed's June projections put the rate at 3.8% for the end of this year, 3.6% for next year and 3.4% for 2028, which is a hike now and cuts later. The bond market has priced a hike now and more hikes later, with economists polled this week expecting at least one more by March. Wednesday's projections say whether the Fed agrees with it by 2027. One of them has to move, and the press conference at 18:30 GMT is where the index finds out which.
August retail sales land at 12:30 GMT on Wednesday, with the forecast at 0.9% after a 0.6% fall. Retail sales are counted in dollars, so a jump can be the shopper coming back or the same shopper buying the same gasoline at a higher price. The control group, which strips out fuel, cars and building materials, was last at a 0.4% fall and tells you which, five and a half hours before the vote it is supposed to inform. Thursday's housing starts and building permits at 12:30 GMT are the first read on what a 6.76% mortgage does to Home Depot's customers. A Fed governor speaks Friday at 07:30 GMT.
Levels and bias
Resistance: The day's early high just above 52,500 is the first hurdle. The 50-day Exponential Moving Average (EMA) near 52,750 is the one that counts, because the index has spent three sessions failing to get back above it and Friday's rally stopped just short. 53,000 is the next one.
Support: Today's low just above 52,250 is the first floor. Thursday's low just under 52,000 is the one that matters, and below it there is nothing until the late-July base near 51,500.
Bias: Bearish while the 50-day EMA near 52,750 caps, with Thursday's low just under 52,000 the first objective and 51,500 behind it. The daily Stochastic Relative Strength Index (Stoch RSI), a momentum gauge, reads near 39 and is pointing down, so the selling has room to run. A daily close back above 53,000 voids the case.
Dow Jones daily chart
Dow Jones FAQs
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.
- Gold starts the week under pressure as traders gear up for the Fed’s monetary policy meeting.
- Rising Oil prices, a stronger US Dollar and elevated Treasury yields weigh on the metal.
- Technically, XAU/USD trades between the 50-day and 100-day SMAs, keeping the near-term bias range-bound.
Gold (XAU/USD) remains on the back foot on Monday as Federal Reserve (Fed) interest rate hike expectations dominate market sentiment ahead of the two-day monetary policy meeting starting on Tuesday.
At the time of writing, XAU/USD trades around $4,290, down 1.30% on the day, after touching an intraday low of $4,253, its lowest level since August 7.
Friday’s US Consumer Price Index (CPI) report all but cemented the case for a quarter-point rate increase this week. Data released by the US Bureau of Labor Statistics showed that headline CPI rose 0.4% MoM in August, accelerating from 0.1% in July, while core CPI increased 0.3% during the same period, up from 0.2% and marking its fastest pace in four months.
According to the CME FedWatch Tool, markets now price in an 89% probability of a rate hike, up from around 59.4% a week ago.
Rising Oil prices are reinforcing expectations of a hawkish Fed outcome as the war in the Middle East escalates. Supply risks are spreading beyond the Strait of Hormuz to the Red Sea, where the Iran-aligned Houthis have increased their presence near the crucial Bab el-Mandeb shipping route. West Texas Intermediate (WTI) Oil trades around $99.00, near levels last seen on May 21, and has gained over 15% so far this month.
Expectations of higher borrowing costs in the US, alongside elevated geopolitical tensions, are also supporting demand for the US Dollar (USD), while US Treasury yields remain elevated across the curve.
The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 99.53, up 0.55% on the day and at its highest level since September 3. Meanwhile, the benchmark 10-year US Treasury yield hovers near 4.97% after briefly touching 5.00%, its highest level since October 2023.
Since the war in the Middle East broke out, the metal appears to have partly decoupled from its traditional safe-haven role, with price action increasingly driven by interest rate expectations rather than geopolitical tensions.
As a result, a Fed rate hike accompanied by hawkish guidance could leave Gold vulnerable to further weakness. Conversely, a surprise hold would likely weigh on the US Dollar and Treasury yields, giving the precious metal room to rebound.
Technical analysis: XAU/USD struggles below 100-day SMA
On the daily chart, XAU/USD is trading between the 50-day Simple Moving Average (SMA) at $4,271 and the 100-day SMA at $4,33, pointing to a near-term range-bound phase with a mild bearish bias.
Momentum indicators also point to consolidation rather than a strong directional move. The Relative Strength Index (RSI) sits in the mid-40s, while the Average Directional Index (ADX) has eased toward the low-20s, suggesting weak trend strength. The Moving Average Convergence Divergence (MACD) remains below zero, indicating that sellers still hold a modest advantage.
On the downside, the 50-day SMA near $4,272 acts as immediate support. A daily close below this level would increase bearish pressure and expose $4,150, followed by the $4,000 psychological mark.
On the topside, initial resistance comes at the 100-day SMA at $4,331, followed by the 200-day SMA near $4,538, while a more distant horizontal barrier sits at $4,700. A daily close back above the 100-day SMA would be the first sign that buyers are regaining control.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Societe Generale economists Sam Cartwright and Michel Martinez analyze how renewed supply chain disruptions, including conflict in the Middle East, may affect Euro Area prices. Using an adaptation of the New York Fed’s Global Supply Chain Pressure Index for Europe and Asia, they highlight still-elevated pressures, firmer demand and a projected peak in Euro Area non-energy industrial goods inflation at 1.8% in 2H27.
Supply strains and inflation outlook
"Following the Covid pandemic in 2020-21 and the supply chain disruptions triggered by the war in Ukraine since 2022, the recent conflict in the Middle East has renewed concerns about the resilience of European supply chains."
"In this note, we try to quantify the degree of supply pressure in Europe and its impact on inflation."
"We adapt the New York Fed Global Supply Chain Pressure Index (GSCPI) to construct separate indices for Europe and Asia, revealing a distinct response to disruptions to trade flows through the Strait of Hormuz:"
"Supply chain pressures have been easing this summer, but they remain elevated and are likely to feed through to inflation this year and next."
"Under different forecast scenarios, even if supply pressures continue subsiding in the coming months, our euro area non-energy industrial goods inflation forecast peaks at 1.8% in 2H27 before normalizing."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- The US Dollar is bid across the board ahead of the Fed’s Wednesday decision.
- AUD/USD has broken to a new monthly low, handing back the last of its late July rally.
- China will start the Asian session with its August activity data.
AUD/USD slipped to a new monthly low in the 0.7100s on Monday, driven by a firm run of United States (US) data that has pushed the market toward pricing in a Federal Reserve (Fed) rate hike at its meeting later this week.
After a firm Producer Price Index (PPI) and Consumer Price Index (CPI) last Friday, the market has moved to price a rate hike at 90%, up from around 60% a week ago.
Higher Oil prices, which often help commodity currencies, are not offsetting the move. The pull on the Aussie is coming from the other side. Risk appetite has soured with US stock index futures pointing sharply lower on renewed worries about AI-related names, and soft Chinese lending data did nothing to help sentiment toward China-linked currencies.
China opens the Asian session with its August activity batch. The consensus looks for Industrial Production to pick up to 4.8% YoY from 4.5%, and for Retail Sales to rise to 0.8% from 0.6%.
Short-term technical analysis:
On the 4-hour chart, AUD/USD trades at 0.7119, extending its slide beneath both the 20-period and 100-period Simple Moving Averages (SMAs), which cap the pair at 0.7177 and 0.7179, respectively, and reinforce a bearish near-term bias. The recent drop has pushed the 14-period Relative Strength Index (RSI) into oversold territory near 22, hinting that while downside pressure remains dominant, selling momentum could be stretched in the short term.
On the topside, initial resistance emerges at 0.7125, followed by the nearby horizontal barriers at 0.7131 and 0.7137, before the clustered SMA zone around 0.7177–0.7179. On the downside, immediate support is defined by the horizontal level at 0.7108, and a clear break below this floor would open the path for an extension of the current bearish sequence.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Scotiabank strategists Shaun Osborne and Eric Theoret highlight a weaker Japanese Yen (JPY), down 0.7% versus the US Dollar (USD) and underperforming G10 peers alongside New Zealand Dollar (NZD) and Swedish Krona (SEK). Markets are focused on Friday’s Bank of Japan (BoJ) meeting, where a hike is seen as fully priced. For USD/JPY, they flag recent lows around 153, additional support near 152, and resistance above 155, with trade and Consumer Price Index (CPI) data also due.
Key BoJ week levels
"The yen is weak, down a notable 0.7% vs. the USD and underperforming most G10 currencies along with the high-beta pro-risk NZD and SEK."
"The relative performance suggests a focus on factors beyond sentiment, as market participants eye Friday’s BoJ and its widely anticipated and fully priced hike."
"Fundamental releases have been limited, though we note Wednesday’s trade and Friday’s CPI data. For USD/JPY, we continue to note the recent lows around 153 and see additional support closer to 152."
"We see resistance above 155."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Pfister and Liebke analyse 30 years of FOMC meetings to separate interest rate surprises from forward guidance shocks and their effect on the US Dollar and G10 currencies. They find guidance surprises explain a much larger share of USD variance, especially in policy shocks, and show how this relationship evolved under Greenspan, Bernanke, Yellen and Powell.
Guidance versus rate surprises
"Forward guidance does not always have the same effect. Breaking down the FOMC surprises into policy shocks (where equities and interest rates move in opposite directions) and information shocks (where both move in the same direction), as Jarociński and Kaladi (2020) do, shows that the forward guidance factor is only highly significant in the case of policy shocks, explaining roughly 21% of the USD variance on the respective day."
"By contrast, the trend under Powell’s predecessors follows a clear pattern: during the latter part of Alan Greenspan’s tenure and under Ben Bernanke’s chairmanship, our breakdown of interest rate and forward guidance surprises accounted for only a small proportion of USD variance on meeting days. Under Janet Yellen, however, this figure more than doubled, with the two components accounting for almost 39% of the daily variance."
"Under Jerome Powell, the explained variance of our decomposition collapsed completely, rendering both factors insignificant. At first, this seems confusing; after all, forward guidance became even more important under Powell than under his predecessors. But the answer is quite simple."
"The trend of shifting information from the statement to other components of the FOMC meeting has intensified in recent years. For the last 21 meetings since early 2024 (two under Warsh and 19 under Powell), the daily change in OIS on the day of the meeting has accounted for around 62% of USD variance."
"Warsh has only chaired two meetings so far, which is not enough to accurately assess his impact. But our analysis of the past 30 years or so, combined with his stated opposition to forward guidance - for example, he recently abstained from voting on the dot plots, which show the individual FOMC members' interest rate forecasts - suggests two possibilities:"
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
TD Securities strategists Ryan McKay and Bart Melek note that CTAs remain maximally long WTI Crude, Brent Crude, diesel and gasoline as attacks on energy infrastructure in Saudi Arabia and Russia sustain a significant upside risk premium. Supply risks remain elevated after Saudi Arabia's East-West pipeline was damaged, with reports indicating that much of the system could remain out of service for three to five weeks, while the threat of further Houthi strikes adds to tightening risks.
Pipeline risks sustain CTA long bias
"Upside risks across crude oil and products remain extremely elevated amid energy infrastructure attacks in the Middle East and Russia."
"CTAs remain max long across crude oil, diesel and gasoline markets, with only vol levels constraining positioning at this point."
"supporting an upside risk premium in crude oil pricing, while continued Ukrainian attacks on Russian refineries further tighten the diesel market."
"However, if repairs stretch beyond that, flow rates are materially reduced, or if further attacks occur, the market would tighten materially."
"The market has been much more balanced of late amid flows from the broader Middle East region hitting 80-90% of pre-war crude totals (including Hormuz, Gulf of Oman, Oman, Fujairah and Yanbu), alongside still reduced refinery runs, but the risks of continued attacks limiting supply, or a recovery in refinery runs as Chinese appetite picks up, have seen a risk premium remain priced in."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Scotiabank strategists Shaun Osborne and Eric Theoret report the Euro (EUR) is weaker, down about 0.5% versus the US Dollar (USD), as risk aversion supports broad USD strength. Yield spreads imply a fair value near 1.1633, while data have been light ahead of Tuesday’s ZEW survey. They highlight major support around 1.15 and only limited near-term resistance before 1.1650, with European Central Bank (ECB) rhetoric turning more hawkish on energy-driven inflation.
Euro pressured by sentiment
"The EUR is weak and entering Monday’s NA session with a notable 0.5% decline a mid-performer among the G10 currencies in an environment of broad-based USD strength marked by risk aversion. Sentiment is dominating as yield spreads remain relatively well supported, offering a narrow FV estimate based solely on yield spreads (2Y Germany-US) at 1.1633."
"Fundamental releases have been limited and we continue to highlight the importance of Tuesday’s ZEW investor sentiment survey, a noted leading indicator for industrial production (by about 12-18 months)."
"Hawkish comments from the ECB appear to be intensifying in response to the latest rise in energy prices, with Executive Board member Schnabel characterizing the increase as ‘quite concerning’."
"The latest decline has dragged momentum into the low 40s, reflecting spot’s decline to its 50 day MA at 1.1531. We see major support at 1.15 and see limited near-term resistance ahead of 1.1650."
"Neutral/bearish – the RSI has swiftly fallen into bearish territory following a brief push above the overbought threshold at 70—reached in late August."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
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