Forex news

USD/JPY formed a potential bullish reversal day at key support ahead of today's US inflation report. With decent GDP figures also helping crude oil prices post a decent day's gain.

EUR/USD is trying to stage a bounce off the 38.2% Fibonacci retracement of the late-June to mid-July rally

USD/JPY is on a collision course with key support, plunging for a fourth consecutive day as carry trades involving the Japanese yen are unwound. It’s the kind of move you’d normally expect to see in a crisis, although we’re not in a crisis. Yet.

You don’t see unwinds of Japanese yen carry trades like we’re seeing right now outside of crisis periods. It doesn’t feel like we’re in a crisis, making me wonder just how long the current bearish move will last?

The CAD/JPY trend has turned negative following this week’s big rally in the yen, while the USD/CAD will be in focus with the release of key US data in the coming days.

While the euro has struggled, the Japanese yen continues to roar back higher. The strengthening yen is a reflection of tightening of bond yield spread between Japan and the rest of the world, after ballooning following the years of excessive expansionary monetary policy in Japan while the rest of the world pursued a sharp contractionary policy to combat surging inflation.

Currently amid its worst 10-day run since the pandemic, AUD/JPY is on the ropes and desperately hoping the bell rings.

I suspect we’ve entered a phase where politically-driven sentiment carries more weight than domestic data for AUD/USD. And with the VIX rising alongside political uncertainty, volatility could favour bears over the coming months as we head towards the US elections.

In this week's EUR/USD outlook, we see important macro events in the days ahead which could set the short-term tone for this and other major FX pairs. But first, we will begin by looking at the chart to remind ourselves of the trend.

It has been a turbulent 24 hours for markets with Wall Street indices extending losses, dragging AUD/USD and copper prices lower.

Australian unemployment may have risen, but so did all other key metrics including job growth and the participation rate. And that has likely provided a floor for AUD/USD and AUD/JPY over the near term.

Japan’s Ministry of Finance (MOF) appears to be taking full advantage of the path of least resistance by intervening when the US dollar and yields are under pressure. And their latest suspected intervention alongside dovish Fed comments saw USD/JPY break trend support and send DXY below its 200-day MA.

At a high level, the US dollar has not shown a consistent trend of strengthening or weakening in one month before, one week after, one month after, or one quarter after US Presidential Election days over the last 10 elections.

The European Central Bank's upcoming policy decision could turn out to be an important event for the EUR/USD pair. While no rate cuts are expected this time, the ECB's stance and any forward guidance will be closely scrutinised. The previous rate cut in June was driven by concerns over economic growth and as inflation showed weakening signs.

The UK's 1-month OIS suggests ~48% chance of a 25bp cut from the BOE next month, which means today's inflation report is likely a key driver for GBP/USD on monetary policy expectations.

AUD/USD probed a key support level after erasing most of the past six days of gains in just two. And that suggests there could be further downside before bulls step back in. The combination of strong earnings, dovish Fed comments and softer Canadian CPI was enough to push gold and the Dow Jones to record highs, which enjoyed their strongest day's performance in 4 months and 13 months respectively.