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Initial USD Strength Shrugged Off As Yields Reverse Course

FOREX
  • Despite rising around 0.35% following some hawkish remarks from Fed’s Bowman over the weekend, the USD index is now trading close to unchanged levels for Monday’s session. Broad moves for the greenback have been closely correlated with the moves in US yields, which have drifted back towards their post payrolls lows.
  • Standing out is the Japanese Yen which has underperformed on the session. USDJPY trades within 10 pips of session highs at 142.58, however remains well short of the Friday high at 142.89 in a relatively thin session. Volumes were notably lower than average across both futures and options markets, keeping focus on risk events set for later in the week, namely US CPI and the prelim UMich set for Friday. The pullback off last week's high found support at the 141.32 50-dma, which has provided some early stability this week. This leaves 143.89 as primary resistance before any test on the cycle best at 145.07.
  • Elsewhere, GBP has received a moderate boost as BOE Chief Economist Huw Pill pointed out that latest data shows more persistent inflation. Conversely, the Chinese Yuan has underperformed amid ongoing concerns surrounding the domestic growth outlook.
  • In emerging markets, there was some renewed pressure on the EMFX basket, which has declined around 0.2%. The most notable move was a 1.2% advance for USDZAR, which has reversed the entirety of the post payrolls decline and bolsters the likelihood of a move to 18.8587, the Jul 11 high.
  • Tuesday contains trade balance data for both China and the US. China will also report inflation data on Wednesday before the market switches focus to July CPI prints from the US. Comments may also arise from Fed’s Harker and Barkin.
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