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Significant FX Volatility, Greenback Pares Gains Into Month-End

FOREX
  • G10 currencies remained highly volatile on Friday and despite a closing snapshot indicating no sizeable daily adjustments, most majors exhibited significant intra-day ranges to finish the week.
  • USDJPY looks set to post 2% losses for the week and is the weakest pair on Friday (-0.75%). However, multiple whipsaws were experienced throughout the volatile trading day. In an extension of yesterday’s weakness and as a product of the softer US growth data and lower yields, USDJPY initially traded down as much as 1.3% overnight, printing a six-week low at 132.51 as Europe sat down.
  • However, strong reversals across the currency space amid possible profit taking, combined with potential month-end dynamics, led to a sharp reversal higher. Some slightly firmer US data exacerbated the greenback relief rally, prompting USDJPY to print a 134.59 high, over 200 pips off the lows and closely matching the overnight highs.
  • The broad dollar strength saw similar moves across the FX space, although the rally lost steam and once again reversed course approaching the month-end WMR fix. The USD index fell back into negative territory and looks set to extend its losing streak to three consecutive sessions.
  • Similarly, GBPUSD saw initial support amid the early greenback weakness, reaching a one-month high of 1.2239. However, the rally met stiff resistance with weaker domestic data fuelling the turnaround. Despite the resulting 180-pip move to the downside, GBP had a notable bounce ahead of the month-end fix, rising over 100 pips to trade close to unchanged at 1.2170 approaching the close. Technically, initial firm support to watch lies at 1.1890, the Jul 21 low. A break of which would signal a resumption of bearish activity.
  • US ISM Manufacturing PMI highlights Monday’s data docket, however, markets will remain more concerned over Friday’s release of non-farm payrolls following the Fed’s increased importance on the upcoming data. There will be central Bank decisions from both the RBA and the BOE.
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