FOREX: Asia FX Wrap-BBDXY Breaks Below 1195 In Asia, Can It Extend Ahead Of FOMC
The BBDXY has had a range of 1193.03 - 1195.49 in the Asia-Pac session; it is currently trading around 1193, -0.10%. The USD continues to grind slowly lower, pressing and probing its recent support. A sustained break below 1195 is needed to regain the momentum lower and retest the year's lows towards 1180 where demand should return initially. A break sub 1180 would be extremely bearish, should the USD start another leg lower it would have big implications for FX and potentially see a lot of the recent ranges in G10 broken. The USD is trying to break its recent support ahead of the FOMC with the market pricing in a dovish outcome, there are obvious risks to this buy the rumour strategy. I would prefer to have optionality around FOMC and trade the event than going in naked short with a low bar to disappoint.
- EUR/USD - Asian range 1.1757 - 1.1787, Asia is currently trading 1.1775. The pair consolidated has drifted higher into the FOMC as the USD breaks down. EUR is still within its wider 1.1350-1.1850 range with a bias to the topside.
- GBP/USD - Asian range 1.3598 - 1.3625, Asia is currently dealing around 1.3615. The pair is probing the top-end of its recent 1.3350-1.3650 range, price action suggests it may be looking to break these highs and reassert its momentum higher. A sustained break above 1.3650 will initially target the year's highs just below 1.3800, though here it would open a move back to the 1.4200/1.4300 area.
- USD/CNH - Asian range 7.1119 - 7.1198, the USD/CNY fix printed 7.1134, Asia is currently dealing around 7.1130. Sellers should be around on bounces while price holds below the 7.2200/2500 area and the PBOC manages the fix lower. Above 7.2500 and we could see a test of the USD Shorts.
- Cross asset : SPX +0.10%, Gold $3682, US 10-Year 4.034%, BBDXY 1193, Crude Oil $63.46
- Data/Events : Germany ZEW Survey Expectations, Italy CPI, EZ ZEW Survey Expectations/ Labour Costs/ Industrial Production
Fig 1: BBDXY Spot Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
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AUSSIE 10-YEAR TECHS: (U5) Follows Fade in Treasuries
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.960 - High Apr 7
- PRICE: 95.710 @ 15:17 BST Aug 15
- SUP 1: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 2: 95.275 - Low Nov 14 (cont) and a key support
- SUP 3: 94.707 - 1.0% 10-dma envelope
Aussie 10-yr futures received a boost from the US Treasury rally that followed both the recent poor NFP print as well as Tuesday’s inflation number. While this impact faded into the close of the week, 10-year futures remain toward the top end of the recent range. To the upside, next resistance is at 96.207, a Fibonacci retracement point. Next support undercuts at 95.420 (pierced), the Feb 13 low, ahead of 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish condition.
FOREX: USD Index Pinned to 50-dma as Putin Shakes Hands with Trump
- USD slipped against all others Friday, with a poor set of retail sales and Uni of Michigan sentiment numbers meeting a higher-than-expected import price index to further stimulate concerns over a stagflarionary phase in the US economy. The USD Index trades either side of the 50-dma which, notably, has begun to flatten out after maintaining a solid downtrend throughout 2025.
- JPY is the strongest currency in G10, extending the breakout and bearish conclusion of the consolidation phase in USD/JPY. Recent weakness puts the price through support drawn off the early August lows as well as 146.71, a key retracement. Price action this week marks a full reversal of the previously overbought condition, keeping the downside argument in focus.
- Anticipation ahead of the Putin-Trump meeting has reached fever pitch. Footage showing the Presidents shaking hands in Alaska has helped ease concerns over a hostile meeting, but it's the outcomes that will matter to markets - particularly as equities hold at alltime highs. Any signs of progress toward a ceasefire would be warmly received by risk sentiment - although both Trump and Putin cautioned against a optimistic outcome in comments to press.
- We noted earlier in the week the pressure building on USD/HKD, with price action not matching the pattern of HKMA intervention. That move extended overnight, and is still building at typing, putting spot down to new pullback lows of 7.8119 shortly after the European open. Overnight swap rates have surged further still Friday (hitting 1.7% at typing), well ahead of the 0.3% prevailing rate mid-week and should continue to support a recovery in HIBOR fixes ahead. Today's 1m HIBOR fixed higher by 41bps, hitting 1.45% for the highest fix since mid-May. It's these factors that should work against the HKD carry trade (selling HKD, buying USD), evident in the further tightening of the HKD forward discount today: down 975 points from as high as 1270 this month.
- Focus in the coming week shifts to Jackson Hole and Powell's comments on Friday. With the September meeting still in flux - any conviction toward tipping the board toward a rate cut at the next FOMC will be carefully watched, but it's a hawkish outturn that could be more consequential for markets, as OIS prices a near 90% chance of easing on September 17th.
MNI: US TSY TICS NET FLOWS IN JUN +$77.8B
- MNI: US TSY TICS NET FLOWS IN JUN +$77.8B
- US TSY TICS NET L-T FLOWS IN JUN +$150.8B
