FOREX: Sharp Reversal Higher for US Dollar After DXY Prints Cycle Lows
- The initial reaction to the Fed’s 25bp rate cut and dovish adjustments to the statement was a sharp selloff for the US dollar. This marked a continuation of the recent theme of greenback weakness and prompted the USD index to briefly break to the lowest point since February 2022. Most notably, this propelled EURUSD to a high of 1.1919.
- However, a confident sounding Chair Powell on the US economy as a whole and the mixed messages within the summary of economic projections questioned the overall dovish narrative and subsequently the US dollar aggressively reversed higher alongside US treasury yields.
- The USD index rallied around 0.8%, with the likes of EURUSD and USDJPY reversing nearer to 1%.
- For USDJPY in particular, the false break below the bear trigger of 146.21 places a significant focus on today’s daily close and whether bearish momentum can be sustained for the pair. Markets will be aware of the risks surrounding the LDP leadership and Friday’s BOJ meeting.
- EURUSD rose to a high of 1.1919, within four pips of the 2.00 proj of the Feb 28 - Mar 18 - 247 price swing. Separately, GBPUSD traded as high as 1.3726 before trading back to 1.3650 as we approach the APAC crossover and tomorrow’s BOE meeting. Cycle highs for cable reside at 1.3789, the July 1 and key resistance.
- New Zealand GDP and Australian employment data kick off the Thursday calendar, before the focus turns to Norges bank and BOE decisions.
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AUDUSD TECHS: Trend Signals Remain Bullish
- RES 4: 0.6700 76.4% retracement of the Sep 30 ‘24 - Apr 9 bear leg
- RES 3: 0.6688 High Nov 7 ‘24
- RES 2: 0.6677 0.764 proj of the Jun 23 - Jul 11 - 17 price swing
- RES 1: 0.6569/6625 High Aug 14 / 24 and the bull trigger
- PRICE: 0.6492 @ 16:41 BST Aug 18
- SUP 1: 0.6419 Low Aug 1 and a bear trigger
- SUP 2: 0.6373 Low Jun 23
- SUP 3: 0.6354 38.2% retracement of the Apr 9 - Jul 24 upleg
- SUP 4: 0.6323 Low Apr 16
AUDUSD is trading inside a range. From a trend perspective, the condition remains bullish and this is highlighted by moving average studies that remain in a bull-mode position. Key resistance to monitor, has been defined at 0.6625, the Jul 24 high. Clearance of this level would confirm a resumption of the uptrend and open 0.6677, a Fibonacci projection. On the downside, key support to watch lies at 0.6419, the Aug 1 low.
US TSYS: Late SOFR/Treasury Option Roundup
With few exceptions (26k FVU5 put fly) Monday's option flow revolved around upside SOFR & Tsy calls, the latter likely consolidating ahead of Friday's Sep expiry. Projected rate cut pricing cooled slightly vs. morning (*) levels: Sep'25 at -20.9bp (-21.2bp), Oct'25 at -33.6bp (-34.6bp), Dec'25 at -52.9bp (-54.6bp), Jan'26 at -64.1bp (-65.6bp).
- SOFR Options:
- Block/screen over +145,000 SFRU5 96.50 calls, 3.0-3.25
- 2,000 SFRU5 95.68/95.75/95.81/95.87 put condors ref 95.9025
- 1,500 0QH6 97.12/97.25 call spds ref 96.93
- 1,775 SFRM6 97.00/97.25 call spds ref 96.67
- 5,000 SFRU5 95.75/95.81 put spds
- 1,500 SFRU5 96.12 calls, ref 95.9025
- 1,200 SFRZ5 96.25/96.37/96.50/96.62 call condors
- 2,000 SFRZ5 95.87/96.00/96.12 call flys, ref 96.22
- Block/screen, +21,000 SFRU5 96.00/96.12/96.25 call flys, 0.75 ref 95.90
- Treasury Options: (Sep'25 options expire Friday)
- -26,968 FVU5 107.5/108.25/109 put flys, 21.5 ref 108-20.5
- +40,000 TYU5 112.5 calls, 2, total volume over 52,700
- 4,000 FVU5 107.75/108/108.5 2x3x1 put flys
- +30,000 FVU5 109.25 calls, 2
- 1,650 FVX 110.25/FVZ5 110 call spds
- 3,000 wk5 TU 104.12/104.37/104.62 call flys ref 104-02.5
EURJPY TECHS: Trend Structure Still Bullish
- RES 4: 177.08 2.000 proj of the Feb 28 - Mar 18 - Apr 7 price swing
- RES 3: 175.43 High Jul 11 ‘24 and a key medium-term resistance
- RES 2: 174.86 1.764 proj of the Feb 28 - Mar 18 - Apr 7 price swing
- RES 1: 173.97 High Jul 28 and the bull trigger
- PRICE: 172.55 @ 16:41 BST Aug 18
- SUP 1: 170.10 50-day EMA
- SUP 2: 169.73/45 Low Jul 31 / 23.6% of the Feb 28 - Jul 28 bull leg
- SUP 3: 168.46 Low Jul 1
- SUP 4: 167.46 Low Jun 23
The underlying bull trend in EURJPY remains intact and for now the recent move down is considered corrective. Key support to watch lies at the 50-day EMA at 170.10. A clear break of the EMA is required to highlight a stronger short-term bearish threat. Moving average studies remain in a bull-mode position highlighting an uptrend. A break of the Jul 28 high of 173.97, would resume the bull cycle.
