USD/CHF Dips, Stays Above 0.8600 Pre-FOMC

Today, the USD/CHF currency pair is again experiencing a downward trend, marking a second consecutive day of decline. Following an intraday uptick to the 0.8655 region, the pair has seen fresh selling activity and drifted into negative territory. During the early European session, spot prices fell to a new weekly low, with the pair currently trading around the 0.8620 area, down nearly 0.20%.

The U.S. Dollar (USD) is extending its modest pullback from a two-week high and continues to lose ground for the second straight day. This ongoing downtrend in the USD is exerting significant downward pressure on the USD/CHF pair. The USD’s dip can be attributed to some repositioning trade ahead of the anticipated Federal Open Market Committee (FOMC) decision. However, this dip is expected to be limited as traders eagerly await fresh cues about the near-term policy outlook.

Market participants have been progressively discounting the possibility of any further rate hikes this year, following the widely expected 25 basis points increase slated for this Wednesday. Despite this, investors remain skeptical about whether the Federal Reserve (Fed) will commit to a more dovish stance, given the strength and resilience of the U.S. economy. This skepticism persists despite Tuesday’s upbeat U.S. Consumer Confidence Index, which raised optimism that the U.S. economy could avoid a recession this year.

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EUR/JPY Rebounds from Intraday Low, Remains Steady Around 153.00 Level

The EUR/JPY cross experienced a rollercoaster ride in the financial markets, starting with a brief bullish spike that pushed it towards the 155.00 region. However, this upward momentum was short-lived as the pair swiftly plummeted to its lowest level since mid-June. The culprit behind this sudden downturn was a somewhat hawkish message delivered by the Bank of Japan (BoJ) on a Friday, which caught many traders off guard.

The BoJ’s announcement on that eventful Friday was centered around its Yield Curve Control (YCC) policy. The central bank decided to make the YCC policy more flexible by shifting away from rigid limits for the 10-year Japanese government bond yield cap, opting for “references” instead. This decision had an immediate and profound impact on the financial markets, particularly the Japanese Yen.

As a consequence of the BoJ’s policy shift, the 10-year Japanese government bond yield surged to its highest level since September 2014. This significant boost in yields strengthened the Japanese Yen, prompting aggressive selling around the EUR/JPY cross and leading to a sharp decline in its value.

Despite the initial turmoil, the EUR/JPY pair demonstrated resilience and managed to recover a considerable portion of its intraday losses. During the early European session, spot prices found stability just above the 153.00 mark, with only marginal changes for the day. This recovery was partly supported by a positive sentiment surrounding US equity futures, which diminished the safe-haven appeal of the Japanese Yen.

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GBP/JPY Surges to a Three-Week High of 182.80-182.85 on Broad JPY Weakness

The GBP/JPY pair has seen a significant rise for the second consecutive day on Monday, reaching a three-week high in the early European trading session. The pair is currently hovering around the 182.80-182.85 region, a surge of over 650 pips from Friday’s lowest point since June 13. This upward trend is largely due to the widespread weak performance of the Japanese Yen (JPY).

Indeed, the JPY is one of the worst-performing currencies among the G-10 and is under pressure due to an unexpected operation by the Bank of Japan to purchase ¥300 billion ($2 billion) worth of Japanese government bonds (JGB). This marks the first such operation since February 2022 and comes after a notable increase in the yield of 10-year benchmark JGB to a nine-year high, triggered by the BoJ’s decision to introduce more flexibility into its Yield Curve Control (YCC) policy last Friday. The BoJ stated that the 0.5% cap for the 10-year JGB yield will now be considered “references” rather than “fixed limits”.

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EUR/GBP Stalls Near 0.8600 Ahead of BoE Announcement with Mixed Sentiments

EUR/GBP is currently facing a struggle to maintain its strength near the 0.8600 level, as it enters Wednesday’s London session. The cross-currency pair appears to be brushing off mixed Eurozone data, while at the same time validating concerns over the UK’s economic outlook, resulting in the largest daily surge in two weeks seen in the previous trading session.

The recent release of the UK’s inflation data, which showed a downturn, has given some support to the Bank of England (BoE) hawks, as they try to combat soaring inflation amidst sluggish economic activities and labor market challenges domestically. Adding to the woes of the British Pound (GBP) is the setback faced by the ruling Tory Party in the recent by-elections, where they lost some key seats, further dampening market sentiment towards the currency.

Meanwhile, on the European front, Germany’s Unemployment Rate for June eased to 5.6%, slightly better than the 5.7% forecast and the previous reading. Additionally, the final figures of Germany’s HCOB Manufacturing PMI for July came in as expected at 38.8. Similarly, the Eurozone’s HCOB Manufacturing data also matched the initial forecasts of 42.7.
Supporting the euro, the European Central Bank (ECB) has been taking a “meeting-by-meeting” approach, and their recent decision to implement a 0.25% rate hike has boosted confidence among EUR/GBP bulls.

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Euro Hovers Near 1.0950 Ahead of US NFP Data Release

As the week draws to a close, the Euro (EUR) continues to trade in an uncertain manner against the US Dollar (USD), keeping the EUR/USD pair confined within a tight trading bracket around the 1.0950 mark. The uncertainty is mirrored in the USD Index (DXY), which has maintained steady trade within the mid-102.00s range. This lack of clear direction can be attributed to the absence of a definitive trend in US yields, despite their recent surge to nine-month highs across multiple segments of the yield curve.

Investors’ attention is now drawn towards the forthcoming release of the Nonfarm Payrolls report for July. The report is widely anticipated to reflect an increase of approximately 200K jobs. This heightened interest is largely driven by the Federal Reserve’s recent emphasis on the role of economic data in shaping its monetary policy decisions, a point that was underscored during its event held on July 26.

Currently, there is rampant speculation that the rate hike executed by the Fed in July might be the last one we will see in the near-term future. This conjecture has been fuelled by the Federal Reserve’s insistence on basing its decisions on economic data points, suggesting that unless the data indicates a need for further hikes, the current rates could hold steady for some time.

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EUR/JPY Bulls Target 157.70 Key Resistance Despite Soft Japan Wages and Lackluster German Inflation

During today’s European session, the EUR/JPY pair is showing a bullish trend, targeting the key resistance level of 157.70. This upward movement is significant as it challenges a long-standing falling resistance line. Interestingly, this bullish drive is happening despite weak economic indicators from both Japan and Germany.

The Euro’s strength in the face of lackluster German inflation data and sluggish Treasury bond yields is noteworthy. Despite the expected inflation figures closely matching the forecasts, with a YoY rate of 6.5% for the Harmonized Index of Consumer Prices (HICP) and 6.2% for the Consumer Price Index (CPI), the EUR/JPY pair continues to rise. This suggests a prevailing bearish sentiment towards the European Central Bank (ECB).

However, the driving force behind the pair’s ascent could be linked to the evolving monetary policy of the Bank of Japan (BoJ), supported by recent wage statistics from Tokyo. While Japan’s Labor Cash Earnings for June exceeded expectations, real wages continued to decline for the 15th consecutive month, dropping by 1.6% YoY. This decline aligns with the dovish stance surrounding the BoJ.

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GBP/USD on Edge Before US Inflation Data and UK-China Sanctions

GBP/USD remains cautious around 1.2715-20 ahead of Thursday’s London session, as investors tread carefully before the release of US inflation figures for July. Additionally, the Pound faces resistance due to reports of the UK considering restrictions on British investment in Chinese tech firms. Meanwhile, concerns about a potential British recession and looming higher interest rates in London are also testing the Cable pair’s stability.

A recent report by the Financial Times (FT) suggests that UK Prime Minister Rishi Sunak is contemplating measures to limit outbound investment in the Chinese tech sector, including areas like artificial intelligence, chips, and quantum computing. This news gains traction as Sunak seeks support within the political sphere following disappointing by-election results.

Furthermore, the UK’s prominent think tank, the National Institute of Economic and Social Research (NIESR), projects that British economic output won’t recover to pre-pandemic levels until Q3 2024. The NIESR also suggests a 60% chance of the government facing a recession, while anticipating that UK inflation will remain above the Bank of England’s 2.0% target for the next four years. This could drive the Bank of England towards more hawkish actions to defend the British Pound.

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SD/JPY remains below 145.00 as BoJ provides limitless fixed-rate JGBs

The USD/JPY pair is currently trading below the significant level of 145.00, retreating from its year-to-date high during the Asian trading session. At present, the major pair hovers around 144.90, experiencing a marginal decline of 0.05% throughout the day.

On Friday, an important development came from the US Bureau of Labor Statistics, which revealed a substantial increase in the US Producer Price Index (PPI) for final demand on a year-on-year (YoY) basis. In July, the PPI rose by 0.8%, surpassing June’s 0.1% and exceeding market expectations of 0.7%. Additionally, the University of Michigan’s Consumer Confidence Index for July dipped slightly from 71.6 to 71.2, surpassing the anticipated figure of 71. Moreover, the UoM’s 5-year Consumer Inflation Expectations for August declined to 2.9% compared to the previous estimate of 3.0%. This data resulted in a mild increase in buying activity for the USD/JPY pair, driven by heightened expectations of a potential 25 basis points tightening by the Federal Reserve (Fed) by the end of the year. Such expectations could strengthen the US Dollar, providing support for the USD/JPY pair.

In contrast, the Bank of Japan (BoJ) made a notable move by offering limitless Japanese Government Bonds (JGBs) with residual maturities of 5 to 10 years at a fixed rate. This announcement came during the early Asian session on Monday, causing the USD/JPY pair to briefly touch an intraday low near 144.65. Consequently, the pair recorded its first loss in six consecutive days after hitting a fresh yearly high earlier in the same day.

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After UK CPI data release, GBP/JPY surged past 185.00

After the release of UK Consumer Price Index (CPI) data, the GBP/JPY currency pair experienced a surge, surpassing the 185.00 mark. This positive momentum in the cross is due to the encouraging inflation figures from the UK. However, market participants are also closely monitoring the possibility of foreign exchange (FX) intervention by the Bank of Japan.

According to the latest data from the UK’s National Statistics, the CPI for June showed a month-on-month decrease of -0.4%, slightly better than the market consensus of -0.5%. On a yearly basis, British CPI inflation rose to 6.8% in June, in line with expectations. The core CPI, which excludes volatile oil and food prices, increased by 6.9% in July, surpassing the estimated 6.8%. Additionally, the UK Retail Price Index (RPI) for July reported a month-on-month decline of -0.6% and a year-on-year increase of 9.0%.

Meanwhile, Japan’s economic growth data for the second quarter revealed a QoQ increase of 1.5%, higher than the expected 0.8% and the previous 0.7%. On an annual basis, Japan’s GDP rose to 6.0%, exceeding the estimated 3.1% and the previous 2.7%. The Yen’s weakness can be attributed to the monetary policy differential between the US and Japan, with the potential for additional rate hikes by the Bank of England acting as a boost for the Pound Sterling and potentially benefiting the GBP/JPY cross.

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USD/CHF Struggles Below 0.8800 Amid Slow Markets

The USD/CHF pair is currently encountering challenges as it strives to surpass the 0.8800 level, a scenario highlighted by the most recent news and market analysis. The lack of dynamic movement in this pairing can be attributed to a confluence of factors that are significantly influencing the overall sentiment within the market.

One of the pivotal factors contributing to traders’ apprehension is the impending release of mid-tier Swiss data. This impending data release has introduced an element of uncertainty into the market, prompting caution among traders. Adding to this air of uncertainty is the upcoming Jackson Hole Symposium, a high-profile event where influential central bankers are slated to deliver speeches in the upcoming week. This event is further deepening the sense of vigilance among traders, as they closely monitor these key figures’ insights.

The broader risk appetite prevailing in the market is also contributing to the prevailing hesitancy among momentum traders. A juxtaposition is seen in the US 10-year Treasury bond yields, which initially experienced a drop but subsequently exhibited a rebound and found stability. Correspondingly, the S&P 500 Futures have showcased a resurgence and stabilization. Furthermore, a corrective bounce has been evident in the MSCI’s Index of Asia-Pacific shares outside Japan.

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EUR/GBP looks to consolidate around 0.8520 ahead of PMIs from Eurozone and UK

EUR/GBP finds itself in a crucial juncture, with all eyes on its consolidation around the 0.8520 mark, a pivotal level that could set the tone for its immediate trajectory. As the Asian session unfolded on a Wednesday that carried high stakes, the currency pair grappled with the task of recouping losses incurred during the prior trading day, tentatively floating near the 0.8520 level. This struggle finds its roots in the prevailing apprehension surrounding the potential escalation of interest rates by the Bank of England (BoE).

Market participants have assumed the role of vigilant observers, meticulously following the developments on the UK economic calendar. The spotlight is particularly on the imminent release of the preliminary S&P Global/CIPS Composite Purchasing Managers’ Index (PMIs) for August. The outcome of this data release holds the promise of illuminating the paths that the respective economies of the Eurozone and the UK are embarking upon. The ripples of this revelation have the potential to resonate significantly in the trading decisions involving the intricate dance of EUR/GBP.

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Dow Futures Up, Market Rally Continues; Jobs Data in Focus

The positive momentum in Dow Jones futures ahead of Tuesday’s opening was mirrored by upward movement in S&P 500 futures and Nasdaq 100 futures during overnight trading, indicating a buoyant start to the trading session.

This week, the ongoing vigor of the market rally remains a focal point as investors turn their attention towards the eagerly awaited Friday jobs report, a pivotal event in the closing week of August. The implications of this report are far-reaching, potentially influencing expectations around interest rate shifts. A strong report wouldn’t necessarily translate to an imminent rate hike, while a less robust report, with payroll gains hovering around 100,000, could potentially take the possibility of a rate hike off the table. Simultaneously, market watchers are gearing up for the release of the Commerce Department’s data on personal income and spending for July, an influential indicator of inflation favored by the Federal Reserve, scheduled for Thursday.

In terms of earnings, Salesforce.com (CRM), a key player within the Dow Jones, is poised to disclose its second-quarter earnings on Wednesday. Notably, this leaves just Nike (NKE) and Walgreens (WBA) as the remaining components of the Dow Jones Industrial Average yet to announce their earnings reports.

In addition, several software companies are slated to release their earnings, including MongoDB (MDB), Nutanix (NTNX), Samsara (IOT), as well as security software entities such as CrowdStrike (CRWD) and Okta (OKTA).

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