The US Dollar was firmer Thursday, continuing its bounce from extreme oversold levels, the DXY peaking at 100.97, just short of the major resistance at the big 101 figure. A much lower than expected initial jobless claims figure saw a jump in US treasury yields, propelling the USD higher with the DXY having it biggest up day since May. AUD was the G10 outperformer, holding its own against the resurgent USD and easily outperforming its peers.

A hot jobs report where employment increased 32.6k vs an expected 15.4k and an unexpected fall in the unemployment rate, saw odds of a RBA rate hike next month jump to 43%, pushing the AUD higher. NZD underperformed on general risk aversion, seeing AUDNZD push higher into the overvalued “sell zone”. JPY saw losses, with USDJPY continuing it’s bounce off the 50% fib retracement at 137.30, pushing briefly through the psychological 140 level.

USD saw highs of 140.49 before finding selling at the 50-day SMA, pulling back to find support at its previous bullish trend line. Japanese CPI was released earlier today where a reading 0f 3.3% came in right as expected, JPY traders will be eyeing next weeks pivotal BoJ meeting where tweaks to their yield curve control policy are expected. EUR and GBP saw similar losses vs the USD, EUR initially boosted by a not as weak as anticipated flash Eurozone consumer confidence figure which coincided with a miss in US existing home sales.

Though it soon reversed to the downside with EURUSD hitting a low of 1.1119, managing to hold the key 1.1100 level. GBP continued to feel the effects of a softer UK CPI reading on Wednesday, with GBPUSD testing buyers around the key 1.2850 level, after losing sight of a Fib retracement level that helped contain declines on Wednesday. Today’s economic calendar is very light ahead of pivotal Central Bank meetings next week, with the only tier one release being only UK Retail Sales.

USD rallied modestly into month end with DXY pushing to the top of its recent range to again test the big 102 resistance level. The data highlight out of the US was the Chicago PMI figure which rose from the prior 41.5 to 42.8, but missing expectations of 43.3. in FedSpeak, Governor Goolsbee added little new from the FOMC statement last week stating he is “not sure when the Fed will be done raising rates and they are making good progress but will let the data guide them” and they may or may not hike in September. EUR was weighed on by the Dollar strength with EURUSD dipping below the psychological 1.10 level early in the session before finding support at the lower trend line.

A bounce on hot inflation data and a strong GDP out of the Eurozone saw EURUSD reclaim the 1.10 level, albeit unconvincingly. Currently, markets are pricing in around a 25-30% probability of a 25bp hike in September, with the ECB being “data dependant” any and all news regarding inflation out of the EU should see an impact on EUR. JPY was markedly weaker to start the week following on from the BoJ meeting on Friday.

During the Asian session yesterday, the BoJ offered to buy an unlimited amount of JGBs at a fixed rate in an unscheduled announcement in an effort to defend their new “flexible” yield control limits, a feeling of panic at the Japanese Central Bank saw selling in JPY, with USDJPY heading above 142, looking likely to test the BoJ resolve at the “intervention” zone of 145 in the near future. AUD and NZD predominantly outperformed, with AUD bring the clear winner on more talk from China regarding future stimulus, with AUDUSD rising through and holding the big figure at 0.6700. AUD traders also positioning for the RBA policy decision due today at 14:30 AEST, markets are currently split between a hike or hold following the lower than expected Aussie CPI data last week, with futures showing a 15.5% of a hike, but economists polled have it as much closer odds so could be an exciting meeting.

Todays Calendar below:

FX WRAP USD was choppy with the US Dollar Index ending the session flat in range bound trade. Unemployment claims dropped to 239k from 250k the prior week which was in line with consensus and having little effect on the USD, though Philly Fed Manufacturing figures did have a big beat coming in at +12.0 vs an expected -9.8, which was the highest print since April 2022. This, along with stubbornly high yields and a general risk-off background, saw the USD reverse some early weakness on Yuan intervention headlines.

DXY pushing its head above the resistance at July’s highs before stalling. JPY was the G10 outperformer against the USD. USDJPY now having eight straight days printing higher highs and higher lows, its longest streak since October's BoJ intervention-driven collapse from 32-year highs.

USDJPY hit a high in APAC trading of 146.56 on weak Japanese data, before fading to hit a low of 145.62. Not a peep out of the Japanese MoF yet but desks put the recovery down to yield differentials as US Treasury yields plateaued, while a poorly received Japanese JBG bond auction saw Japanese yields spike on the 30 years. Another currency on the intervention watchlist is the Chinese Yuan.

Bloomberg reports of Chinese authorities reportedly telling state banks to escalate Yuan intervention saw USDCNH have its largest drop of the month, breaking a 5-day rally. There is also theories floating around that China is funding Yuan intervention through selling US Treasuries, which would explain US treasury weakness (keeping yields elevated), which is unusual in an equity market risk off environment. AUD and NZD were the G10 underperformers again, AUD underperforming the NZD after a big miss in the Aussie employment report, where unemployment unexpectedly rose to 3.7% and jobs fell by 14.6k vs a 15k rise expected.

AUDUSD printed a low of 0.6366, but moved higher on the back of Yuan strength as the session went on. AUDNZD recovered the losses after the Aussie jobs report to move back above the key 1.080 level. Gold again moved lower, with XAUUSD breaking key support at 1892, after a test of the 1902 resistance early in the session was forcefully rejected.

The economic calendar is very light today, with only UK retail Sales being of any significance.

The long-awaited July FOMC meeting is finally upon us where rates markets are pricing in a sure thing for a 25bp hike (even a small chance of a 50bp), the question that traders will be looking for to be answered is “is this it?”. With a growing number of economists calling this the top in rates, butting up against the FOMC June statement and unwavering Fed speak since, giving guidance that there will be two more this year (including July if it happens). This sets traders up with an intriguing FOMC meeting, with the accompanying statement and Powell Presser sure to see some volatility as traders look for clues as to what’s to come.

With the background of recently cooling inflation, any language around the previously released June dot plots and whether they are still a reasonable estimate of future rate movements will likely be key. Fed Futures odds: Source: CME Fedwatch tool Tis seta traders up with some unique opportunities as the battle between the Market and the Fed should see some real volatility in both direction as market participants digest the statement and then Powell’s presser, which in the past, has contradicted somewhat traders perception of the statement. Charts to watch: DXY – The US Dollar Index It’s been straight up since mid-July after DXY bounced from extreme oversold levels, breaking through and holding the key S/R (and psychological) 101 level, which has held as support in the last couple of sessions.

Despite this recent rally DXY is still in the oversold half of it’s daily RSI, a hawkish Fed pushing back against the market today would likely see DXY push to test the next major S/R level at 102. A dovish Fed could see the recently established support at 101 seriously tested. In my opinion there is more chance of an upside surprise, given the market seems to be leaning towards pricing in a Powell capitulation.

US 10-year government bonds Government bonds are an asset. I think a lot of CFD traders are missing great opportunities in, in the current climate of rates and inflation taking center stage they are one of my favourite markets to trade with some great range trading opportunities. Looking at the chart of the US 10-year with the yields superimposed to see the negative correlation between the two (when you trade bonds, you trade the price, not yield) Over the last twelve months the yield on the 10-year has tested and subsequently struggled to stay above 4%, this turn lower in yields at this level gives a bond trader an opportunity by buying the bond price.

Todays FOMC should see some volatility in yields, I recommend keeping an eye on these over the coming days for some good trading opportunities as yields hit pivotal levels. Today’s FOMC decision is due out at 18:30 GMT

After surging close to 4% since early July off the back of a weakening USD, the EURUSD pair has stabilised around $1.123. With very little volatility seen this week in the pair, eyes now turn to the euro, as the European inflation data is set to be released today. Analysts are predicting a continued downward trend in inflation, with a Year-on-Year forecast of 5.50%, which is below May’s figure of 6.1%.

If the inflation data comes in above forecasts, we may see a further increase in the EUR as investors move towards the potentially higher yields. On the technical front, the tightening of Bollinger Bands on the 4-hour chart is something to watch. The lack of movement in the EURUSD pair throughout this week has led to exceptionally tight Bollinger Bands, with levels not observed on this timeframe since 2021.

When Bollinger Bands contract significantly, it typically signifies a period of low volatility and suggests that a breakout or significant price movement may be on the horizon. The Relative Strength Index (RSI) is also in overbought territory on multiple timeframes, including the daily. This might suggest there is room for a cool-off before a further continuation higher.

However, with the European inflation data due today, the fundamental data might cancel out any technical signals.

After reaching the high of 1.1250, last tested in 2022, the EURUSD has been trading steadily lower and currently sits along the 1.0850 support level, formed by the 61.8% Fibonacci retracement level and the previous swing low from early July. Looking at the technical aspects, the Ichimoku cloud indicates continued bearish pressures, with the top of the channel providing dynamic resistance, highlighting further downside potential for the EURUSD. The current downtrend on the EURUSD has been driven by the European Central Bank’s (ECB) comments in July that there was no clear bias in favour of hiking or holding rates for the upcoming meeting in September.

Coupled with the increasing likelihood of another rate hike to come from the US FOMC in September, as the Fed continues to fight inflation, strength in the DXY has led to the EURUSD trading lower. While a brief retracement could be likely to retest the upper bound of the channel, look for the EURUSD to maintain within the bearish channel. If the price breaks below the support level of 1.0850, this could signal a confirmation of further downside, with the next key support level at the previous swing low, along the 1.0650 price level.