The hawkish remarks made by Fed Chair Warsh at Jackson Hole have caused the US currency to consolidate its pre-weekend rally. The last instance of the US two-year and the Dollar Index experiencing a rise comparable to the reaction following the hawkish hold during the initial FOMC meeting chaired by Warsh occurred in mid-June. With the August nonfarm payroll report due at the end of this week and the conclusion of next week, we remain unconvinced that a FOMC hike at the upcoming meeting on September 16 is a foregone conclusion by any means. Meanwhile, the initial Consumer Price Index readings from Spain, France, and Germany highlight the anticipation of a rate increase by the European Central Bank. Simultaneously, the combined intervention and robust data, encompassing today’s retail sales and industrial production, suggest a potential BOJ hike on September 18.
Recent escalations in the Middle East have resulted in an increase of approximately $3 per barrel in oil prices today. Meanwhile, the US Defence Department’s Office of Strategic Capital has announced plans to structure an investment via penny warrants. This approach will enable the US government to acquire a passive equity stake of approximately 35% in Alejandro Betancourt’s North American Blue Energy Partners, without necessitating a substantial capital investment. This arrangement grants the government rights to purchase 20% of the company’s oil production in Venezuela at cost, with reported reserves amounting to 65 million barrels. The significance of this represents a pivotal discussion point today. The euro concluded the previous week at a seven-day low. It marked the initial weekly decline in a span of five weeks. The daily momentum indicators have exhibited a downward trend. It reverted to approximately the level it occupied prior to US Treasury Secretary Bessent’s declaration of “at least doubling of US Treasury purchases.” The euro maintained its position above Friday’s low today and edged slightly above $1.1605. The 1.1610 area corresponds to a 38.2% retracement of last Friday’s losses. There are options for nearly 2.2 billion euros at a rate of $1.1600 that are set to expire today. The consolidation does not alter our pessimistic perspective. The next technical target appears to be approximately 1.1530.
Firmer Japanese rates did not provide significant support for the yen. The yen experienced a decline in every session last week, a phenomenon not observed in the past three months. The increase in US interest rates and widespread gains have propelled the dollar above JPY160 for the first time since the intervention in late July. The pre-weekend high of JPY160.20 remained intact today, with the dollar retreating to just below JPY159.50. Options valued at approximately $780 million at JPY159.65 are set to expire today. It seems that the apprehension regarding the potential for intervention has mitigated the adverse effects on the yen stemming from the surge in oil prices. The JPY160.60 area aligns with the 61.8% retracement of the dollar’s intervention-induced losses, while the high recorded on July 31 approached JPY160.90. Sterling experienced a decline last week, marking its first decrease in five weeks. It concluded at a level not seen in the past eight days. The momentum indicators are declining from overbought territory. It is stabilised today and is in approximately a $0.3530-$1.3555 range. Our bearish outlook indicates a near-term potential movement toward the $1.3440-70 range.
The Canadian dollar appears to be in a precarious position. The greenback appreciated to CAD1.3910, oscillating around the prior day’s trading range. It settled above that range, forming what appears to be a bullish pattern for the US dollar. Follow-through buying of the US dollar was constrained to a few ticks today. Support was identified around CAD1.3890. The trade conflict with the US has the potential to escalate, casting uncertainty over the USMCA framework itself. A move above CAD1.3930 could spur a move back toward CAD1.4000. The Australian dollar traded above $0.7200 ahead of the weekend for the first time since the end of May. However, with the greenback gaining traction on Warsh’s remarks, the Aussie reversed course and fell below the previous day’s low (~$0.7165). The momentum indicators are set to decline. It is currently experiencing a period of consolidation within the range of approximately $0.7155 to $0.7170. We anticipate a movement toward 0.7100 in the near term, with potential targets of 0.7065 and 0.7000 in the slightly longer horizon.
