[MARKET ANALYSIS] DXY takes a breather after recent gains and with the NFP report on the horizon
DXY: Flat
- Takes a breather after strengthening yesterday against all major peers as Treasury yields rose, with higher oil prices partially behind the move. Markets continue to await the expected reopening of the Strait of Hormuz, and Iranian reports of the Iran-Oman management deal for the Strait of Hormuz contained unfavourable terms towards the US and regional allies, while tensions between the Houthis and Saudis worsened. Elsewhere, FT reported that Fed Chair Warsh is willing to hike in September if inflation prints in the coming weeks are hot and markets increase expectations for such a move, while US data was encouraging but was met with a muted reaction as the all-important BLS jobs data approaches.
EUR/USD: Flat
- Lacks demand after it recently gave way to the firmer buck, and with the single currency not helped by disappointing EU retail sales data, while reports also noted that the ECB was blindsided by the US selling euros during last Friday's historic joint intervention to support the yen, as the US only informed counterparts after the trade was executed.
GBP/USD: Flat
- Struggles for direction following its recent choppy performance in the absence of any pertinent catalysts.
USD/JPY: -0.1%
- Slightly eased back overnight after returning to above the 158.00 level and with resistance seen around 158.57, which technicians flagged as a key fib level.
Antipodeans: AUD/USD Flat / NZD/USD Flat
- Price action is contained following yesterday's retreat and amid the mixed risk appetite, while there was little reaction seen to the somewhat mixed Chinese trade data.
Consolidation in the dollar ahead of a major payrolls print follows a well-worn pattern: positioning flattens, ranges compress, and the preceding trend, here a yield-driven dollar bid, pauses rather than reverses until the data arbitrates. The notable distinction in this tape is the transmission channel behind the recent strength, with the move attributed to rising Treasury yields partly fed by higher oil, which makes the dollar's next leg hostage to the Strait of Hormuz reopening story as much as to the labour data; geopolitical supply premia of this kind have historically unwound faster than they build. The report of joint intervention to support the yen, and of the ECB being informed only after execution, fits the established sequence in coordinated episodes, where operational friction between participants tends to surface publicly within days and shapes expectations of whether follow-up selling is forthcoming, a live question with USD/JPY pressed against a flagged technical level. Remarks attributed to the Fed chair framing a possible hike conditional on hot inflation prints invert the usual reaction function and raise the stakes of upcoming inflation releases relative to payrolls themselves. What bears watching is the sequence rather than any single element: the jobs report first, then whether intervention headlines or Hormuz developments reprice the rate differential that has been doing the work.