## United States
The recent uptick in the US dollar has continued, although its momentum paused during the European morning session. The question remains whether North American markets can sustain this momentum ahead of the FOMC meeting. There is speculation over a dovish dissent despite the likely decision to hold rates steady, coupled with a disappointing ADP report showing unexpected job losses in June. The dollar achieved new monthly highs against the euro and the British pound before retracing slightly, remaining strong against G10 currencies, with the exception of the Norwegian krone. Emerging market currencies are mostly weaker against the dollar, except for the Chinese yuan, which remains stable despite a stronger dollar fixation for three consecutive sessions now. In the equity markets, Japanese stocks fell for a third session, with a notable 0.90% drop in Taiwan, potentially linked to the US’s decision to deter the Taiwanese President from a US stopover. The Taiwanese dollar is currently the weakest emerging market currency, followed by the Russian ruble. Despite US-EU trade tensions, the Stoxx 600 increased by 0.60%, potentially recovering losses from the past two sessions. US index futures are also firm. In the bond markets, benchmark 10-year yields are narrowly mixed across Europe, while the US 10-year Treasury yield is slightly above 4.40%. Gold prices found support around $3300 and are trading firmer at approximately $3325, though still within the previous day’s range. September WTI crude has risen, reaching a seven-day peak of just over $67.25, possibly influenced by risks to Russian oil supplies amid US threats of sanctions if no ceasefire occurs within 10-12 days.
USD: The Dollar Index continued its rally in the North American session, reaching nearly 98.70, marking its most significant advance since early May. It touched a marginal new high for the month, slightly above 99.00. The next major resistance lies in the 99.20-45 area, which coincides with the June high and a 50% retracement of the decline from the May 12 peak. A break below 98.40 could signal the end of the short squeeze. While the US releases a full slate of reports today, the decisive factors will likely be the week’s remaining events and data. Today’s trade and inventory data will shape economists’ Q2 GDP forecasts, but house prices in May appear to have softened. The FHFA index indicates a second consecutive monthly decline, while the S&P CoreLogic measure for 20 major cities suggests a decline for the third straight month. Surprisingly, the JOLTS job openings report has exceeded expectations in the past two months, though forecasts anticipate a decrease. The Conference Board’s consumer confidence measure poses little more than a headline risk. Following substantial note and bill sales, the US Treasury targets additional fundraising with auctions of floating-rate and seven-year notes, along with more bills.
## Eurozone
Early Asia Pacific trading saw a brief uptick in the euro due to initial reactions to a trade deal, but it faced aggressive selling, pushing it to nearly $1.1525 today, surpassing the month’s previous low. A close below $1.1550 could weaken the technical outlook, potentially setting the stage for further declines. In the broader context of US trade deals, Q2 GDP (scheduled for release Wednesday) and August CPI (due Friday), there is limited expectation for significant impact from the ECB’s survey of inflation expectations. Spain’s Q2 growth slightly exceeded expectations, reporting a 0.7% gain compared to 0.6% in Q1. Aggregate Q2 GDP data is expected tomorrow, with estimates suggesting stagnation after 0.6% growth in Q1, mainly due to reduced government spending and weaker exports. The ratification of the trade agreement will require a qualified majority of members and possibly the European Parliament, posing a challenge. The trade deal’s energy and investment aspects appear overly ambitious, potentially posing difficulties in the ratification process.
## United Kingdom
Sterling encountered resistance as it approached $1.3600 last week, subsequently dropping to nearly $1.3315 today, marking a monthly low. A close below $1.3365 could signal potential downside risks, marking a technically significant neckline of a head and shoulders pattern with projections towards $1.2940. While consumer credit and mortgage lending in June showed sequential improvements beyond expectations, they do not typically drive market movements.
## China
The dollar climbed against the Chinese yuan for a third consecutive session, with the offshore yuan seeing an annual low last Thursday. The dollar reached nearly CNH7.1840 today, following a reference rate fixation of CNY7.1511 by the PBOC, marking its third straight session of higher fixations. The month’s high was set above CNH7.19, with the dollar not breaching CNH7.20 since mid-June. China’s economic calendar remains light until the expected Thursday PMI, anticipated to show minimal change, maintaining a June composite of 50.7. Yesterday, the US made a diplomatic concession to Beijing by not permitting Taiwanese President Lai Ching-te’s layover in the US, considered an effort to avoid derailing prospects for a Trump-Xi summit, though US President Trump denied this interpretation.
## Japan
Market sentiment indicates growing confidence that the Bank of Japan may raise rates again by year-end, with swaps markets recently pricing in an 18 bp increase. The yen garnered little support from this sentiment shift, with the dollar reaching JPY148.75 today, slightly below the monthly high of JPY149.20, the loftiest level since early April. Upper resistance lies at the 200-day moving average (~JPY149.65), a level unseen by the dollar since mid-February. Strong demand was evident in a recent two-year bond auction, attracting nine-month high coverage.
## Canada
The Canadian dollar demonstrated relative resilience in a firm US dollar environment. It exhibited the strongest performance among G10 currencies, experiencing less than 0.20% depreciation against the strengthening greenback. The US dollar reached CAD1.3760 today, approaching the monthly high of CAD1.3775, short of the CAD1.38 June peak. The Bank of Canada meeting tomorrow carries little expectation for policy change, applicable to both this week and the forthcoming September meeting. Market anticipation for rate adjustments grows towards year-end, reflected in swaps markets pricing less than a 45% chance of a cut at the October meeting and nearly a 62% chance by December.
## Australia
Last Thursday, the Australian dollar marked a new annual high before embarking on a downward trend, struggling to sustain moderate upticks. It neared $0.6500 today, with trendline support from recent lows found around $0.6485, and further support at $0.6455, the month’s low. Australia’s early week activity remains calm ahead of tomorrow’s Q2 CPI release, with expectations for headline moderation to 2.2% from 2.4% and underlying measures also softening. Futures markets anticipate a cut for next month’s meeting and another later this year. June retail sales data, anticipated Thursday, is predicted to show the largest gain since January.
## Mexico
The dollar’s advance against the Mexican peso coincided with a smaller-than-expected June trade surplus report, with dollar gains of 1.15%, the largest since April, achieved after a new annual peso low. The dollar climbed to nearly MXN18.8360 today, approaching the month’s high. The JP Morgan Emerging Market Currency Index declined by 0.75%, marking its largest fall since April across a three-day losing streak. The peso underperformed within Latin America amid apparent reductions in dollar carry trades. Mexico’s Q2 GDP data set for release tomorrow is projected to show 0.4% QoQ growth in Q2, connecting with the broader narrative of gradual economic recovery.
