### United States
The foreign exchange market remains quiet today, with the US dollar showing a mixed performance against the G10 currencies. Most currencies are relatively stable, fluctuating only by about 0.1%, with thinner traded currencies like the New Zealand dollar and Norwegian krone more volatile. Emerging market currencies are also mixed, hovering around +/- 0.2%. The looming expiration of US “reciprocal tariffs” scheduled for August 1 is causing some anxiety in the markets, fueling hopes for last-minute agreements. In equities, US index futures are showing a slightly softer profile. On the bond markets front, the 10-year US Treasury yield has increased by 1 basis point, nearing 4.39%.
In terms of data, the Dollar Index recorded a three-day low near 97.70 yesterday, nearly meeting the 50% retracement of this month’s rally. It failed to climb back above 98.00 today, maintaining downside pressure, with the next retracement level at 61.8% near 97.35. The market attention will be on the upcoming surveys from the Philadelphia Fed (non-manufacturing activity) and the Richmond Fed manufacturing index, although they are not usually significant market movers, especially as the Federal Reserve has been downplaying survey data. With the Fed in a blackout period leading up to next week’s FOMC meeting, no significant commentary from Fed Chair Powell regarding monetary policy or economic conditions is expected.
### Eurozone
The euro’s recent downside correction seems to have concluded last week slightly above $1.1555. Today, it held above $1.1680, marginally below yesterday and last week’s high of approximately $1.1720. If the euro crosses the $1.1725 area (the 61.8% retracement of the pullback from July 1), it might indicate a more positive outlook. The eurozone economic calendar is currently quiet until Thursday, when the flash PMI is expected, accompanied by the ECB meeting, although no policy changes are anticipated. The swaps market is hinting at the next potential rate cut in December, potentially reducing the deposit rate to 1.75%. The market believes this could be the terminal rate, with about a 33% chance of another cut next year.
### United Kingdom
Sterling touched a six-day high yesterday, slightly exceeding $1.3510. It’s essential to note that it reached a peak on July 1 near $1.3790, with a subsequent low last week around $1.3365. The $1.3525 level represents the 38.2% retracement of this month’s decline, while the $1.3570-80 range marks the 50% retracement, alongside the 20-day moving average. Today, sterling is trading within a confined range below $1.35. Recent government finance figures highlighted higher-than-expected borrowing, with a June deficit of GBP20.7 billion, surpassing last year’s figure by GBP6.6 billion and exceeding Bloomberg’s GBP17.5 billion median forecast. Additionally, there’s speculation that the government may sell previously seized cryptocurrencies, with a notable raid in 2018 reportedly yielding 61k Bitcoins.
### China
The People’s Bank of China (PBOC) appears to be moderating the yuan’s appreciation by setting higher dollar reference rates for five of the past six sessions. However, today’s lower fix at CNY7.1460 marks a yearly low. The yuan fluctuates within the range set last Wednesday (CNH7.1685-CNH7.1910), amidst speculation about Fed Chair Powell’s potential dismissal. Recently, China’s growing dominance in critical supply chains is becoming more evident. Rare earth exports surged by around 660% month-over-month in June after clarifying the US-China deal. A new development involves China adjusting eight key technology restrictions vital for EV battery production, potentially impacting Ford’s plans for a Michigan plant due to its reliance on China’s CATL technology.
### Japan
Many suggest the yen’s recent gains stem from unwinding carry trades, but this remains speculative. The CME futures show speculators holding a net long position in the yen, with approximately 103.6k contracts, a figure recently reduced. Meanwhile, the US 10-year yield has decreased by nearly six basis points from yesterday, contributing to the yen’s performance. The dollar saw a rally from JPY142.70 on July 1 to a recent high near JPY149.20 last week. The 38.2% retracement stands around JPY146.70, with the dollar maintaining itself within a JPY147.25-JPY147.95 range today. The 50% retracement is slightly below JPY146, touching the 20-day moving average.
### Canada
Despite weaker Bank of Canada business surveys, the broadly softer US dollar prevailed, pulling the greenback down to last week’s support, hovering around the CAD1.3670-80 range. The 20-day moving average sits at the lower boundary of this range. The CAD1.3665 level aligns with a 50% retracement of this month’s bounce, while the 61.8% retracement stands near CAD1.3640. With a relatively quiet week expected for Canadian data, the currency is likely to follow the general direction of the US dollar. Thursday will unveil May retail sales data, with expectations of a 1% decline, largely driven by weaker auto sales. Economists anticipate the third consecutive decline in Canada’s retail sales, excluding autos.
### Australia
The Australian dollar is trading firmly but remained within its pre-weekend range yesterday. Last Friday’s high was slightly above $0.6540, while yesterday’s high was just below it, with fluctuations between $0.6505 and $0.6530 today. The $0.6540 level corresponds with the 61.8% retracement of the decline from this year’s high on July 11 (~$0.6595), coinciding closely with the 20-day moving average. Recent central bank meeting minutes affirmed previous statements by Governor Bullock. The decision to hold rates was more about timing than direction, with a 6-3 vote against a cut. Nevertheless, the futures market anticipates a quarter-point cut at the next meeting on August 12.
### Mexico
The dollar recently dropped to a six-day low against the Mexican peso, nearing MXN18.6250, with last Tuesday’s peak around MXN18.8850. This year’s low was recorded on July 9, slightly above MXN18.5525. Should the dollar rise above MXN18.72-75, it might suggest further consolidation. Mexico is set to release May’s retail sales and IGAE economic activity reports, providing a monthly GDP estimate. April retail sales fell by 1%, nearly erasing Q1 gains, with a 0.4% increase expected as per Bloomberg’s survey. Meanwhile, the IGAE report anticipates a 0.20 rise, with April and May figures averaging below Q1. The Mexican economy experienced 0.2% growth in Q1, following a Q4 downturn, with projections hinting at a potential 0.1% decline in output for Q2, to be reported next week.
