The trading activity in foreign exchange markets is relatively quiet with no major data reports scheduled from the US or Canada this morning. However, the upcoming week will feature updates on US CPI, PPI, Import Prices, and Retail Sales, potentially impacting market movements.
USD is trading mixed to slightly firmer, with recent attention on price reports possibly giving it a minor lift. Despite expectations for a rise in headline and core US inflation in July, there is continued pressure on the Federal Reserve to reduce rates.
Swap Market Dynamics
The swap market reflects 21/22 bps of easing priced in for the September FOMC meeting. The Jackson Hole event next week may draw market interest, focusing on labour markets. Historically, it has been a platform for announcing policy changes.
Chair Powell’s previous announcement at Jackson Hole led to a 50bps rate cut by the Fed. The DXY index sees intraday support at 98.05 and resistance at 98.40, suggesting a range-bound session. Broader technical perspectives continue to point to a bearish outlook for the index.
The markets are calm right now, but we are watching for this week’s major US economic reports. Key updates on inflation and retail sales will give us a clearer picture of the economy’s direction. These numbers will likely cause some significant price moves in the coming days.
Retail Sales and Inflation Data
We are seeing the US dollar hold steady after the latest inflation report showed core CPI cooling to 2.8%, still above the Federal Reserve’s target. However, recent retail sales data was weaker than expected, increasing pressure on the Fed to consider easing policy later this year. The swaps market is now pricing in about a 50% chance of a rate cut before the end of 2025.
This situation feels familiar, reminding us of periods in the late 2010s when we also awaited Fed guidance amid mixed economic signals. All eyes are now turning to the Jackson Hole symposium next week for any hints from the central bank. We recall how in the past, this event was used to announce major policy changes that moved markets.
For derivative traders, the current uncertainty ahead of the data and Jackson Hole suggests volatility is cheap. This makes buying options a sensible strategy to position for a potential spike in price movement, regardless of the direction. A move in major currency pairs like EUR/USD seems more likely after this quiet period.
The Dollar Index (DXY) is currently trading near 104.50, finding support around the 104.00 level. We see resistance up near 105.20, creating a range that could break following this week’s news. The broader technical outlook remains shaky for the dollar, but we need a catalyst to trigger the next big move.
