G10 Currencies, Emerging Market Moves, Equities, and Commodities
G10 FX stayed range-bound ahead of Fed Chair Kevin Warsh’s Jackson Hole speech. The Canadian dollar fell about 0.65% on the week as the US–Canada trade dispute intensified, while the Australian dollar rose about 0.40% as markets leaned towards another Reserve Bank of Australia hike, potentially as soon as next month. The yen slipped almost 0.5% despite firmer Tokyo CPI and a lower jobless rate, with the US dollar reaching JPY159.70 in Europe versus last week’s post-intervention high near JPY159.80. In Europe, the euro drifted lower from resistance near $1.1710 and held its 200-day average around $1.1635; sterling rebounded from about $1.3570 to above $1.36, then steadied below $1.3600. USD/CAD settled near 1.3860, with more than $400 mln of options at 1.3875 expiring, and AUD/USD extended from about $0.6865 since end-June to just over $0.7200, versus an early-May peak just shy of $0.7280; it is up about 0.35% this week, its fifth straight weekly rise and eighth gain in nine weeks.
In EM, USD/MXN touched a six-day high near 16.9965 and traded around 16.9590–16.9825, while USD/CNH held roughly 6.7130–6.7265; it settled near 7.7210 last week, and the PBOC set the fix at CNY6.7811 versus 6.7829 and 6.7817. USD/INR posted its lowest settlement in two weeks near 95.3850, leaving the rupee on its first weekly gain in three. Equities rose across Asia-Pacific, though China and South Korea lagged; Europe’s Stoxx 600 gained a little over 0.5%. The US 10-year yield rose 3 bp yesterday but is down a little more than 1 bp on the week, and Japan’s 10-year rose a little over 4 bp after Tokyo CPI and a weak two-year auction. Gold bounced roughly $50 from just below $4566 and held above $4600, with last week’s close near $4603; silver climbed above $70 and nearly $71, versus about $69 last week; October WTI traded around $82.55–$83.80 after settling slightly above $87 last week. Data due include benchmark job revisions for March 2026, Michigan confidence, Canada’s Q2 growth forecast at 3.4% annualised after about -1% in Q4 2025 and slightly more than -0.1% in Q1 2026, and Japan’s July machine tool orders at 50.4% y/y with domestic and foreign up a little more than 50%; domestic fell 8.2% in July after +28% in June, and foreign slipped 3.8% after +10.4%, while unemployment eased to 2.4% from 2.5% and Tokyo CPI stood at 1.9% headline and 1.8% core. Swaps price about an 85% chance of a BOJ hike next month and around 16 bp for Q4 versus almost 4 bp at end-July, while Bank of Canada hike odds fell from almost 85% at end-last week to slightly under 50%.
FX Market Outlook and Volatility Drivers
We should prepare for increased volatility in the foreign exchange market as central bank policies in the US and Japan reach a critical turning point. The divergence between Federal Reserve Chair Warsh’s skepticism of forward guidance and Treasury Secretary Bessent’s aggressive bond buybacks is creating a highly unpredictable environment for interest rates. Historically, Jackson Hole speeches trigger an average move of about 0.9% in the S&P 500 and substantial swings in G10 currencies, meaning we must be ready to hedge our dollar exposures immediately.
For those trading the euro, we recommend maintaining short positions or buying downside put options as the currency looks highly vulnerable. The euro has been steadily bleeding lower, barely holding its 200-day moving average of $1.1635, while daily momentum indicators are just beginning to turn downward. If the pair breaks below this key support level, we could see a rapid acceleration toward the next major support zone.
We see a compelling opportunity to buy yen call options or set tight stop-losses on short-yen positions. Even though the yen has struggled to find traction near JPY159.70, the Japanese macroeconomic data is simply too strong to ignore. Swaps markets are currently pricing in an 85% chance of a Bank of Japan rate hike next month, up from 40% late last month, which should eventually force a sharp unwinding of the carry trade.
Traders should also brace for further weakness in the Canadian dollar by utilizing long USD/CAD call spreads. Although Canada’s economy is projected to show a strong 3.4% annualized rebound in the second quarter, the escalating trade war and threat of US tariffs are severely weighing on the currency. Consequently, the swap market has aggressively slashed the probability of a Bank of Canada rate hike this year from 85% to less than 50%, leaving the loonie exposed.
Trade Strategies Across Currencies and Commodities
Conversely, we favor riding the bullish momentum in the Australian dollar through short-term call options. The currency has gained for five consecutive weeks, hitting a multi-month high above $0.7200 on growing expectations of a Reserve Bank of Australia rate hike as early as next month. This makes the Aussie the strongest G10 performer against the greenback, backed by solid monetary policy divergence.
Finally, in the commodities space, we suggest accumulating long positions in gold and silver on any minor pullbacks. Gold is holding steady above the $4600 level, on track for its fourth consecutive weekly gain, which matches its longest winning streak of the year. Historically, precious metals perform exceptionally well during periods of trade war escalation and public disagreements between treasury and central bank officials.
