Monday mornings in the market usually see thin liquidity until more Asian centres come online. This can cause prices to fluctuate, necessitating caution.
Indicative rates for the start of the FX week are as follows: EUR/USD at 1.1588; USD/JPY at 147.28; GBP/USD at 1.3280; USD/CHF at 0.8050; USD/CAD at 1.3775; AUD/USD at 0.6478; NZD/USD at 0.5925. Weekend updates include Fed’s Williams being open to rate cuts, OPEC’s production increase by 548K bpd, and anticipated non-farm payrolls revisions.
Weekend Highlights
Popular topics from the weekend include technical analysis of USD/JPY, OPEC’s production decision, and Fed’s rate discussions. Recently, car finance payouts were capped, the economy showed recession signs, and US tariffs brought in $87B in the first half of 2025.
Additional key points include stalled Canada-US trade talks with tariffs rising to 35% and a surge in small caps amid the AI boom. High-risk warnings stress that foreign exchange trading carries a substantial risk and is not suitable for everyone due to the potential for high losses.
Market liquidity is thin this morning, so we expect some sharp moves as trading activity picks up. The economic picture is cloudy, with manufacturing slowing down while the AI boom is pushing up small-cap stocks. This creates a tricky environment where different parts of the market are telling different stories.
We see the US Federal Reserve’s hints at a September rate cut as the main driver for the coming weeks. Recent data from the US Bureau of Labor Statistics showed a net downward revision of over 300,000 jobs in the last quarter of 2024, adding pressure for a cut. This suggests a weaker US dollar is likely, so traders might consider buying put options on the dollar index.
Currency Forecasts
The USD/JPY at 147.28 looks particularly vulnerable to a drop. If the Fed cuts rates while the Bank of Japan holds steady, the interest rate advantage that has propped up the dollar will shrink. We saw a similar pattern back in 2019 when Fed easing pushed the pair significantly lower, and we might be setting up for a repeat.
For USD/CAD, we are looking for a move higher from the current 1.3775 level. OPEC’s decision to increase oil production, combined with stalling US-Canada trade talks and new tariffs, creates a double threat for the Canadian dollar. Historically, periods of falling oil prices and trade friction, like we saw in the late 2010s, have consistently weakened the loonie against the greenback.
The British pound is facing its own problems, with the economy teetering on a recession. The recently announced £18 billion cap on payouts for the car finance scandal will hit consumer confidence and bank profits hard. This makes us cautious on GBP/USD, even if the dollar weakens, suggesting put spreads could be an effective way to trade this view.
Given all these conflicting signals, we expect overall market volatility to rise from current levels. The CBOE Volatility Index (VIX), which now sits around 19, has historically spiked above 25 during periods of Fed policy shifts and economic uncertainty. This environment is ideal for options traders who can use strategies like straddles to profit from big price swings, regardless of the direction.
