The US dollar steadied after a Jackson Hole jump driven by hawkish remarks from Fed Chair Warsh, while attention turns to the nonfarm payrolls report due at the end of this week and again at the end of next week. Early CPI prints from Spain, France and Germany have reinforced expectations of an ECB hike, while joint intervention and firm Japanese data are keeping prospects of a BOJ move on 18 September in play. Renewed Middle East hostilities lifted oil by about $3 a barrel, and the US Defense Department’s Office of Strategic Capital outlined a penny-warrant structure to take a c.35% passive stake in North American Blue Energy Partners, alongside rights to buy 20% of its Venezuelan output at cost tied to reported reserves of 65 mln barrels.
In FX, the euro probed $1.1605-$1.1610 with almost €2.2 bln of $1.1600 options expiring; USD/JPY briefly cleared 160, with $780 mln at JPY159.65 expiring, while GBP traded $1.3530-$1.3555 and USD/CAD tested CAD1.3910. AUD held $0.7155-$0.7170 after slipping from above $0.7200; USD/MXN reached 17.0645 and CNH hit 6.7320 as the PBOC set CNY6.7828 versus 6.7811. Rates saw the US 10-year near 4.71% and the 30-year near 5.21%, while gold fell from just under $4700 to ~$4445 and WTI rose towards $86.65. Inflation and activity data included Spain’s 0.8% m/m and 4.6% y/y CPI, France’s 2.7% (from 2.4%), Australia’s inflation gauge at 4.8% (from 4.0%) with credit up 0.6%, Japan’s retail sales +2.4% m/m in July after -3.9%, household spending -3.3% y/y in June, and China PMIs at 49.8, 49.0 and 49.5.
Fed Signals, Energy Shocks, and USD Volatility
We believe derivative traders should prepare for heightened volatility in USD pairs as the market digests Fed Chair Warsh’s hawkish signal from Jackson Hole. Although rate futures are pricing in a September hike, historical Fed behavior shows they rarely act without clear consensus from upcoming nonfarm payrolls. We suggest using short-term option strategies to hedge against a potential pause, especially with US two-year yields hovering near multi-month highs.
Geopolitical tensions in the Middle East have quickly pushed WTI crude up by $3 a barrel, threatening to reignite global inflationary pressures. We advise traders to watch the US government’s unconventional equity play in Venezuela’s oil sector, which targets 65 million barrels of reserves at cost. Given that Venezuela holds the world’s largest proven oil reserves at over 300 billion barrels, this strategic move could fundamentally shift long-term energy derivative pricing.
Currency Views, Precious Metals, and Risk Strategy
We maintain a bearish outlook on the Euro as momentum indicators turn down, targeting a technical move toward the $1.1530 area. Despite surging Spanish and French inflation rates pushing the ECB toward a September hike, massive option expiries at the $1.1600 strike today are keeping spot prices temporarily pinned. Traders should look to establish short-euro positions on minor rallies, utilizing the $1.1610 resistance as a tight stop-loss.
The Yen’s slide past JPY 160 has put traders on high alert for another round of direct intervention from Japanese authorities. During similar currency depreciation episodes in 2024, the Ministry of Finance deployed a record $62 billion to defend this exact psychological threshold. We recommend buying short-dated Yen call options to capture explosive upside if the Bank of Japan delivers a surprise hike on September 18.
We see growing vulnerability in the Canadian and Australian dollars, particularly as escalating US trade tensions threaten the USMCA framework. Historically, trade disputes of this scale have pushed the Canadian dollar back toward the CAD 1.4000 level, which has served as a key resistance area. Meanwhile, we target the $0.7100 mark for the Aussie as domestic momentum indicators shift decisively lower.
We anticipate a deeper correction in precious metals after Gold’s recent rejection near the $4,700 level. With silver also forming a bearish downside reversal after failing to sustain its break above $70, momentum is clearly favoring the sellers. Traders should look to build short positions in gold targeting the $4,300 area, as rising global bond yields increase the opportunity cost of holding non-yielding assets.
