Today’s Market Outlook Dollar Selling on Lower Oil and US Yields, Offset by Yen Selling on Stronger Equities
Today’s Market Outlook
Dollar Selling on Lower Oil and US Yields, Offset by Yen Selling on Stronger Equities
Market Overview
During the Asian session, USD/JPY and the yen crosses edged higher on the back of stronger equities, while EUR/USD and GBP/USD also remained firm. Overall, markets saw a modest risk-on tone.
However, in early London trading, NY crude futures fell back from the US$97 area to the US$94 area. The US 10-year Treasury yield also dropped sharply from around 4.98% to the low 4.92% range, bringing dollar selling to the fore.
USD/JPY extended its decline to 156.86. However, with equity markets remaining firm, the yen is not seeing broad-based buying.
For the remainder of the session, the market is likely to be shaped by a tug of war between:
• Dollar selling driven by lower oil prices and declining US yields
• Yen selling supported by stronger equities
• Large New York cut option expiries
• Caution over possible FX intervention
As a result, a range-bound market with limited directional momentum is likely to persist.
USD/JPY
USD/JPY remained resilient during Asian trading on the back of stronger equities, but fell to 156.86 in early London trading as US yields declined.
Large New York cut options are set at 157.00 and 158.00 today. As a result, the pair may be drawn towards the 157.00 area until the expiry at 15:00 London time.
The key near-term levels are as follows.
Upside
• 157.00
• 157.50
• 158.00
Downside
• Around 156.85
• 156.50
• 156.00
If USD/JPY recovers and holds above 157.00, it would suggest that equity-driven yen selling is outweighing the impact of lower US yields.
Conversely, if it breaks clearly below 156.85, a correction towards 156.50 could develop.
If the pair approaches 158.00, caution over renewed verbal intervention, rate checks or actual intervention by the Japanese government and the Bank of Japan is likely to intensify following last week’s rate-check reports.
Coexistence of Yen Weakness and Dollar Weakness
A key feature of today’s market is that yen weakness and dollar weakness can occur at the same time.
Lower oil prices and falling US yields are negative for the dollar. At the same time, they ease concerns over corporate cost pressures and tighter financial conditions, supporting equity markets.
This can create the following sequence:
Lower oil prices and US yields
↓
Dollar selling
↓
Stronger equities and improved risk appetite
↓
Yen selling
In this scenario, USD/JPY may lack clear direction, while yen crosses such as EUR/JPY and GBP/JPY may be relatively more likely to rise.
New York Cut Options
Large option expiries are observed in the major currency pairs today.
USD/JPY
• 157.00
• 158.00
EUR/USD
• 1.1490
• 1.1500
Until the 15:00 London time expiry, these levels may exert a magnetic effect on price action.
USD/JPY may fluctuate around 157.00, with moves towards 158.00 or declines into the low 156.00 area potentially limited.
EUR/USD may also face resistance around 1.1490–1.1500. At the same time, dip buying and option-related flows may emerge on the downside, increasing the likelihood of a narrow range.
If a clearer directional move develops, it is more likely to come during the New York session after the option expiry.
EUR/USD
EUR/USD remains supported by the pause in dollar strength, but large options at 1.1490 and 1.1500 are capping the upside.
If the US 10-year yield falls further from the low 4.92% range, EUR/USD could break above 1.1500.
Conversely, if the US 2-year Treasury auction sees weak demand and short-term US yields rebound, renewed dollar buying could push the pair back towards 1.1450.
Comments from ECB officials, including ECB President Lagarde, are also scheduled. A stronger emphasis on inflation risks could support the euro, while concern over an economic slowdown could weigh on the currency.
GBP/USD
GBP/USD is also finding support from dollar selling, but remains weighed down by the post-Bank of England meeting outlook.
If US yields continue to decline, a gradual rise is possible, although there are few independent catalysts for sterling buying.
As a result, GBP/JPY may be more likely to advance than GBP/USD, as it is more sensitive to stronger equities and yen selling.
Oil Market
NY crude futures briefly rose into the US$97 area before falling back to the US$94 area.
Buying emerged after the previous day’s decline, but the rebound failed to continue, bringing easing supply concerns back into focus.
If oil prices continue to fall, the following dynamics are likely to be reinforced:
• Easing inflation concerns
• Reduced expectations for further Fed rate hikes
• Lower long-term US yields
• Dollar selling
• Support for equity markets
However, lower oil prices can weigh on commodity currencies, meaning that gains in the Canadian dollar and Australian dollar may remain limited.
US Treasury Market
The US 10-year Treasury yield has fallen sharply from around 4.98% to the low 4.92% range.
Whether this decline continues will be important in assessing dollar direction during the New York session.
A US 2-year Treasury auction is scheduled later in the day.
Strong demand could support short-dated Treasuries, keeping US yields lower and extending dollar selling.
Conversely, weak demand could push US yields higher, potentially halting gains in EUR/USD and GBP/USD.
Central Bank Speakers
A series of European and US central bank officials are scheduled to speak today.
• Bundesbank President Nagel
• Austrian National Bank Governor Kocher
• ECB President Lagarde
• Dutch central bank official Sleijpen
• New York Fed President Williams
• Federal Reserve Vice Chair Jefferson
• Other Fed officials
If ECB officials emphasise inflation risks, euro buying may emerge. Conversely, if they focus on a slowdown in the European economy, the euro’s upside is likely to remain limited.
If Fed officials reaffirm the hawkish stance indicated at the latest FOMC meeting, US yields could rebound and support the dollar.
On the other hand, references to lower oil prices or downside economic risks could extend the correction in dollar strength.
UN General Assembly and Geopolitical Risk
As the UN General Assembly’s general debate continues, President Trump and Prime Minister Takaichi are scheduled to speak, while discussions on Iran involving Gulf state leaders and a Japan-US summit are also planned.
Under normal circumstances, the direct impact on FX markets may be limited. However, traders should remain alert to unexpected comments on Iran, tariff policy or Japan-US exchange-rate issues.
If Middle East tensions deteriorate again, the following could occur simultaneously:
• A sharp rise in oil prices
• Renewed inflation concerns
• Equity market declines
• Safe-haven dollar buying
• Risk-off yen buying
USD/JPY may be particularly volatile in this situation, as dollar buying and yen buying would come into conflict.
Today’s Economic Data and Events
• Turkish consumer confidence index
• Taiwan employment data
• Hungarian central bank policy decision
• Eurozone flash consumer confidence index
• US Richmond Fed manufacturing index
• Comments from European and US central bank officials
• US 2-year Treasury auction
• UN General Assembly general debate
• Japan-US summit
• Diplomatic discussions regarding Iran
Economic data alone is unlikely to cause a major shift in market direction. US yields, equities, options and comments from policymakers are likely to be the main market drivers.
Key Points for Overseas Markets
① Can USD/JPY recover 157.00?
② Will it break below 156.85 and test 156.50?
③ Will options at 157.00 and 158.00 restrain price action?
④ Can EUR/USD break above 1.1500?
⑤ Will the US 10-year yield fall further from the low 4.92% range?
⑥ Will short-term US yields move after the 2-year Treasury auction?
⑦ Will European and US equities remain firm?
⑧ Will oil prices fall further from the US$94 area?
⑨ Will central bank speakers deliver hawkish remarks?
⑩ Will there be geopolitical headlines related to the UN General Assembly?
Expected Scenarios
Modest Risk-On Scenario
If equities remain firm, oil prices continue to decline and US yields stay lower, dollar selling and yen selling could occur simultaneously. USD/JPY may consolidate around 157.00, while EUR/JPY and GBP/JPY remain relatively resilient.
Accelerating Dollar-Selling Scenario
If the US 10-year yield falls below 4.90% and the US 2-year Treasury auction is well received, dollar selling could strengthen. USD/JPY may move towards 156.50, while EUR/USD will focus on a break above 1.1500.
Renewed Dollar-Buying Scenario
If Fed officials maintain a hawkish stance and the US 2-year Treasury auction sees weak demand, a rebound in US yields and renewed dollar buying are possible. USD/JPY may move towards 157.50–158.00, while EUR/USD could be pushed back towards 1.1450.
Risk-Off Scenario
If unexpected negative headlines emerge regarding the UN General Assembly or Middle East tensions, equity markets could decline, triggering simultaneous dollar buying and yen buying. In this scenario, the yen crosses are likely to see the largest declines.
Summary
Today, yen selling driven by stronger equities is occurring alongside dollar selling caused by lower oil prices and falling US yields.
USD/JPY fell to 156.86, but the firm equity market has prevented a one-way move towards yen strength.
Options at 157.00 and 158.00 in USD/JPY, along with options at 1.1490 and 1.1500 in EUR/USD, are likely to restrain price action. A range-bound market remains the base case for the European and New York sessions.
After the New York cut expiry at 15:00 London time, comments from European and US central bank officials, the US 2-year Treasury auction and unexpected UN General Assembly-related headlines could temporarily widen trading ranges.
The key focus will be whether USD/JPY can recover 157.00 and whether EUR/USD can break above 1.1500, while monitoring the direction of US 10-year yields and equity markets.
