Today’s Market Outlook Dollar Strength Remains Intact, but Month-End Adjustments and US Employment Data Are in Focus
Today’s Market Outlook
Dollar Strength Remains Intact, but Month-End Adjustments and US Employment Data Are in Focus
Market Overview
Trading in Tokyo was limited ahead of month-end, but the broad strong-dollar tone remained intact.
Oil prices and US long-term yields continue to trade at elevated levels amid concerns that the confrontation between the United States and Iran may be prolonged, as well as fears that the United States could resume air strikes after the midterm elections. The underlying structure of safe-haven dollar buying and yield-driven dollar buying remains largely unchanged.
In early London trading, however, USD/JPY was moving around ¥157.40, close to the previous New York close of ¥157.39. Today’s range has also been limited to ¥157.21–¥157.58, with no clear directional momentum emerging.
EUR/USD and GBP/USD are seeing modest dollar buying, but with neither oil prices nor US yields showing fresh upside momentum, the move currently appears to remain within the scope of month-end position adjustments.
USD/JPY
USD/JPY is trading around ¥157.40.
Higher oil prices, expectations of further US rate hikes and elevated 10-year Treasury yields are supporting the downside. However, concerns over measures by Japanese and US authorities to counter excessive yen weakness tend to intensify between the ¥158 area and just below ¥160.
In discussions between Finance Minister Katayama and US Treasury Secretary Bessent, both sides shared concerns about an undervalued yen. In addition, the Takaichi administration has indicated that it is distancing itself from the traditional reflationary policy stance, keeping the prospect of policy action against further yen weakness in focus.
One-week USD/JPY implied volatility has risen to the mid-10% range, with shorter maturities trading at higher volatility than longer maturities, creating a backwardated curve. This indicates that the market is increasing its hedging against near-term intervention or a sharp yen appreciation.
On the upside, ¥157.60, today’s high of ¥157.58 and then ¥158 are important levels. A move into the ¥158 area would confirm continued dollar strength, while also intensifying intervention concerns.
On the downside, ¥157.20 and today’s low of ¥157.21 are the first support levels. A break below this area would bring ¥157 and then the upper ¥156 range into focus.
EUR/USD
EUR/USD is trading around 1.1345.
The pair fell from around 1.1374 in early Tokyo trading to around 1.1343 in early London trading. In addition to dollar strength, concerns over eurozone inflation and slowing growth caused by persistently high energy prices are capping the euro’s upside.
The immediate focus is whether EUR/USD can recover and hold above 1.1350. Failure to do so would make a move towards 1.1300 more likely. Conversely, if US data is weak and dollar strength corrects, a rebound towards 1.1370–1.1400 is possible.
GBP/USD
GBP/USD fell from around 1.3260 in early Tokyo trading to around 1.3227 in early London trading.
In the United Kingdom, concerns over inflation caused by higher energy prices are being compounded by expectations of tax increases, which are weighing on the economy. As long as the strong-dollar trend continues, GBP/USD is likely to remain heavy.
The 1.3200 level is an important near-term support level, while 1.3260–1.3300 is likely to act as a resistance zone on rebounds.
Cross-Yen Pairs
Cross-yen pairs are leaning modestly towards yen strength, as USD/JPY remains resilient while the euro and pound are being sold against the dollar.
EUR/JPY fell from around ¥179.13 in the Tokyo morning to around ¥178.43. GBP/JPY also softened from around ¥208.77 to around ¥208.06.
If USD/JPY holds in the ¥157 area, cross-yen pairs may also see buying on dips. However, if declines in EUR/USD and GBP/USD continue, rebounds in the cross-yen pairs are likely to remain limited.
Oil Prices and US Yields
NY crude oil futures were briefly trading in the US$94 range, but became heavy in early London trading and slipped back to the upper US$92 range.
The US 10-year Treasury yield is also trading around 5.24%, moving in a narrow range around the previous New York close. Both oil and yields remain high, but neither is currently rising enough to generate a fresh acceleration in dollar buying.
If oil recovers the US$94 range and the 10-year yield breaks clearly above 5.25%, dollar buying could accelerate again. Conversely, if oil and US yields decline together, dollar selling linked to month-end position adjustments could broaden.
US JOLTS Job Openings
The August US JOLTS job openings report will be closely watched later today.
The market expects 7.228 million openings, down from 7.271 million previously. Ahead of this week’s US employment report, it will be an important indicator for assessing the strength of the US labour market.
A stronger-than-expected result would point to continued labour-market tightness and could support higher US yields and dollar buying as expectations of further rate hikes increase.
A weaker-than-expected result could raise concerns about a cooling labour market, lowering US yields and prompting a correction in dollar strength. However, with the US employment report due at the end of the week, a one-directional market reaction may not last.
US Consumer Confidence
The Conference Board Consumer Confidence Index for September is expected at 89.0, slightly lower than the previous 89.4.
A larger-than-expected decline could reinforce the view that higher oil prices and high interest rates are weighing on household sentiment, potentially becoming a dollar-negative factor.
Conversely, a stronger reading would highlight the resilience of the US economy and the risk of prolonged inflationary pressure, supporting the dollar.
Whether JOLTS job openings and consumer confidence point in the same direction, or offer contrasting signals, is likely to influence the direction of the New York session.
Central Bank Speakers
A series of European and US monetary policymakers are scheduled to speak today.
ECB speakers include Slovak central bank governor Kazimir, Bundesbank president Nagel, Bank of Spain governor Escrivá and ECB Executive Board member Cipollone.
Federal Reserve speakers include Vice Chair Bowman, Governor Barr, Chicago Fed President Goolsbee, St. Louis Fed President Musalem, New York Fed President Williams and Governor Waller.
The focus will be whether officials regard higher oil prices as a temporary supply-side factor or are concerned about secondary inflation effects. If several policymakers maintain a preference for further rate hikes, dollar strength could persist even if the JOLTS report is somewhat weak.
Key Overseas Market Focus Points
• Whether USD/JPY can hold in the ¥157 area
• Whether USD/JPY can break above ¥157.58 and test ¥158
• Fresh comments warning against yen weakness or signalling intervention
• The US JOLTS job openings and consumer-confidence data
• Whether the US 10-year Treasury yield can rise above 5.25%
• Whether NY crude oil futures can recover the US$94 range
• Whether EUR/USD can regain 1.1350
• Whether Federal Reserve officials maintain a stance favouring further rate hikes
• Sudden capital flows associated with month-end rebalancing
Summary
The dollar remains supported by safe-haven demand and elevated US yields. However, oil prices and US yields were calm in early London trading, meaning the current dollar buying has not yet moved beyond month-end position adjustment.
USD/JPY is likely to remain range-bound around ¥157. A break above ¥157.58 would leave room for a test of ¥158, although intervention concerns become stronger in the ¥158 area, making it difficult to chase the upside aggressively.
The key question later today is whether the US JOLTS job openings and consumer-confidence data will reaccelerate dollar strength or instead encourage month-end adjustment. With the US employment report due at the end of the week, nervous two-way trading is likely to dominate rather than a sustained post-data trend.
