The US dollar exhibits a mixed performance. The Japanese government has reportedly decided against a formal overhaul of the allocation of the government’s pension funds, contrary to prior indications before the weekend. As a result, both the yen and JGBs are experiencing a softer performance today. Since last week’s hawkish hold by the Reserve Bank of New Zealand, the Kiwi has emerged as the strongest currency in the G10 and continues to maintain that position today. Undeterred by the increased volatility and the potential for further disruption of trade through the Strait of Hormuz, the PBOC established the dollar’s reference rate at a new three-year low. It is challenging to generate enthusiasm for the euro as it continues to fluctuate within the range established on July 2, coinciding with the US jobs data: ~$1.1375-$1.1475. Ahead of the weekend, it traded on both sides of the previous day’s range; however, the settlement remained neutral and fell below the 20-day moving average (~ $1.1430 today). The escalation of the Middle East war resulted in the euro being sold to approximately $1.1385 today, before it rebounded in early European trading to reach new session highs around $1.1445.

The intraday momentum indicators appear to be extended. Options amounting to nearly 785 million euros at a strike price of $1.1400 are set to expire today, while an additional 2.3 billion euros worth of options will expire tomorrow. Given the euro’s sensitivity to US two-year rate changes and the potential for a decline in US CPI tomorrow, marking the first since the onset of the Middle East war, the constructive momentum indicators suggest there may be room for further near-term euro gains. According to the weekly data from the Ministry of Finance, Japanese investors have been divesting from foreign assets this year. Nonetheless, the appeal from finance ministers for Japanese pension funds to increase their domestic allocation resulted in a rise of approximately 0.5% in the yen ahead of the weekend, marking its most significant increase since early May and the first consecutive gain since early April. The dollar concluded last week beneath the 20-day moving average (approximately JPY161.75 today) for the first occasion since mid-May. Reports indicate that the Takaichi administration has no intentions to revise the asset allocation strategy of the Government Pension Investment Fund. The greenback is consolidating within the pre-weekend range observed thus far today (~JPY161.65-JPY162.35).

Sterling approached a nearly four-week peak prior to the weekend, marginally exceeding $1.3450. It halted at the June 15 peak (~$1.3460), which aligns with the (61.8%) retracement of the drop from the May Day high (~$1.3660). The next technical hurdle is observed in the 1.3480-1.3500 range. The latter represents the midpoint of this year’s range. Sterling appreciated in value for 11 out of the past 12 sessions. Sterling was sold to nearly $1.3365 today but rebounded to reach a session high just above $1.3410 during early European trading, coinciding with the expiration of options totalling approximately GBP315 million today. Initial support is currently observed at approximately $1.3380. Culminating a week of favourable data, including the June employment report before the weekend, the Canadian dollar reversed a five-week decline. It commences this week with a four-day advance in tow. It marks the most extended rally since April. The greenback has positioned itself beneath its 20-day moving average (~CAD1.4170 today) for the first occasion since May 7. The US dollar appreciated to CAD1.4175 today before subsequently retreating. It experienced a minor decline, dipping just below CAD1.4135 during the early European trading session. Nearby support is observed in the range of CAD1.4115-20. A breach of CAD1.4080 may catalyse a shift towards CAD1.3980.

The Australian dollar achieved new weekly highs just before the weekend, approaching $0.6970. It marked the sixth consecutive daily increase in the last seven sessions. The Australian dollar has not reached this level since June 23. It settled above the 20-day moving average (~0.6945 today) for the first time since the end of May. The five-day moving average appears set to surpass the 20-day moving average in the near term. The Australian dollar experienced a decline, trading down to approximately $0.6925 before finding stability. It recovered to nearly $0.6950 before encountering a stall. Options for approximately A$400 million at $0.6930 are set to expire today.