Today’s Market Outlook
After U.S. Data, Focus Shifts to Middle East Risk; Intervention Concerns Rise as USD/JPY Approaches 160.00
■ Market Summary
In today’s Tokyo and Asian sessions, USD/JPY rose into the upper 159 range, setting a new post-intervention rebound high following the coordinated U.S.-Japan intervention.
EUR/USD is trading in the upper 1.15 range and GBP/USD in the lower 1.35 range, reflecting modest dollar strength.
Yen crosses are also moving higher, with EUR/JPY rising into the upper 184 range and GBP/JPY into the lower 216 range.
Last week, the market passed through a series of key U.S. economic indicators, including CPI, PPI, and retail sales.
All of them pointed to moderating inflation or weaker consumer spending, which would normally be expected to weigh on the dollar.
However, thin summer-holiday trading and anticipation of next week’s Jackson Hole symposium have prevented dollar weakness from developing into a one-directional move.
Instead, market attention is increasingly turning toward Middle East developments and oil prices.
NY crude oil futures have risen into the $85 range. Safe-haven dollar buying during geopolitical stress, together with yen selling on concern that higher oil prices will worsen Japan’s terms of trade, is pushing USD/JPY higher.
■ USD/JPY
USD/JPY has risen into the upper 159 range, setting a new post-intervention rebound high.
The pair has retraced a large portion of the post-intervention yen appreciation that pushed it into the 155 range, bringing 160.00 back into view.
The main factors supporting USD/JPY are:
● Safe-haven dollar buying linked to Middle East tensions
● Concern that higher oil prices will worsen Japan’s terms of trade
● Yen carry trades supported by the U.S.-Japan interest-rate gap
● Resilient equity markets
● Fading dollar selling after the recent U.S. economic data
At the same time, the closer USD/JPY gets to 160.00, the more likely concerns over additional intervention by U.S. and Japanese authorities become.
The previous coordinated intervention produced a sharp yen rally in a short period. As a result, market participants are unlikely to buy aggressively toward 160.00 without caution.
Attention should be paid not only to whether USD/JPY reaches 160.00, but also to the speed of yen weakness.
■ 160.00 and Intervention Concerns
With USD/JPY returning to the upper 159 range, the 160.00 level has again become a key threshold.
The main question is how much of the post-intervention return to yen weakness U.S. and Japanese authorities are willing to tolerate.
If USD/JPY approaches 160.00 gradually, authorities may choose to monitor market conditions.
However, if rising U.S. yields or worsening Middle East tensions push the pair into the 160 range rapidly, concerns over rate checks or further intervention could increase sharply.
Yen carry demand remains strong even after the coordinated intervention, making USD/JPY likely to remain supported unless actual intervention occurs.
Nevertheless, the risk of aggressively adding to yen-short positions around 160.00 has become increasingly large.
■ Dollar Market After U.S. Economic Data
Last week saw the release of U.S. CPI, PPI, and retail sales data.
Inflation indicators confirmed moderation, while retail sales also showed weakness, reducing expectations for an additional rate hike at the September FOMC meeting.
Under normal circumstances, this would be an environment favorable for dollar selling.
However, actual dollar weakness has been limited, with USD/JPY instead rising into the upper 159 range.
This is because multiple factors are operating at the same time, including U.S. monetary policy, Middle East developments, oil prices, yen carry trades, and equity markets.
With few key U.S. indicators scheduled this week, safe-haven dollar buying linked to geopolitical risk is likely to attract more attention than dollar selling based on economic data.
■ Middle East Developments
Middle East conditions are becoming more uncertain again.
Negotiations between the United States, Iran, and Oman over reopening the Strait of Hormuz are continuing, but the prospect of a comprehensive agreement remains unclear.
There have been reports of some agreement between Iran and Oman concerning shipping routes.
However, conflict remains strong in talks between the United States and Iran.
In addition, U.S. President Trump has made hawkish comments suggesting that military action could be taken if Oman obstructs negotiations with Iran.
Oman has served as an intermediary between the United States and Iran, making these comments another factor increasing uncertainty in the Middle East.
There remains no clear path toward a U.S.-Iran ceasefire or a full reopening of the Strait of Hormuz.
■ Strait of Hormuz
The Strait of Hormuz is an extremely important shipping route for global energy supply.
Iran and Oman are continuing discussions regarding vessel transit routes, but conditions for a full reopening are not yet in place.
Iran is seeking the lifting of the U.S. blockade and compensation.
There have also been reports of a proposal to charge transit fees to vessels passing through the Strait of Hormuz.
Even if a limited safe shipping route is established, this does not necessarily mean that maritime transport conditions will return fully to normal.
If the Strait of Hormuz issue persists, concerns over oil supply may keep energy prices elevated.
■ Oil Market
NY crude oil futures have risen into the $85 range.
Renewed Middle East tensions and uncertainty surrounding the Strait of Hormuz are pushing oil prices higher.
Higher oil prices are likely to be an important bullish factor for USD/JPY.
In the United States, higher energy prices increase the risk of renewed inflation and may support U.S. yields.
In Japan, rising import costs worsen the terms of trade and add to yen-selling pressure.
In other words, higher oil prices support USD/JPY through both dollar buying and yen selling.
If crude oil rises further from the $85 range, upward pressure on USD/JPY toward 160.00 is likely to strengthen.
■ U.S.-Canada Tariff Issue
In addition to Middle East developments, trade issues between the United States and Canada are becoming a new market factor.
The U.S. administration has proposed an additional 50% tariff on Canadian products, with the planned implementation date approaching.
The United States is demanding that Canada remove restrictions on sales of U.S. alcohol products and further open its dairy market.
Canada, meanwhile, is seeking not only to avoid new tariffs but also to reduce existing tariffs on steel, aluminum, automobiles, and other products. Negotiations remain difficult.
If the additional tariffs are actually imposed, they could affect not only the Canadian dollar but also North American prices and corporate activity.
Tariffs raise import prices in the United States and could therefore affect the Federal Reserve’s inflation outlook.
Energy-driven inflation from the Middle East and import-driven inflation from tariffs may increasingly be considered at the same time.
■ EUR/USD
EUR/USD is trading in the upper 1.15 range.
It has remained supported following last week’s weak U.S. economic data, but modest dollar buying is dominant today.
The market remains cautious about pushing higher into the 1.16 range.
With few key U.S. indicators scheduled this week, EUR/USD is likely to be driven less by dollar-specific factors and more by Middle East developments, oil prices, and U.S. yields.
If safe-haven dollar buying strengthens further, EUR/USD may be pushed back toward the lower 1.15 range.
Conversely, if Middle East tensions improve and oil prices fall, dollar selling could return and EUR/USD may test the 1.16 range.
■ Sterling Market
GBP/USD is trading in the lower 1.35 range.
The pair rose to its highest levels since May yesterday amid broad dollar weakness, but it is now being pressured by modest dollar buying.
GBP/JPY has risen into the lower 216 range, reflecting pronounced yen weakness.
Yen crosses are in an environment where rising USD/JPY and resilient European currencies are operating at the same time, making new highs easier to test.
However, if intervention occurs again in USD/JPY, yen crosses such as GBP/JPY could also face sharp downside pressure.
■ Yen Crosses
EUR/JPY is trading in the upper 184 range, while GBP/JPY is in the lower 216 range, both reflecting further yen weakness.
Equity markets have not declined significantly, and ongoing yen carry demand is supporting yen crosses.
If USD/JPY rises toward 160.00, yen crosses may also test further highs.
However, as this is also a level where intervention concerns rise, caution is needed for sharp movements in yen crosses as well.
■ U.S. Economic Indicators Today
The following U.S. economic indicators are scheduled for release later today:
● Import Price Index
● Export Price Index
● Housing Starts
● Building Permits
● Industrial Production
● Capacity Utilization
● Pending Home Sales Index
U.S. housing starts are expected at 1.345 million, down from the previous 1.427 million.
Elevated mortgage rates continue to weigh on the housing market.
Meanwhile, industrial production is expected to rise by 0.3% month-on-month, accelerating from the previous 0.1% increase.
If the results are mixed, market reaction is likely to be limited.
This week, Middle East-related news and oil prices may have more influence than economic data.
■ German ZEW Economic Sentiment Index
The European session will see the release of Germany’s August ZEW Economic Sentiment Index.
The German economy remains weak, particularly in manufacturing, making any improvement in sentiment important.
A strong result could support the euro.
However, it is unlikely to be large enough to change overall dollar direction, meaning that any impact on euro markets may be temporary.
■ Speaking Event
ECB Chief Economist Philip Lane is scheduled to speak on monetary policy.
His comments on European inflation, economic conditions, and the outlook for policy rates will be closely watched.
As higher oil prices could also push up European inflation again, it will be important to assess how concerned the ECB is about Middle East developments.
■ Equity Market
Last week’s weak U.S. economic data have reduced expectations for additional U.S. rate hikes, supporting equity markets.
On the other hand, worsening Middle East tensions and higher oil prices are likely to weigh on equities.
If oil prices rise further, concerns may grow over higher corporate costs and negative effects on consumer spending.
For now, equity markets have not shifted sharply toward risk aversion, and the environment supporting yen carry trades remains in place.
However, market sentiment could change rapidly depending on Middle East headlines.
■ Key Focus Going Forward
This week, market participation is reduced by the summer vacation season, and the major U.S. economic indicators have largely passed.
The next major monetary-policy event will be next week’s Jackson Hole symposium.
Until then, the following factors are likely to move markets:
● Middle East developments
● Negotiations over the Strait of Hormuz
● NY crude oil futures
● U.S. long-term yields
● Intervention policy by U.S. and Japanese authorities
● U.S.-Canada tariff negotiations
● Risk trends in equity markets
In thin summer markets, even normally minor news can produce larger-than-usual price moves.
■ Key Points for the London and New York Sessions
① Whether USD/JPY moves into the 160 range
② Whether intervention concerns from U.S. and Japanese authorities intensify as the pair approaches 160.00
③ Whether NY crude oil futures hold in the $85 range
④ Whether negotiations over the Strait of Hormuz show progress
⑤ Whether U.S.-Iran tensions intensify further
⑥ Market reaction to U.S. housing and industrial-production data
⑦ Whether the U.S. 10-year yield rises
⑧ Whether U.S.-Canada tariff negotiations break down
⑨ Whether equity markets can maintain risk appetite
■ Summary
After last week’s key U.S. economic data, including CPI, PPI, and retail sales, market focus is shifting back toward Middle East developments.
The U.S. data broadly showed moderating inflation and weaker consumption, reducing expectations for an additional September rate hike.
However, dollar selling has not become one-directional. USD/JPY has risen into the upper 159 range, setting a new post-intervention rebound high.
The background includes safe-haven dollar buying from renewed Middle East tensions, NY crude oil futures rising into the $85 range, yen selling on concerns over worsening Japanese terms of trade, and persistent yen carry demand.
At the same time, USD/JPY is again approaching 160.00, increasing concerns over additional intervention by U.S. and Japanese authorities.
Negotiations between the United States, Iran, and Oman over the Strait of Hormuz remain confused, while the additional U.S.-Canada tariff issue has emerged as a new inflation risk.
The market will now monitor not only U.S. economic data, but also NY crude oil futures, Middle East headlines, U.S. yields, and equity markets to determine whether USD/JPY tests 160.00 or whether intervention concerns limit the upside once again.
