- Currency futures remain under pressure on Monday amid cautious market sentiment.
- Political turbulence in France and Japan, along with renewed US-China trade tension, sparked a sell-off in currencies.
- The US dollar could resume its downside amid Fed easing in October and the US government shutdown.
Currency futures started the week on a cautious note as markets digested fresh US-China trade friction, political chaos in Europe and Japan, and shifting central bank expectations. With a data blackout due to the US government shutdown, the traders are leaning on the policy signals and geopolitical developments to determine the next move.
The US dollar pared gains on Friday, pushing the Dollar Index to two-week lows as investors weighed the Fed’s dovish signals along with recent US tariffs on China. According to ING FX strategists, “The dollar is showing a vulnerable side as traders are increasingly betting on October rate cuts.” However, the greenback recovered ground on Monday as traders gauge the cautious tone of the Fed members.
From Asia, the Japanese yen stays under pressure after a political shake-up last week, bringing Sanae Takaichi as the new LDP leader. Traders are reducing their bets on BoJ’s near-term rate hikes, pushing the yen futures to 8-month lows. However, the speculation of probable government intervention and verbal warnings from Japan’s Finance Minister helped the yen pare some losses on Monday.
Meanwhile, euro futures found mild support later last week, but France’s political uncertainty continues to cap gains. On the other hand, the British pound futures remain subdued amid a softer UK GDP print and the Bank of England’s cautious tone.
On the CFTC weekly report front, the open interest rose sharply in euro and yen futures, revealing hedging demand amid central bank policy divergence. Traders are trimming USD long positions, with a significant surge in speculative longs in the euro. The open interest in yen futures surged to the highest level since May, revealing a potential BoJ intervention to support their currency.
Looking ahead, the market activity remains thin on Monday amid the US bank holiday. The US CPI, PPI, and Retail Sales data are due this week, which could be decisive for the futures traders. Moreover, headlines related to geopolitics and trade wars could significantly impact the markets.