MUFG Research discusses the impact of AI on FX markets

"AI is evolving from a technology-equity theme into a broader macro and FX driver through six key channels: capital investment, trade flows, productivity, central bank policy, capital flows, and terms of trade. The USD has been the main beneficiary so far, supported by the concentration of AI-related investment in the US and strong foreign demand for US AI-linked assets.

Taiwan and South Korea have been among the largest trade beneficiaries of the AI hardware boom, generating exceptionally large trade surpluses that would normally support much stronger currencies. However, heavy overseas investment by residents and foreign selling of domestic equities have recycled much of the export windfall abroad, limiting appreciation of the TWD and KRW despite sharply improved external balances," MUFG notes.

"The AI buildout is also creating potential winners among commodity-exporting currencies by boosting demand for copper, energy and other critical inputs. The strongest beneficiaries are likely to be the CLP and PEN through higher copper prices, while the AUD, CAD and BRL should benefit from the broader positive terms of trade shock associated with AI-driven infrastructure investment," MUFG adds.

EUR/USD's near-term outlook has turned more bearish after the pair failed to sustain a rally above its 10- and 21-day moving averages and the downtrend line from the May 11 high. Instead, it reversed course and fell to a 16-session low, with the probability of a renewed rally diminishing due to a combination of U.S. employment data, rising oil prices, and shifts in the U.S. interest rate environment.

A key driver has been oil's surge, with Brent crude extending its rally off late-June lows to trade above $100 per barrel on Thursday, stoking investor concerns that inflation could reaccelerate. This has fed directly into the U.S. rate complex, as yields rise on fears the Fed may need to adopt a more hawkish posture. The U.S. 2-year Treasury yield reached a fresh 2026 high, invalidating a bearish rising-wedge pattern on daily charts, while March 2027 SOFR futures broke below their 2025 low—a signal that rates could move significantly higher. This dynamic has widened U.S.-German 2-year yield spreads , boosting the dollar's yield advantage over the euro.

Technical indicators reinforce the bearish case: inverted hammer candlesticks have appeared on both daily and monthly charts, RSI readings point to downward momentum, and EUR/USD's inability to hold above its 10- and 21-day moving averages and the prevailing downtrend line all add to the negative picture.

Until these bearish forces ease, downside risks for EUR/USD are likely to remain elevated.
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)

Bank of America Global Research notes that historical evidence for a summer carry bias is relatively weak.

"Delivered vol does not exhibit a persistent decline through the summer, while seasonal effects in implied vol are relatively modest and appear to primarily reflect a mild compression in risk premia rather than a systematic decline in realized uncertainty. This suggests that successful carry environments are driven more by macro regimes than by the calendar itself," BofA notes.

"Taken together, the evidence points to a regime characterized by contained uncertainty, where investors continue to view the macro outlook as sufficiently predictable to favor carry-oriented positioning," BofA adds.

Bearish momentum is gaining traction in GBP/USD as the pound slid to a fresh two-week low at 1.3328, in early NorAm, down from early July highs of 1.3556. This decline is largely driven by the widening conflict in the Middle East and the subsequent surge in oil prices, with Brent crude testing $100/bbl today, a sharp increase from its early July, Memorandum of Understaning, lows of $70/bbl.

Traders appear to be concerned that this rise in oil prices could significantly impact both UK and global inflation expectations and thus further delay the Bank of England's efforts to reach its 2% inflation target.

This dynamic is also pushing UK 10-year gilt yields higher, exacerbating fiscal concerns, with sights set on pre-Memorandum of Understanding levels near 5.20%. These fiscal concerns are not helped by uncertainty over how new Prime Minister Andy Burnham will attempt to balance rising inflation, subdued growth, and high financing costs in managing the UK budget, even though he has committed to fiscal responsibility.

Currently, GBP/USD is finding some support at today's North American session low of 1.3328. However, the consistent pattern of lower highs and lower lows suggests a persistent bearish trend, which could bring the July 2 low of 1.3276 into focus. For a reversal of this bearish outlook, bulls would need to achieve a close above the daily cloud top, currently situated at 1.3425.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)

Morgan Stanley Research adopts a bullish bias on CAD and a bearish bias on GBP in the near-term.

CAD View: Bullish | Skew: Bullish 

We are bullish on CAD as we think USD/CAD has room to decline as exports recover  and the investment cycle gains traction, USD/CAD has room to grind lower from  here.," MS notes.

"GBP View: Bearish | Skew: Bearish 

We are bearish GBP as we think the market has priced in the good news' from the  potential for a more fiscally conservative Chancellor than initial market  expectations, but the bar for upside surprises has risen," MS adds.

• AUD/USD rallied sharply in Asia after Australia's June employment report

• 0.7021 traded before bulls ran out of gas, the pair then fell in Europe

• NY opened just below 0.7000, AUD/USD traded close to flat in early action

• Sharp USD rally, US yield & rate gains weighed on AUD/USD

• Drops in gold, silver, copper and equities contributed to AUD/USD erasing gains

• A daily inverted hammer candle formed which is a concern for AUD/UDS bulls

• Bulls get comfort from rising monthly RSI, pair's hold above 10-, 21- & 200-DMAs

• US weekly and continuing jobless claims are a data risk in NY's morning
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)

• EUR/USD -0.01%, USD/JPY 0.13%, GBP/USD -0.07%, AUD/USD 0.01%

• S&P E-minis -0.33%, DAX -0.51%, Nikkei 0.46%, FTSE-100 -0.18%

• Weaker euro and higher oil for ECB to consider on Thursday

• USD/JPY grinds higher on oil and rates but intervention risk tames bulls

• AUD/USD: Bullish undertone meets geopolitical fears

• Cable capped by MA resistance, oil drives dollar bid

• USD/JPY: Options alert to FX gains and intervention risk

• Oil surge reignites inflation fears; Fed, ECB in focus

• FX option expiries U.S. Open (Peter Stoneham is a Reuters market analyst. The views expressed are his own)

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• GBP tone remains soft, firmer oil skews risks to the downside

• Spot capped below 200-day MA resistance at 1.3390–1.3400

• Oil pushing back toward triple digits, raises hawkish Fed risks

• USD to stay supported as a result, maintaining downside pressure on cable

• Cross adds pressure - EUR/GBP rebounding, +1% from July 15 low (0.8455)

• Near-term support seen at 1.3340–45, ahead of 1.3300
GBP/USD daily chart


Justin McQueen is a Reuters market analyst. (The views expressed are his own). ((Email: ))

• USD/JPY extends 40 year highs through 163.40 early Thursday as Oil and US yields advance ever higher

• Option markets lift USD/JPY implied volatility, but gains tepid - benchmark 1-month from 4-year low at 5.95 to 6.1

• The lack of FX realised volatility makes holding options expensive without actual intervention, hence low implied levels

• 1-month daily USD/JPY realised volatility is 4.9 - reflects the lack of actual volatility and why long vol positions are struggling

• However, risk reversals maintain a strong JPY call over put premium to reflect the intervention threat haunting USD/JPY

• OTM JPY call/USD put options offer more cost-effective hedge against USD/JPY intervention
USD/JPY implied vs realised vol


USD/JPY 25 delta option risk reversals


(Richard Pace is a Reuters market analyst. The views expressed are his own)

• Thai baht rallied alongside gold between Apr 2025 and Jan 2026

• Baht fell with gold after it hit its record peak near $5600/oz

• Potential base for gold forming around $4000/oz

• USD/THB rally is stretched ad big topside levels loom

• Limit for correction Apr-Jan drop is 34.11, 200-WMA 34.15

•
USD/THB


(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)

• FX option strikes expire at 10am New York/14:00 GMT on Thursday July 23

• EUR/USD: 1.1370-80 (1.7BLN), 1.1400 (2BLN), 1.1420-25 (583M), 1.1435-40 (420M), 1.1450-65 (4BLN)

• USD/CHF: 0.8100 (1.2BLN), 0.8160 (402M). EUR/CHF: 0.9350 (353M)

• GBP/USD: 1.3300 (281M), 1.3390 (237M), 1.3400-10 (737M), 1.3430-40 (728M)

• AUD/USD: 0.6930 (1.3BLN), 0.6945-50 (587M), 0.6965-75 (642M), 0.7000 (558M), 0.7025-30 (860M)

• NZD/USD: 0.5845 (250M), 0.5895-0.5900 (288M). AUD/NZD: 1.1995-1.2005 (807M)

• USD/CAD: 1.4010 (220M), 1.4090 (331M). AUD/JPY: 113.00 (426M)

• USD/JPY: 162.40-50 (878M), 162.75 (784M), 163.00 (1.2BLN), 163.50 (283M), 163.65 (736M), 164.00 (576M)

• FX options wrap - USD/JPY stirs while broader FX vol slumbers (Richard Pace is a Reuters market analyst. The views expressed are his own)

• Shares of Australia's Turaco Gold rise as much as 6.7% to A$0.635, hitting highest since April 28

• Gold exploration co says initial drilling at Woulo Woulo deposit in south-east Côte d'Ivoire confirmed significant depth extensions to mineralisation, with higher-grade gold intersected

• About 4.7 million shares trade hands, about 1.8x 30-day average

• Stock down 25.8% YTD, including session's moves

(Reporting by Subhalakshmi Dey in Bengaluru)

• AUD/USD up 0.25% in brisk Asian trading, boosted by robust AU jobs data

• Opened lower at 0.6990 from Wed 0.6998 close as Houthis actions lifted oil

• 0.6988 traded pre-data, surged as June Australian jobs blew away forecasts

• Peaks at 0.7021 before consolidation sets in; settles at 0.7015 into Europe

• Economy created 76.3k jobs vs 15.3k expected, jobless rate steady at 4.4%

• Probability of another RBA rate hike by year-end jumps to 97% from 78%

• RBA Aug 10-11 meeting will be live if Q2 CPI on Wed is higher-than-expected

• Daily close above 0.7023, 38.2% Fibo of May-June drop, a bullish signal

• Will open resistance at 0.7050, 0.7070-75; support 0.6985-90, 0.6960-65
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(Krishna Kumar is a Reuters market analyst. The views expressed are his own.)

• EUR/USD holding in recent lower range but bid in Asia, 1.1408-26 EBS

• But still between 1.1325 on June 24 and 1.1482 July 15, range to continue?

• Techs shifting a bit though with daily Ichi kijun crossing below tenkan

• Flat tenkan at 1.1429 and descending kijun at 1.1426

• Hourly chart shows spot breaking above 1.1408-23 Ichimoku cloud

• Tenkan rising and at 1.1416, kijun 1.1411 below

• Option expiries today again likely to help contain spot action however

• Between 1.1325-90 total E3.2 bln, 1.1400 E2 bln, 1.1405-45 E1.6 bln

• Between 1.1450-95 above total E5.4 bln, 1.1500-10 E2 bln

• EUR/JPY highest since 187.55 on April 30, Asia 186.18-34 EBS

• Expectations ECB may revert to a more hawkish stance likely behind rise

• EUR/GBP buoyant, Asia 0.8533-34, rebounding from 0.8455 July 15

• Smattering of option expiries today between 0.8450-0.8500, 0.8560-0.8600

• EUR/CHF also bid, 0.9291-97 EBS, highest since 0.9299 Jan 22, 0.9308 Jan 21

• Some option expiries today at 0.9060 and 0.9350 strikes

• Related comments , , ,

• And , , also , also on ECB
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EUR/JPY:


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(Haruya Ida is a Reuters market analyst. The views expressed are his own)

• AUD/USD rallies 0.2% in Asia as Australia's June data beats expectations

• Jobs increase 76.4k vs 15.3k expected, unemployment rate steady at 4.4%

• Full time employment +29.3k, participation rate 67/0% vs 66.7% expected

• Robust jobs data will boost RBA rate hike expectations; Q2 CPI Wed now key

• Daily close above 0.7023, 38.2% Fibo of May-June drop, technically bullish

• More resistance at 0.7050, 0.7070-75; support 0.6985-90, 0.6960-65

• Asia range 0.6988-0.7021
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(Krishna Kumar is a Reuters market analyst. The views expressed are his own.)

• Last night saw nervous USD/JPY fall back to 162.67 EBS before bouncing

• No doubt market nervous over possible Japan-US joint intervention

• Move down brief however and market bounced back up to around 163 quickly

• Asia 163.07-11 so far with nervousness continuing

• Escalating Middle East fighting remains USD supportive, higher US yields too

• JGB-US Treasury rate differentials wider again, in 2s @282, 10s @189 bps

• Technically, USD/JPY holding above 162.72-94 ascending hourly Ichimoku cloud

• Remained above too when USD/JPY shot down to 162.67 overnight

• Hourly Ichimoku kijun 162.94 at top of cloud, ascending 100-HMA 162.67 below

• Option expiries 162.00-75 $2.1 bln, 163.00 $1.2 bln, 163.20-164.00 $2.4 bln

• 163.00 strikes today likely to exert some gravitational pull ceteris paribus

• Related comments , , ,

• And , , nL1N43O01D[], also

• US markets , , ,

• On Middle East , , for more click on [FXBUZ]

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USD/JPY hourly:

(Haruya Ida is a Reuters market analyst. The views expressed are his own)

• AUD/USD steady in Asia after closing unchanged Wed as Iran war escalates

• Houthis claim attacks on Saudi tankers in Red Sea, risk of new chokepoint

• Higher oil prices, rising U.S. yields, tepid risk appetite cap AUD rally

• Australia's June jobs data, a key input for RBA rate expectations, due Thu

• Expected to rise 15.3k, unemployment rate steady at 4.4%

• Only a 4.6% jobless rate or higher would shift hawkish expectations

• Resistance 0.7020-25, 0.7050, support 0.6980, 0.6960-65

• Wednesday range 0.6980-0.70125
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(Krishna Kumar is a Reuters market analyst. The views expressed are his own.)

SEB Research previews the July ECB policy meeting on Thursday.

"Unchanged policy rates...ECB will reiterate its data-dependent approach, not precommitting to a particular rate path, but signaling readiness to act if needed (implying further possible rate hikes)," SEB notes.

"The energy price development since the latest monetary policy meeting has been favorable and most members have recognized the possibility of not stressing the next move.  However, many members see a rate hike as highly likely, but improvements of the energy shock may call this off," SEB adds.

The dollar was mixed on Wednesday, as higher Treasury yields and oil prices amid renewed verbal threats between the U.S. and Iran weighed on haven currencies, while DAX gains and cross-related flows underpinned the euro. A dearth of U.S. data kept the focus on geopolitics, with equity markets mixed as investors prepared for second-quarter results from Alphabet GOOGL.O and Tesla TSLA.O, the first "Magnificent Seven" megacap companies to report after the bell for fresh evidence that these companies' multibillion-dollar investments in AI are paying off. President Donald Trump warned the U.S. would strike Iranian infrastructure if Iran attacked shipping in the Strait of Hormuz, while Tehran vowed to target U.S.-linked regional infrastructure in response. Trump envoys Steve Witkoff and Jared Kushner discussed diplomacy with Ukraine President Volodymyr Zelenskiy, who described the talks as constructive. Germany will launch a state-backed fund to invest directly in defense startups. U.S. Trade Representative Jamieson Greer hopes to reach interim trade deals with Mexico and Canada this year ahead of broader USMCA changes in 2027.

The Norwegian krone topped G10 gains, while the Swiss franc lagged. DXY vols stayed near YTD lows amid subdued turnover, though yen vols firmed on intervention fears and Bank of Japan policy uncertainty. EUR/USD edged higher on risk-friendly flows and EUR/JPY strength, but the broader technical outlook remains bearish while below its 10- and 21-DMAs near 1.1412-20.

EUR/CHF notched a third consecutive gain to its highest since late January, with the move supported by bullish momentum above its upper Bollinger. GBP/USD was under pressure after a fifth straight session of lower highs and lows, with rising oil prices, U.K. fiscal concerns and elevated gilt yields keeping the bias bearish below 1.34. AUD/USD remained constructive above key moving averages despite USD strength, with dip-buying and rising risk assets helping preserve the broader bullish bias. USD/JPY remained bullish above 163, supported by higher yields and improving momentum, though intervention risks were increasing as a BOJ meeting approaches.

Treasury yields were up 1 to 4 basis points as the curve flattened. The 2s-10s curve was down about 1 basis point to +35.0bp.

The S&P 500 was flat in mixed market.

WTI oil rose over 3% to a six-week high.

Gold rose 1.5% while copper fell 0.9% as the CNH weakened.

Heading toward the close: EUR/USD +0.11%, USD/JPY -0.04%, GBP/USD -0.01%, AUD/USD -0.05%, DXY -0.05%, EUR/JPY +0.10%, GBP/JPY -0.01%, AUD/JPY -0.07%.(Editing by Burton Frierson Robert Fullem is a Reuters market analyst. The views expressed are his own)

• NY opened near 0.6995 after 0.7013 traded overnight, the pair initially extended its drop

• Broad-based USD buying, US yield gains & USD/CNH rally sank AUD/USD

• The pair neared the rising 10-DMA, traded 0.6980, buyers then emerged

• Rallies in gold, silver and equities helped lift AUD/USD briefly above 0.7000

• The pair neared 0.6995 late in the session, it traded down -0.07% in NY's afternoon

• A daily doji formed which suggest there is indecision by investors

• AUD/USD's hold above the 10-, 21- & 200-DMAs and rising monthly RSI are bull signs
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)

Deutsche Bank previews the July ECB policy meeting on Thursday

"A pause in July is expected. Current oil prices remain below 11 June levels, and the June HICP inflation data, which came in softer than expected, cast some doubt on the rapid emergence of indirect inflation. Furthermore, our June dbDIG survey indicated a complete unwinding of the initial energy shock's impact on household inflation expectations. Waiting until September will provide the ECB with two additional HICP prints and updated staff forecasts, enabling a more informed decision," DB notes.

"We continue to anticipate a second and final hike to 2.50% in September. In the July press conference, we expect the ECB to maintain neutral communications. This implies no explicit forward guidance, emphasizing a data- dependent, meeting-by-meeting approach without pre-committing to a specific policy path. While the communication will be neutral, we believe the ECB's tone on inflation will still convey a hawkish stance, consistent with a further 25bp hike in September being highly probable," DB adds.

• EUR/GBP bid tone builds, reclaiming 200-hour MAs and shifting near-term momentum higher

• Initial topside capped at 0.8540, clean break needed to re-open 0.8600 handle

• UK CPI miss reinforces BoE “on hold” narrative, weighing on GBP near-term

• ECB seen on hold in July but retaining hawkish bias, offering relative EUR support

• Dips well supported into 0.8480–0.8500 zone, stronger base at 0.8455 (15 July low)
EURGBP hourly chart


Justin McQueen is a Reuters market analyst. (The views expressed are his own). ((Email: ))

MUFG Research on the scope for another wave intervention by Japan's MoF.

"The USD/JPY rate has hit the highest level since December 1986 and what is noticeable about that is the lack of attention this is now getting. With the move a slow grind and with broader G10 and USD/JPY volatility levels so low the MoF’s justification for intervention is simply not there. The 1-month implied volatility in USD/JPY fell below 6% last week for the first time since February 2022," MUFG notes.

"We did get a comment from Finance Minister Katayama who laid the blame for yen weakness solely on the worsening situation in the Middle East but added that “we will take appropriate and bold action at any time, should the need rise”. That’s an interesting caveat – “should the need arise” which clearly suggests a lower sense of urgency than at previous times when intervention took place. There is certainly a shift in urgency in Tokyo which may point to resignation and reluctant acceptance of allowing the yen to weaken as long as the pace of the move is gradual," MUFG adds.

EUR/USD ticked up on Wednesday but stayed locked in its downtrend from the May 11 high, trading below both the 10- and 21-day moving averages—technical signals that are bearish in their own right. More troubling for investors, though, is that the pair isn't capitalizing on a notable rise in euro zone interest rates, suggesting underlying weakness.

The catalyst for those higher euro zone rates has been the sharp rally in oil prices following the escalation of the U.S.-Iran conflict, which raises the risk of hotter euro zone inflation. This has pushed euro zone rates markets to price in a more hawkish ECB stance: the German 2-year government yield

broke above a bull pennant pattern that had been forming since March, while June 2027 Euribor futures dropped below the base of a bear pennant. Both developments point to markets anticipating the ECB may need to raise rates.

Yet despite these upward moves in euro zone rates, EUR/USD hasn't been able to rally—it's actually trading slightly lower than when the U.S. resumed bombing Iran on July 8. This suggests investors are focused more on the U.S. side of the equation, with rising U.S. rates reflecting growing bets that the Fed could hike rates later this year.

Given this dynamic, EUR/USD is likely to struggle to sustain any meaningful rally. A genuine turnaround would probably require a downward shift in U.S. inflation expectations, which could prompt markets to price in a less-hawkish Fed.
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)