After turning negative on Thursday, EUR/USD could be in for a correction lower as investors who positioned long may need to endure difficult market conditions before a potential resumption of the rally that began from February's monthly low.

A key factor influencing this outlook is the tightening of U.S.-German 2-year yield spreads, which has stalled. On Thursday, the dollar's yield advantage over the euro increased, driven by rising U.S. yields following positive weekly jobless claims and Philly Fed manufacturing reports.

Further widening would exert additional downward pressure on EUR/USD.

Moreover, the recent performance of gold is adding to the bearish sentiment. After reaching an all-time high above $3707.00 Wednesday, gold reversed course, forming a bearish engulfing candle. Today a price drop followed that candle. With the daily RSI falling, further declines in gold prices could bolster the U.S. dollar, contributing to a decline in the EUR/USD pair.

Technically, the situation is also concerning for EUR/USD bulls. The formation of an inverted hammer candle on Wednesday, followed by today's price drop, suggests that downward momentum is building. Additionally, a monthly inverted hammer is now apparent on the charts and EUR/UD failed to hold above the bull pennant top, indicating that a corrective move lower may be necessary before the longer-term uptrend can reassert itself.
eurusd


(Christopher Romano is a Reuters market analyst. The views expressed are his own)

Synopsis:

The Bank of England left rates unchanged at 4.00% in September (7–2 vote), matching expectations, while slowing its balance sheet reduction. MUFG notes the policy stance remains cautious but data-dependent, keeping alive the possibility of easing in December.

Key Points:

• Policy Hold: Rates unchanged at 4.00%, with two members voting for a cut. Guidance kept steady, stressing caution and reliance on incoming data.

• Balance Sheet Adjustment: Annual QT target cut from £100bn to £70bn, but with more active gilt sales skewed away from long maturities to reduce market disruption.

• Timing of Cuts: November seen as unlikely after August’s tight vote; December more probable if data softens. MUFG projects gradual easing into 2026, with a terminal rate of 3.25%.

• Market Reaction: As the decision matched expectations, GBP impact was muted. MUFG highlights that communication preserves the option for a December cut, consistent with their bearish GBP vs EUR outlook.

Conclusion:

The BoE is sticking to its cautious, data-led stance, but MUFG maintains that December is the likeliest point for the next cut. The hold in September leaves GBP vulnerable, particularly against the euro, as markets weigh fiscal risks and the pace of easing ahead.

Synopsis

Goldman Sachs has updated its CHF outlook, revising USD/CHF forecasts lower and adjusting EUR/CHF to a more stable profile. The bank highlights that recent cyclical dynamics and gold’s performance are supportive of the franc, while political and fiscal risks in Europe keep EUR/CHF capped.

Key Points

1. CHF Support Factors

   • Recent cyclical developments (growth, fiscal risks) have tilted in favor of CHF.

   • Gold prices: While not a dominant driver, higher gold has historically offered some tailwind.

   • CHF has actually outperformed its typical relationship with gold since mid-August, suggesting a closer alignment with fundamentals and narrowing the gap to GS’s fair value model (GSBEER).

2. USD/CHF Outlook

   • Still-elevated fiscal and cyclical risks in the US argue for a weaker USD.

   • GS now sees USD/CHF at:

     • 0.78 in 3 months (from 0.81)

     • 0.76 in 6 months (from 0.79)

     • 0.74 in 12 months (from 0.76)

   • This represents a more bearish USD/CHF path than previously projected.

3. EUR/CHF Outlook

   • EUR outperformance is expected due to global asset allocation shifts, but CHF’s fundamental support limits EUR/CHF upside.

   • As a result, GS now sees EUR/CHF rangebound near 0.93 for the next 12 months (previously 0.95).

Conclusion

Goldman Sachs underscores that CHF remains well-supported, with USD/CHF set for further downside as US cyclical and fiscal concerns weigh on the Dollar. While EUR has structural support from allocation flows, CHF’s strength caps upside, keeping EUR/CHF broadly stable around 0.93.

• AUD/USD traded lower overnight, hit 0.6617 in Europe's morning, buyers emerged

• US yield drop drove broad-based US$ selling, USD/CNH turned lower

• Gold and equity rallies reinforced the US$ selling theme

• AUD/USD hit 0.6660 just ahead of NY's open, traded up +0.01% as NY trading began

• Daily long legged doji formed, follows Wednesday inverted hammer, suggests consolidation

• Rising monthly RSI, AUD/USD hold above rising 10-DMA are bullish tech signals

• US weekly jobless claims, September Philly Fed are data risks in NY's morning
audusd


(Christopher Romano is a Reuters market analyst. The views expressed are his own)

Sept 18 (Reuters) - Option exposure around EUR/USD 1.2000 is too large to ignore - spot could react if the level is threatened. When EUR/USD momentum turned topside following Donald Trump's "Liberation Day" tariffs in April, FX option traders ramped up EUR call/USD put exposure to capture further gains. Even then, 1.2000 emerged as a key target - especially for exotic structures like barriers and triggers, underscoring its role as a strategic inflection point.

The former refers to a binary option - paying out if EUR/USD trades (or doesn't trade) at 1.2000 before expiry. Triggers, meanwhile, are used to knock in or knock out an attached EUR call/USD put, giving the holder the right to buy EUR/USD at a more favourable level if conditions are met.

While many of these options have already expired in-the-money or been rolled to higher strikes, a meaningful cluster of residual positioning is still expected around 1.2000 - keeping the level relevant for spot dynamics.

Unfortunately, DTCC-traded options data doesn’t capture exotic triggers or barriers. However, standard vanilla options struck at 1.2000 - set to expire before year-end - stand out, with notional exposure nearing €50 billion, far surpassing interest at other strikes.

Without visibility into the net positioning it's impossible to accurately predict the FX reaction at 1.2000. However, spot often stalls near heavy option-linked levels like 1.2000 due to defensive flows. But once breached, short gamma positioning can kick in - forcing dealers to chase the move, boosting volatility and amplifying gains.

Related - FX options still leaning toward EUR/USD 1.20 barriers

EUR/USD 1.20 shouldn't give way easily - worry if it does

Back to the FX status quo - Option premiums slump post Fed
EUR/USD option risk reversals


EUR/USD FX option strike due to expire Sep-Dec 2025

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

• USD/JPY has seen a recovery Thursday, from 146.78 to 147.53, on the EBS

• A long tail and bear-trap on the daily chart point to bigger USD/JPY gains

• A key low was left at 145.50, on Wednesday, after the Fed cut rates

• Short-covering and Japanese importer demand helped USD/JPY higher in Asia

• Note both USD/JPY and EUR/JPY usually rise in September

• Nikkei closes above 45,000 for first time on tech boost, Fed decision

• Bank of Japan broadly expected to hold rates Friday

Rate Expectations Chart:


Hourly Chart:

• FX option implied volatility reversed recent gains after Fed cut/USD rebound

• However, it's met demand as EUR/USD posts a minor recovery/gains in London

• Benchmark 1-month expiry implied vol fell 7.6-6.55 post Fed and is now 6.75

• EUR/USD risk reversals keep topside over downside vol premium, albeit lower

• 1-month 25 delta risk reversal 0.475 from 0.625 EUR calls over puts pre Fed

• Shows market still more wary of topside, hence implied vols gain with spot

• Barrier at 1.1900 removed post Fed - next key level is 1.2000 barrier
Benchmark 1-month expiry FXO implied volatility


EUR/USD option risk reversals

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

• EUR/USD rally was stretched above peak 20-day Bollingers bands after Fed

• Wednesday's high 1.1918 EBS - peak bands 1.1831

• Reverse has reached 1.1780 on Thursday

• Dips have been shallow throughout this year's rally

• Target for a minor correction of Aug-Sep rise is 1.1717

• Centre of 20-day Bollinger Bands is 1.1712

•
EURUSD

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

• Cable hits 1.3586 (three-day low) after extending south from 1.3726

• 1.3726 was 11-week high shortly after Fed's 25 bps rate cut Wednesday

• Decline from 1.3726 fuelled by profit-taking on short USD positions

• 1.3586 was also Monday's NY session low (1.3553 was Monday's early Ldn low)

• Bank of England poised to slow QT, leave policy rate at 4% at 1100 GMT

• Starmer and Trump to discuss foreign affairs after pomp-filled royal welcome

GBPUSD

(Robert Howard is a Reuters market analyst. The views expressed are his own)

• AUD/USD extends lower, tentatively slips out of bullish path

• Drops as low as 0.6625 from open 0.6650 amid profit-taking

• Though USD fundamentals negative, AUD longs have been crowded

• Below-forecast Australia jobs spurred selling

• Thurs close below 0.6638 marks exit from uptrend channel

• Consolidation lower till 21 DMA 0.6566 might play out
AUD:

(Ewen Chew is a Reuters market analyst. The views expressed are his own.)

• USD/JPY sees a bit more upside in Asia early before steadying

• Combination of short-covering and Japanese importer demand into Tokyo fix

• USD/JPY 146.78 to 147.14 EBS before backing off

• Spot holding for now near base of 146.72-147.88 daily Ichimoku cloud

• 100-DMA 146.21 below, pierced yesterday on fall to 145.50 but back above

• Large option expiries above/below today help limit directional moves

• Between 146.30-75 total $2.1 bln in expiries, 147.00-55 total $2.4 bln+

• Overall bias to remain down with JGB-US Treasury rate diffs narrowing still

• EUR/JPY buoyant, 173.54-80 EBS, on hold before test above 174.00?

• GBP/JPY buoyant too, 199.93-200.35, AUD/JPY tad heavy between 97.52-82

• EUR/JPY, AUD/JPY see large option expiries below but well out of spot ranges

• Related , BOJ preview , for more click on [FXBUZ]

USD/JPY hourly:


EUR/JPY hourly:


AUD/JPY hourly:

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

• AUD/USD -0.25% Thur as data reveals full time jobs -40.9k in Aug

• AU Aug unemployment 4.2%, -5.4k jobs (poll 4.2%, +21.5k respectively)

• AUD pushing lower hourly Bollinger band, likely oversold short-term

• Fed cut FFR target range 25 bps to 4.00-4.25%, gives dovish guidance for Q4

• Fed's Powell says 'risk management cut' amid both inflation & jobs concerns

• U.S. initial jobless claims Thur (poll 240k), AU Aug CPI update next week

• Range Asia 0.6633-585, support 0.6415 0.6373, resistance 0.69435
AUD Hourly Bollinger Study

(James Connell is a Reuters market analyst. The views expressed are his own.)

• Australian mining stocks down as much as 1.3%, their lowest level since September 9

• Sub-index losing for a second consecutive session

• Copper prices hit a one-week low overnight [MET/L]

• Miners BHP Group , Rio Tinto and Fortescue down between 0.8% and 1.1%

• Sub-index currently down 0.7%, bringing YTD gains to 28.4%
(Reporting by Sherin Sunny in Bengaluru)

• USD/JPY saw some bounce following the Fed's 25 bp rate cut

• Asia 146.78-147.01 EBS following fall to 145.49 yesterday

• Spot back in 146.72-147.88 daily Ichimoku cloud if only barely

• Fed not as dovish as many hoped, only one dissent favouring larger cut

• More cuts seen possible however and should keep USD on back-foot

• That said, short-covering ensued, Japanese importers seen on bid again too

• US Treasury rates bounced but narrowing trend in diffs with JGBs intact

• Large option expiries today likely to keep spot bracketed again

• 145.95-146.00 $1.4 bln, 146.30-70 $2.1 bln, 147.20-30 $1.6 bln

• Related comments , , , also

• US markets , , ,

• On the Fed cut , , US economy
USD/JPY:


JGB-US Treasury 10-year interest rate differential:


USD/JPY nearby option expiries into next week:

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

• GBP/USD -0.7% from Wed 1.3726 high as FOMC outcome & Powell comments settle

• Fed cut FFR target range 25 bps (4.00-4.25%), gives dovish 2025 guidance

• Fed's Powell labels 'risk management cut', inflation & jobs concern remain

• DXY hit fresh 96.22 2025 low before reversing, settling near 97.00 late

• BoE decision 1100 GMT Thur, no change to bank rate of 4.00% anticipated

• UK Aug Core CPI +0.3% m/m, +3.6% y/y in line with expectations

• GBP needs break above 1.3787 resistance to confirm restart of 2025 rally

• Range Asia 1.3627-33, support 1.31425, resistance 1.3787 1.4250
GBP Daily 55-DMA


GBP Weekly


DXY Daily 55-DMA

(James Connell is a Reuters market analyst. The views expressed are his own.)

• AUD/USD -0.8% from overnight 0.6707 high following FOMC & Powell comments

• Fed cut FFR target range 25 bps (4.00-4.25%), delivers dovish 2025 guidance

• Fed's Powell says 'risk management cut' amid both inflation & jobs concerns

• AUD move to new 2025 high unwound as Powell's comments firmed UST yields/USD

• The pair pushing lower hourly Bollinger band, likely oversold short-term

• AU Aug employment data 0130 GMT, Reuters poll +21.5k jobs, 4.2% unemployment

• Overnight range 0.6641-0.6707, support 0.6415 0.6373, resistance 0.69435
AUD Hourly Bollinger Study


AUD Daily 55-DMA


DXY Daily 55-DMA

(James Connell is a Reuters market analyst. The views expressed are his own.)

Synopsis

Bank of America expects the Bank of England to hold rates at 4.00% at Thursday’s meeting, with a likely 7-2 vote split. While some dovish risks persist, particularly from Ramsden, BofA emphasizes that recent inflation and labor market data support a cautious hold.

Key Points

1. Base Case: Hold at 4.00%

   • BofA expects the Bank Rate to remain unchanged.

   • The likely vote split is 7-2, with Dhingra and Taylor voting for a cut.

   • Risks of a more dovish 6-3 split remain if Ramsden joins the dissent.

2. Rationale for Holding

   • Labour Market: Upward revisions to payroll falls imply a softer job market, but not a sharp deterioration, reducing urgency for aggressive easing.

   • Inflation: July’s inflation strength and sticky medium-term risks argue against back-to-back cuts.

   • Policy Tone: The BoE’s guidance remains gradual and careful, with the Committee emphasizing concerns over persistent inflation.

3. Voting Dynamics

   • Ramsden voted for back-to-back cuts in June, citing sharp employment concerns.

   • BofA thinks his concerns may now be tempered, but acknowledges a risk he votes for a cut in September.

4. Hawkish Bias

   • The August meeting had already turned more hawkish, with four votes for a hold.

   • MPC judged upside risks to inflation as “slightly higher,” reinforcing caution.

   • This context makes back-to-back cuts unlikely and strengthens the case for holding steady in September.

Conclusion

BofA expects a hawkish hold at the September BoE meeting. With inflation still sticky and employment softening but not collapsing, the MPC is unlikely to rush into consecutive cuts. Risks tilt towards limited dovish surprises, but the broader message remains one of policy caution and inflation vigilance.

• GBP$ firm after Fed 25bp cut, +0.34% at 1.3694; NorAm range 1.3726-1.3640

• New Fed member Miraqn seeks 50bp cut; Fed favors jobs over inflation, for now

• Fed guides to 2-more 25bp cuts in 2025, still inflation remains a concern

• U.S. central bankers split wide over rate-path view

• UST yields lower, equities higher; belly of UST curve leads, 3m-10yr spread flatter

• Focus shifts to BoE Thursday, no change expected amid persistent UK inflation

• LSEG IRPR indicates -46.6bp of cuts to Dec 10 FOMC; -123.7bp to Dec 2026

GBP$ Chart:


(Paul.Spirgel is a Reuters market analyst. The views expressed are his own)

• NY opened near 0.6670 after AUD/USD drifted lower in overnight trading

• Pair rallied toward 0.6685 with help from USD/CNH drop & god's bounce off its low

• 0.6662 then traded as US$ sales abated & yields
traded higher

• AUD/USD sat near 0.6670 ahead of th eFed's decision, SEP & Powell's presser

• Fed cut 25bps & projection showed additional 50bps of cuts for 2025

• US yields, U$ fell sharply while stocks & gold
turned upward

• AUD/USD spiked higher, hit 0.6707 quickly after the statement then dipped

• Pair pulled back toward 0.6695, traded up only +0.13% late in the session

• Rising daily, monthly RSIs, monthly bull hammer are bullish tech signals
audusd


(Christopher Romano is a Reuters market analyst. The views expressed are his own)

Synopsis

CIBC notes that the Fed delivered the expected 25bp rate cut, but the more striking development is the stronger easing bias signaled in the September projections. The updated dot plot shows the Fed now leaning toward a deeper rate-cutting cycle, though the committee remains highly divided.

Key Points

1. September Cut Delivered

   • Fed cut the funds rate 25bps to 4.0–4.25%.

   • The cut was widely expected and aligns with market pricing going into the meeting.

2. Shift in Forward Guidance

   • Projections: The September dot plot implies 125bps of cuts in this cycle vs. 100bps in June.

   • This year: Median projection favors two more cuts by December.

   • 2026–2027: One cut each, but views vary widely on the outer years.

3. Committee Divisions

   • There was a lone dissent from Miran, pushing for a 50bp cut this meeting.

   • The dots highlight significant disagreement across the FOMC, especially on the neutral rate path.

4. Macro Forecasts

   • Growth: Slightly upgraded vs. June projections.

   • Inflation: Revised higher, reinforcing stagflationary concerns.

5. CIBC’s Take

   • The FOMC is deeply divided between two camps:

     • One group favors faster easing, citing labor market risks.

     • Another is concerned about stagflation, pushing for slower cuts.

   • Chair Powell faces a difficult communication challenge in uniting the message.

   • CIBC doubts there is a single coherent voice in this version of the Fed.

Conclusion

CIBC sees today’s decision as a step toward alignment with market expectations, but stresses the lack of unity within the Fed. With Powell caught between a slowing labor market and sticky inflation, policy clarity is elusive. The outcome is a more dovish overall trajectory, but one tempered by internal disagreements—making the Fed’s path forward data-dependent and politically complex.

USD/JPY bears are cautiously building positions as the dollar weakens, though momentum remains measured.

On Tuesday, the yen rose 0.6%, with futures open interest climbing, signaling renewed interest in yen longs after position-squaring around the quarterly roll and a slide from the September 3 USD/JPY peak of 149.13.

Bearish sentiment is growing, driven by falling USD hedging costs and increased speculative shorts across G10 currencies. USD/JPY’s first close below its daily Ichimoku cloud since July and a bearish weekly setup point to fading bullish momentum. Still, the options market shows restrained expectations, likely due to anticipated equity strength after a potential Fed cut on Wednesday and concerns that Fed Chair Jerome Powell may be hawkish amid persistent inflation. The yen may also face pressure against other G10 currencies, exemplified by one-year EUR/JPY risk reversals near decade lows. While the Bank of Japan may reinforce a soft yen stance, factors like rising demand for higher-yielding JGBs, global rate cuts outside Japan, and potential fiscal stimulus post-LDP elections could support the yen in coming weeks.

Technically, a drop below the nearby 100-day moving average at 146.19, the July 24 low of 145.82 and an ascending trendline from the year-to-date low near 145.80 has the potential to see bullish yen momentum build, sending it outside a long-established 146-149 range.
Yen


Yen


Yen Points


(Robert Fullem is a Reuters market analyst. The views expressed are his own.)

Synopsis

Deutsche Bank has raised its gold and silver price forecasts for the next year, now projecting an average of USD 4,000/oz for gold (from USD 3,700) and USD 45/oz for silver (from USD 40). The bank cites supportive FX and rates dynamics, along with persistent official sector demand, as the main drivers.

Key Points

1. Revised Forecasts

   • Gold: Raised from USD 3,700/oz to USD 4,000/oz average for the next year.

   • Silver: Raised from USD 40/oz to USD 45/oz.

2. Macro Environment

   • Current FX and interest rate conditions remain conducive to further upside in precious metals.

   • The US dollar’s softening trend and expected Fed easing cycles are lowering real yields, creating a supportive backdrop.

3. Official Sector Demand

   • Strong demand from central banks and sovereign entities has been a key factor.

   • Deutsche Bank believes this demand will persist, sustaining gold’s premium above fair-value models.

4. Valuation Perspective

   • While gold screens as rich versus traditional fair value models, Deutsche Bank adjusts forecasts by overlaying excess official demand into the methodology.

   • This supports the higher projected average, even if speculative positioning is not overly stretched.

Conclusion

Deutsche Bank’s latest update reinforces the long-term bullish case for gold, driven by macro tailwinds (lower real yields, USD softness), ongoing central bank diversification, and heightened geopolitical risk hedging. The revised USD 4,000/oz forecast signals confidence that structural demand factors will outweigh valuation concerns.

GBP/USD bulls are likely to keep pushing higher as diverging rate expectations between the Federal Reserve and the Bank of England take center stage.

The Federal Reserve's anticipated 25 basis point rate cut later on Monday would signal, as indicated by STIR futures, a protracted shift toward a lower U.S. interest rate environment, contrasting sharply with the Bank of England's (BoE) stance of maintaining rates amid persistent inflation and fiscal concerns in the UK.

The BoE is not expected to cut rates until early 2026, which sets the stage for a widening interest rate differential that should bolster the pound.

Sterling's recent rise from its September low of 1.3334 reflects a backdrop of declining global yields, with UK 10-year gilt yields dropping from 4.8% to 4.61%. This decline has alleviated some fiscal anxieties, providing a supportive environment for GBP/USD bulls.

However, this bullish sentiment remains vulnerable to potential disruptions, particularly as the UK approaches its autumn budget announcement on November 26. Significant tax increases to balance the budget could reignite fiscal concerns, impacting both UK gilts and the pound.

For the time being, with the Fed's dovish trajectory and the BoE's cautious approach, GBP/USD is likely to continue its upward momentum. Traders should watch for targets at 1.3787, the 2025 high from July 1, and 1.3984, the high from late July 2021, as GBP net spec short positions unwind and align with the current weaker USD zeitgeist.
GBP Chart:


(Paul Spirgel is a Reuters market analyst. The views expressed are his own)

Synopsis

The Bank of Canada (BoC) resumed its easing cycle at today’s meeting, cutting the overnight rate by 25bps to 2.50% as expected. CIBC highlights that softening inflation, a weaker labor market, and trade uncertainties leave the economy vulnerable, and they see scope for another 25bps cut in October.

Key Points

1. September Decision

   • BoC cut its policy rate by 25bps to 2.50%, officially moving policy into accommodative territory.

   • The decision was aligned with expectations and driven by cooling inflation and labor market deterioration.

2. Economic Backdrop

   • Inflation pressures are easing, with the BoC noting that the elevated unemployment rate and the removal of retaliatory tariffs should keep inflation contained.

   • Domestic demand faces additional headwinds from slower population growth, which weighs on household spending.

   • Investment remains constrained by trade uncertainty, highlighting external vulnerabilities.

3. Forward Guidance

   • The BoC emphasized its data-dependent stance, focusing on trade-related cost pressures, potential spillovers into the wider economy, and inflation expectations.

   • Policymakers are monitoring whether these dynamics reinforce the need for additional stimulus.

4. CIBC View

   • CIBC sees the Canadian economy losing resilience, with contained inflation and persistent labor market slack.

   • They expect the BoC to deliver another 25bps cut in October, extending the easing cycle.

Conclusion

CIBC interprets today’s BoC move as the start of a consecutive easing path, with October already shaping up for a follow-up cut. With growth weakening and inflation constrained, the policy rate is likely to drift lower through year-end, reinforcing a bearish CAD outlook, particularly on crosses.