Europe Summary and Highlights 26 August

Europe Session

The JPY stabilised in Europe in thin conditions with the UK closed, after the gains seen in Asia.  Government bond and equity market reaction to the Israel/Hezbollah missile strikes has been muted on the widespread view that a war remains unlikely.  The focus remains more on the size of Fed rate cuts after Powell signals on Friday.  JPY consolidation is expected to give way to renewed JPY gains, as the market wants to test 142.00 on USD/JPY. 

European majors chopped sideways, with losses against the JPY being maintained.  However, the mood against the USD remains bullish, with the ECB and BOE expected to be more cautious in cutting interest rates relative to the Fed in the next 3 to 6 months.  Market is looking to target a test of 1.1275 on EUR/USD, but some traders feel a break is unlikely ahead of the key Sep 6 U.S. employment report release.   

Asia Session

With Powell open to the idea of a 50bps rate cut in September on Friday night, the USD is in free fall along with U.S. Treasury Yields across the curve. Asian market participants agreed with the previous momentum and see more follow through USD selling at the opening on Monday. Majors opened not in favor of USD with USD/JPY leading the fall. USD/JPY opened 15 pips lower at 144.18. As session progress, we see USD faring a tad better as it trades higher against major except JPY. U.S. Treasury yields have yet to close the opening gap warns caution for USD longs later in London/New York session.  USD/JPY has rebounded from session low at 143.45 to trade 0.26% currently at 143.98.

There has been no progress for Gaza peace talk over the weekend and Israel and Hezbollah has been exchanging rockets. Both sides seems to have back down for now as both parties suggest the attack is over for now. However, it does not seem to calm markets with such prolonged geopolitical tension. The antipodeans are falling on along mixed risk sentiment and see AUD/USD, NZD/USD down 0.30% to 0.6776and 0.6215 respectively while USD/CAD rose 0.05%. Else, EUR/USD is down 0.05% and GBP/USD down 0.12%.