Central banks and macro data have taken an unusual secondary role for FX markets as US politics, stock markets turmoil and some sizeable positioning adjustments generated volatility in some pairs inconsistent with macro developments, ING’s FX strategist Francesco Pesole notes.

A move below 104.0 for DXY is imminent

“In the US, the two main events of the week are the FOMC rate announcement on Wednesday and the July jobs report on Friday. The June dot plot projections look unreasonably hawkish given the recent data flow and market pricing, and we expect the Fed to pivot towards a more dovish stance in line with recent commentary and in anticipation of a potential September cut.”

“Markets are already pricing in easing quite aggressively in the US. A September cut is fully factored in and 68bp in total is expected by year-end. We can surely see markets adding easing bets across the curve following a dovish hold but we admit there is a chance that Fed Chair Jerome Powell errs on the side of caution and delivers a less dovish (and USD-positive) communication package this week.”

“Anyway, when adding the downside risks from jobs figures on Friday and a potential surprise hike by the BoJ, we have a bearish bias on DXY this week, and wouldn’t be surprised to see a move below 104.0.”