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The Japanese Yen remains strong, although it will typically give up gains after a week of gaining so strongly, like last week. USD/JPY is trading near 156.00, after the Yen gained approximately 2.4% last week. The pair remains close to the important 155.00 support area, and a decisive daily close below that level would be a significant bearish technical breakdown for USD/JPY, likely opening the way towards 150.00. The Yen also made major gains in most of its currency crosses. Growing expectancies of Bank of Japan rate hikes in September (75% probability) and by December (60% probability) are supporting the Yen.
The US Dollar remains soft despite surprisingly strong US jobs data. Friday’s nonfarm payrolls report was much stronger than expected and initially lifted the Dollar and Treasury yields. However, the Dollar Index remains near 99.14, not far above its recent low at 98.56, as concerns about US debt and policy uncertainty continue to limit Dollar demand.
The Fed rate outlook remains finely balanced. Friday's strong US jobs data lifted the implied probability of a September Fed rate hike, but markets are now pricing only about a 58% chance of a hike at the 16 September meeting - slightly below expectations at the start of last week. This Friday’s US CPI release will likely be decisive: a higher-than-expected inflation print would likely strengthen the Dollar and weaken Gold, while softer data would make a Fed pause more likely.
Several agricultural commodities remain in strong bullish trends. Sugar, soybeans, and corn all remain close to their recent multi-year highs. Soybeans are trading near 1,294 cents per bushel, up more than 12% over the past month and almost 29% over the past year, while corn is near 512 cents, having gained more than 17% over the past month. Trend traders will be long of all of these, as long commodities on multi-month breakouts have historically been a very profitable trading strategy.
Crude oil is rising again after fresh Hormuz attacks. Last week’s oil rally did not end with the apparent de-escalation. The US attacked three Iranian tankers over the weekend, including action last night, while Iran said it targeted three tankers using an unauthorised route through the Strait of Hormuz. Brent Crude is near $96.45 and WTI near $91.85; Brent rose almost 10% last week. There are reports that the transit through Hormuz is now back to its level of last May, so it seems the Iranians still have a capacity to cause some kind of bottleneck in the Strait.
Gold has given back part of its rebound. Spot Gold fell 1.2% on Friday to close near $4,419, and it has retested the $4,400 area today. Friday’s stronger US employment data strengthened the case for a Fed rate hike and reduced immediate demand for Gold, although geopolitical risk and persistent concern about the purchasing power of the Dollar remain supportive.
US markets are closed today for Labor Day. Forex markets remain open, but liquidity is likely to be thinner than usual during the US session. Traders should be especially cautious around short-term breakouts, as lower liquidity can produce false moves and wider spreads.
It is also a public holiday in Canada today.