EUROPEAN FX UPDATE: EUR/USD's descent continues as markets digest the EU-US trade agreement

USD: DXY +0.2%; 98.80

• After a steady start to the session, DXY is once again on the front foot with the index mechanically boosted by the weakening EUR (see EUR section for details). That being said, there are some reasons to be positive surrounding the US, mainly on the trade front, with the US continuing to grind out deals with trading partners and facing little retaliation whilst doing so. Furthermore, markets are also anticipating a 90-day extension of the current 90-day US-China truce. Today, attention will turn towards the data slate with JOLTS and Consumer Confidence due on deck. The former will likely be of greater importance given that a deterioration in the labour market would be required for the FOMC to question its current wait-and-see approach. That being said, the release is unlikely to impact tomorrow's policy announcement, which falls on the same day as flash Q2 GDP metrics. Other tier 1 releases this week include monthly PCE metrics for June on Thursday and the July NFP print on Friday. As it stands, markets price a September cut at 68% and see a total of 44bps of loosening by year-end. DXY briefly made its way onto a 99 handle with a session peak @ 99.05.

EUR: EUR/USD -0.3%; 1.1569

• EUR/USD has very much picked up where it left off as the selling pressure in the pair continues following the EU-US trade agreement. Initially, many desks were of the view that the removal of uncertainty would be deemed as a market positive (hence the markedly higher open in stocks yesterday). However, this narrative has since given way to negativity around the actual terms of the deal. This has been voiced by various national leaders, such as German Chancellor Merz, who warned of the significant impact it will have on the German economy. Additionally, France has reportedly been pushing EU members to unload its “trade bazooka” on the US — both before and after the EU struck its deal with US President Trump, according to The New York Post. Overall, the deal is being framed as a win for the US but a loss for the EU, keeping tensions high despite the agreement. Elsewhere, the June ECB Consumer Expectations Survey for June saw the 1-year inflation expectation decline to 2.6% from 2.8%. Today's EZ calendar is light and as such, the trade narrative and US data slate will likely dictate the fortune of EUR/USD in the near-term. EUR/USD has taken out its 50DMA @ 1.1570 with a current session low @ 1.1527; lowest since 23rd June. There is little in the way of support ahead of the 1.15 mark.

JPY: USD/JPY -0.1%; 148.48

• JPY is the only of the majors firmer vs. the USD as a run of three consecutive losses vs. the USD pauses for breath. The extent of the rebound is relatively limited at this stage and as such, it is probably not worth reading too much into the price action. Political uncertainty in Japan remains rife with ongoing speculation over whether PM Ishiba will be forced to step down from his position following the recent upper house elections. The biggest risk event on the horizon in the near-term comes via Thursday's BoJ policy announcement. Policy settings are set to be left unchanged. As such, focus will be on the accompanying statement, which analysts expect to see the BoJ providing a less gloomy view and signalling the potential for resuming rate hikes later in the year, following the US-Japan trade agreement last week. As it stands, markets price around 19bps of tightening by year-end. USD/JPY ventured as high as 148.74 before pulling back below yesterday's 148.57 peak.

GBP: GBP/USD -0.1%; 1.3340

• GBP softer vs. the USD but to a lesser extent than most peers following the recent cross-related selling in EUR/GBP. ING writes that the recent moves appear to be driven more by positioning, "where opposing fiscal and monetary prospects between the eurozone and the UK had made long EUR/GBP one of the conviction trades this summer". The desk adds that the "clear-out may have run its course". Macro updates for the UK are lacking with yesterday's meeting between PM Starmer and US President Trump not providing markets with much to go off. This week's UK calendar is set to remain light ahead of next week's BoE policy announcement, which is currently priced at 87% for a 25bps cut. Cable has hit a multi-month low @ 1.3315 with not much in the way of support seen until the 1.33 mark.

Antipodeans: AUD/USD -0.2%; 0.6511. NZD/USD -0.2%; 0.5955

• Both softer vs. the USD for a fourth session in a row. Macro drivers for AUD and NZD remain light as the former awaits CPI metrics on Wednesday. Both will be interested in the outcome of US-China talks in Sweden, albeit a 90-day extension of the current 90-day truce is widely expected. AUD/USD trades in close proximity to its 50DMA @ 0.6512 after finding support at the 0.65 mark. NZD/USD has slipped further on a 0.59 handle with a session low @ 0.5946. Next target comes via the 22nd July low @ 0.5940.

29 Jul 2025 - 10:15- ForexEU Research- Source: Newsquawk