USD undertone remains soft - Scotiabank

President Trump announced that the US had reached a 'massive' trade deal with Japan yesterday evening (involving Japan paying a 15% reciprocal tariff and investing some USD550bn in the US). The news prompted some relief across markets--Treasurys have sold off, along with other major bond markets--but global stocks have rallied, with the Nikkei rising 3.5% on the session, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD trades mixed to lower versus majors

"The JPY was choppy around the announcement, with rumors (later denied) that PM Ishiba was stepping down following the weekend election setback adding to market volatility. Note that Japanese government bonds continue to weaken. Progress on trade is welcome but only a handful of deals have been concluded and the (apparent) August 1 deadline is fast approaching. Markets remain prone to trade uncertainty and volatility."

"The JPY is little changed while the CHF and EUR are underperforming marginally on the session so far. The AUD and NZD are outperforming among the majors, riding gains in regional FX amid hopes that Japan's agreement helps trade talks progress across the region. The USD itself is trading somewhat defensively overall still, however. The DXY is marginally lower on the session and, after early session gains stalled, has traded relatively poorly through European dealing."

"Yesterday's technical break under support around the 98 level maintains focus on the downside and short-term charts look technically bearish which may mean renewed intraday pressure on yesterday's low and support around 97.30/35. It's another quiet one for markets in terms of data. The Treasury is auctioning USD13bn at a 20Y re-opening (results at 13ET). Later this evening, Japan and Australia release PMI data. RBA Governor Bullock is speaking on the RBA's policy mandate while RBNZ economist Conway will comment on tariffs and the NZ economic outlook."