Fundamental Backdrop and Market Sentiment
In the previous outlook dated July 19, the recommended positions were:
-
Long USD/JPY — yielded a 0.90% gain.
-
Short EUR/USD — incurred a 0.60% loss.
The net result was a 0.30% gain, averaging 0.15% per position.
Key market drivers from last week:
-
ECB Policy Meeting — Rates were held steady, but the stance was interpreted as a “hawkish hold,” supporting the euro relative to other European currencies.
-
UK CPI — Inflation dipped slightly more than forecast to 2.6%, weighing on the pound.
-
Canadian CPI — Significantly softer than expected, with a 0.4% month‑on‑month decline versus the anticipated 0.2% drop, pressuring the Canadian dollar.
-
New Zealand CPI — Quarterly inflation came in a touch above expectations at 1.5%.
-
Australian Unemployment — Unexpectedly strong labor data.
-
UK Unemployment Claims — Fell more than forecast.
The dominant themes were broadly softer inflation prints, the formation of a new UK government (same party), and a sharp deterioration in U.S.–Iran relations that approached the brink of a multi‑front conflict, with a major U.S. strike reportedly called off at the eleventh hour on Friday.
Softer U.S. CPI and PPI data eased pressure on the Federal Reserve to raise rates, though a 25‑basis‑point hike later this year remains the consensus. Nevertheless, broad U.S. equities declined, with the Nasdaq 100 touching a fresh two‑month low — likely reflecting fundamental concerns and the geopolitical escalation risk. Fed rhetoric remains hawkish, potentially overshadowing the disinflation relief. The overall central bank environment stays restrictive.
The aborted U.S. strike over the weekend is widely attributed to either a) Iran signaling willingness for serious negotiations, or b) U.S. munitions inventories running low without adequate replenishment. While a durable diplomatic breakthrough seems improbable, the pause reduces immediate escalation risk.
With the threat of imminent escalation on hold, equity markets are poised to open modestly higher, while crude oil and gasoline prices should gap lower at the open.
The Week Ahead: Key Data and Events to Watch
The coming week is heavy with high‑impact releases. The most consequential, in order of likely market impact:
-
U.S. Federal Reserve Policy Meeting
-
U.S. Core PCE Price Index
-
Bank of Japan Policy Meeting
-
Bank of England Policy Meeting
-
Australian CPI (Inflation)
-
U.S. Advance GDP
-
Canadian GDP
Monthly Forex Forecast: July 2026 Overview
Currency Price Changes and Interest Rates
For July, the forecast called for EUR/USD depreciation and USD/JPY appreciation. Year‑to‑date performance:
Weekly Forecast: July 26, 2026
No weekly forecast was issued last week.
This week, no directional forecast is offered either, as last week lacked exceptional price moves.
Volatility contracted, with only 7% of major pairs and crosses moving more than 1%. Next week’s volatility is expected to pick up notably.
Technical Overview and Key Levels
Key Support and Resistance on Major FX Pairs
Key Support and Resistance Levels
US Dollar Index
The Dollar Index posted a bullish weekly candle, achieving its highest close in 15 months near the key long‑term resistance at 101.39. The close near the weekly high signals underlying strength.
Despite global disinflation, the Fed maintains a hawkish bias and is still priced for further tightening. Coupled with the effective closure of the Strait of Hormuz and rising odds of a renewed U.S.–Iran conflict in the coming weeks, the greenback enjoys a strong bid.
The technical question is whether momentum is sufficient to breach and hold above 101.39. A sustained breakout would be a major bullish signal.
Long USD exposure remains well‑justified at current levels.
US Dollar Index Weekly Price Chart
USD/JPY
USD/JPY broke out bullishly last week, printing a fresh 39‑year high and testing the ¥164 psychological level. The weekly candle was the strongest since May 2025 and closed near its high, albeit just shy of the round number.
The dollar’s dominance stems from a hawkish Fed and safe‑haven demand. The yen remains the weakest major currency structurally, constrained by Japan’s extreme debt load which limits the BoJ’s ability to tighten aggressively — though a near‑term rate hike is still anticipated, just not at next week’s meeting. With both the Fed and BoJ convening next week, this pair will be a focal point.
Long USD/JPY with a wide stop is a high‑conviction trade; the long‑term ascending trend line underscores the trend’s maturity and power.
Long exposure remains strongly favored.
USD/JPY Weekly Price Chart
EUR/USD
EUR/USD had been rangebound despite dollar strength, but technical evidence now points to a bearish breakdown. Last week’s close was the lowest in over a year, with the candle closing near its low — classic bearish price action. The multi‑month structure resembles a topping formation, increasing the probability of a sustained decline.
On lower timeframes, new resistance levels have been carved out by recent selling, reinforcing the bearish bias.
The existing short position is increasingly comfortable and could run further unless the ECB delivers a surprisingly hawkish surprise — unlikely with no meeting scheduled this week.
EUR/USD Weekly Price Chart
NASDAQ 100 Index
U.S. equities show growing technical fragility, and the Nasdaq 100 is the weakest of the major indices. The weekly chart displays a broad topping pattern signaling a sharp correction ahead. Last week’s close near the weekly low — the lowest since April — adds weight. The index’s rapid ascent into this zone means a similarly swift reversion is technically plausible.
The AI‑driven surge in chip and mega‑cap tech stocks earlier this year now appears overbought, posing systemic downside risk.
Shorting U.S. equity indices is generally avoided, but a sizable further decline is plausible. A stabilization could present a buying opportunity around 26,000 or even 23,000.
Long‑standing longs should consider locking in profits.
NASDAQ 100 Index Weekly Price Chart
Gold
Gold attempted a recovery last week but failed at the descending trend line (confluent with the $4,138 resistance) that has capped prices since the March 2025 peak.
Buyers should wait for a decisive break of that trend line and resistance level before committing.
While commodities are not shorted here, a short would be attractive on a strong bearish daily close at a fresh multi‑month low. Until the Fed pivots from its hawkish inflation stance, gold’s upside remains capped.
Gold Weekly Price Chart
WTI Crude Oil Futures
WTI posted a third consecutive weekly gain, having bounced from the $67.11 “stairstep” support four weeks ago — a level that previously served as resistance before the U.S.–Iran conflict erupted on February 28.
Tensions deteriorated further last week, with reports the U.S. was contemplating stronger strikes than those executed in February. Action was widely expected over the weekend but did not materialize, with sources citing a preference for continued diplomacy — or, more plausibly, a need to rebuild munitions stockpiles.
The effective closure of the Strait of Hormuz underpins prices, yet the weekend pause suggests a lower open this week. However, given the protracted stalemate, a full‑scale conflict resumption appears merely deferred.
Trump’s sensitivity to high oil prices introduces event risk: any spike could trigger a sudden policy reversal or statement that crashes prices. Day‑trading approaches are preferable to limit exposure.
After an initial dip, prices are expected to grind higher later in the week.
WTI Crude Oil Spot Daily Price Chart
Bottom Line
The highest‑conviction trades for the coming week:
-
Long USD/JPY.
-
Short EUR/USD.