31st July - Japan Steps In
In terms of geopolitics, there is little new to report this morning, with the situation broadly unchanged. US strikes on Iran continued overnight into Wednesday, but reports of fresh Oman-brokered negotiations over the Strait of Hormuz have tempered things somewhat, and oil has settled into a flat-to-firm range as a result. For once, the Middle East is not the main story, because the last 24 hours have been dominated by central banks, earnings and a dramatic intervention in the currency markets.
Forex
The standout event was in Japan. On Thursday night, Japanese authorities finally stepped in and conducted a coordinated intervention, with US authorities running a "rate check" alongside them, and the effect was dramatic. USD/JPY collapsed from around 162.80 to as low as 157.96 in the space of about an hour, the pair's biggest one-day drop since January 2023. This morning the BoJ then held rates at 1% on an 8-1 vote, but crucially warned for the first time that underlying inflation could exceed its 2% target, which is a clear signal that further hikes are coming. The pair has since pared some of that spike, trading back around 160.40 as the market tests Tokyo's resolve.
The key to understanding the yen move is the timing, and it links straight back to yesterday's post. For weeks we have watched USD/JPY grind relentlessly towards 164 with the BoJ seemingly powerless to stop it, and the intervention question has hung over the pair the entire time. It has now been answered, and Japan chose this exact moment for a reason. As I argued yesterday, Wednesday's FOMC left the dollar looking fragile, with the market questioning whether the Fed has lost its grip on inflation. That fragility is precisely what gave Japan its opening. As one analyst put it, this was a "golden opportunity", because a weak dollar backdrop makes intervention far more effective than trying to fight the tide alone. In other words, the Fed credibility thesis from yesterday and this yen intervention are the same story. A wounded dollar handed Tokyo the chance to act, and it took it.
The rest of the majors continued to reflect that same dollar weakness. The EUR rose another 0.59% to 1.1528, a second consecutive day of gains following the Fed, while the GBP jumped 0.75% to 1.3465 despite the Bank of England holding rates as expected. The AUD was the standout, surging over 1% to reclaim 0.7024 and wipe out all of its CPI-driven losses from earlier in the week. The important point here is that the post-FOMC dollar decline has now extended into a second day, which tells me the damage done to the dollar on Wednesday is proving persistent rather than a one-day reaction. The market has genuinely repriced its view of the Fed.
Indices
The day after the worst session since April 2025, the market staged a violent rebound. The Dow rose 1.19% to around 52,207, the S&P 500 gained 1.66% to 7,437, and the Nasdaq surged 2.78%. The engine behind it all was Microsoft, which jumped 16% and added roughly $450 billion in market value, the largest single-day dollar gain by any company in history. That one result was enough to drag the whole complex higher, with the semiconductor names rallying alongside it for once, as the spill over trade finally worked in reverse.
For me, this is the spender-versus-supplier thesis in its clearest form yet. On Wednesday, Meta was crushed for spending heavily without being able to show a clear return. On Thursday, Microsoft posted the single biggest one-day value gain in market history for spending just as heavily but being able to prove the return through its cloud business. Same AI arms race, opposite outcomes, just 24 hours apart. The market could not be sending a clearer message about what it wants to see. After the close, Apple and Amazon both reported, and both initially dipped in after-hours trading despite beating expectations. By this morning, however, the picture has clarified, with Amazon rallying strongly, up over 11% in the premarket on the back of 37% growth at AWS, while Apple remains a little soft, giving back some of the premium it had built up after reclaiming its $5 trillion valuation. So once again it is the cloud strength being rewarded, while Apple's move looks more like a case of being priced for perfection than any real problem. It is worth remembering, though, that even with this rebound, the Nasdaq is still down around 4.2% for July, so the tech wipeout earlier in the month continues to define it.
Precious Metals
The metals are the ones I am watching most closely this morning, because they ran up towards their key level before being turned away. Gold pushed as high as around $4,120 on Thursday on the back of the Fed-credibility trade, which still leaves it roughly $80 short of the $4,200 break I have set as my confirmation level. It got close, but it was rejected well before reaching it, and this morning it has pulled back to around $4,040 as the dollar steadied a little and the risk-on rebound in equities drained some of the safe-haven bid. Silver told a similar story, pushing up towards the $59 mark before failing to make any real attempt at $60, and it now sits back around $57.30.
This is the whole point of the discipline I have stuck to all year, and it has just proven its worth. The metals rallied on the Fed-credibility trade, ran out of steam short of the levels that matter, and reversed. That is not a failure of the thesis, it is exactly why those levels are there. The catalyst is real and the metals are clearly responding to it, but gold still could not get near $4,200 and silver could not even test $60, which tells me the buying conviction is not yet strong enough to force a breakout. Until we see gold break and hold above $4,200, and silver reclaim and hold $60, this remains a range, and the rejection we saw yesterday is the clearest possible reminder of why chasing it early would have been a mistake. The setup is live, and for the first time this year the metals have a genuine catalyst working for them, but the trigger has not yet been pulled. We now simply need a catalyst strong enough to push them through, and until that arrives, the metals remain in a holding pattern.
Todays Market Drivers
Iran - After a day when the picture did not meaningfully change, today and this weekend will still be keenly watched, as escalations or ceasefires will continue to move markets.
FOMC & Yen Intervention Fallout - A key story will be how markets respond to the intervention and how they continue to digest the FOMC meeting as a whole.
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