Category: Currencies

  • Dollar Drifts Higher as Geopolitical Tensions Simmer – Tuesday, 26 May

    Where we are: The DXY is currently trading at 99.05, up +0.07% on the session, having ranged from 98.95 to 99.11 so far today. The index is holding above Friday’s close, consolidating last week’s gains driven by hawkish Fed repricing. Resistance looms around the 99.20 level, while support rests near 98.80.

    What’s driving it: The primary driver remains the market’s assessment of the Fed’s policy path in the face of persistent inflation risks. While the Fed remains on a “patient hold,” the market is pricing in a greater probability of a rate hike before year-end as core CPI has been sticky and payrolls remain firm. This hawkish repricing is pushing up US real yields, with the 10Y TIPS yield rising to 2.18% last week, creating a headwind for gold and supporting the Dollar. Renewed geopolitical uncertainty surrounding Iran and peace talks is further contributing to risk aversion, providing a safe-haven bid for the Greenback.

    • The US 10Y yield is currently trading at 4.486, down 2bp, while the 2Y sits at 4.059, down less than 1bp, keeping the 2s10s curve deeply inverted at 0.43%.
    • Net non-commercial positioning in the Dollar is modestly short at -479 contracts, but this has decreased -3,666 w/w and is only at the 73rd percentile. A squeeze risk may be emerging if geopolitical risks persist.
    • WTI crude at $112.25 continues to apply upward pressure on inflation expectations, complicating the Fed’s task.

    NY session focus: All eyes will be on the 10:00 ET release of the CB Consumer Confidence data; a print below the 91.9 forecast could weigh on the Dollar. Key levels to watch are 99.20 on the upside and 98.80 on the downside. The trade that’s working remains fading risk rallies, but a surprise dovish shift from the Fed or significant progress in Iran peace talks could quickly unwind this. The pain trade would be a surge in risk appetite alongside a weaker-than-expected inflation print, forcing a rapid reversal of hawkish Fed bets.

  • Euro Under Pressure as ECB Easing Bias Persists – Tuesday, 26 May

    Where we are: EUR/USD is currently trading at 1.1634, down -0.05% on the day. The pair has remained within a tight 1.1624-1.1645 range in European morning trading, struggling to shake off the six-week low reached last week. This level is below yesterday’s NY close, suggesting continued bearish pressure.

    What’s driving it: The mild easing bias maintained by the ECB is weighing on the Euro. The market is keenly aware that softening wage trackers and services HICP near 3% provide the doves on the Governing Council with a solid base case for a follow-up rate cut in June. Lane’s interview this morning did little to dispel this perception, while Schnabel’s call for a June hike feels increasingly isolated, despite the rising prospect of at least two quarter-point increases priced in by year-end. A stronger dollar, as reflected in the DXY at 99.05, and the widening US-DE 10-year yield spread of +151bp are adding to the downward pressure on EUR/USD.

    • ECB’s Lane interview reiterated the mild easing bias.
    • The US-DE 10-year yield spread is widening, favoring USD.
    • CFTC data shows net non-commercial Euro positioning remains modestly long (+33,513 contracts), at only 12th percentile over the past year, suggesting potential for further downside if the ECB doves solidify their case.

    NY session focus: All eyes will be on the 10:00 ET release of the US CB Consumer Confidence data. A weaker-than-expected print (forecast: 91.9) could offer EUR/USD a temporary reprieve, but the broader trend remains bearish. Key levels to watch include 1.1620 as immediate support, and 1.1650 as resistance. The working trade is short EUR/USD on rallies, while the biggest risk is a surprise hawkish shift in ECB rhetoric or a sharp reversal in US yields. The pain trade here is a sudden and sustained rally above 1.1700, forcing short covering.

  • Pound Slips as BoE Rate Cut Bets Remain in Play – Tuesday, 26 May

    Where we are: GBP/USD currently trades at 1.3468, down 0.26% on the day. Cable has traded in a tight range of 1.3465-1.3505 so far, retreating after a brief push higher in early European trade. This level is below yesterday’s New York close, indicating some mild selling pressure building as we head into the US session.

    What’s driving it: Sterling is softer following recent UK macro prints, with downside surprises to inflation alongside a modest rise in the unemployment rate. Specifically, April’s CPI and Core CPI releases showed significant deceleration (2.8% and 2.5% YoY respectively), further fueling expectations that the Bank of England might be closer to considering rate cuts, despite the MPC voting 8-1 to hold rates at their last meeting with Dhingra dissenting for a cut. The dollar is broadly firmer, with DXY at 99.05, further weighing on GBP/USD, but the core dynamic remains the recalibration of BoE expectations in light of the cooling domestic data. Gilt yields are little changed, with the UK 2Y at 4.283% and the 10Y at 4.850%.

    • The 0.7 percentage point drop in Core CPI suggests disinflationary pressures are building faster than the BoE’s forecasts.
    • CFTC data shows net non-commercial GBP positioning at -64,307 contracts, near the 15th percentile, which increases the risk of a short squeeze on any positive Sterling catalyst.
    • The US-UK 10-year yield spread is at -36bp, providing a modest headwind to Cable, though it is the domestic narrative around the BoE that truly sets the tone.

    NY session focus: All eyes will be on the 10:00 ET release of US CB Consumer Confidence, but the impact on Cable will be secondary to the overarching risk tone and its influence on the DXY. Watch for a break below 1.3465 to open up a test of 1.3430 support. On the upside, a push above 1.3505 could trigger a short squeeze towards 1.3535. The trade that’s working is short GBP/USD on dips, fading any rallies into the 1.35 handle. The pain trade for Cable is a surprise hawkish shift in BoE rhetoric that catches the crowded short positioning off guard.

  • Yen Weakness Resumes, Approaching Intervention Levels – Tuesday, 26 May

    Where we are: USD/JPY is currently trading at 159.21, up 0.26 or 0.16% on the day, near the upper end of its 158.90-159.24 intraday range. This move extends the recent bout of Yen weakness. The pair is testing levels not seen since intervention became a major concern; recall prior MoF red lines in this area.

    What’s driving it: The primary driver remains the divergence between the Bank of Japan’s slow normalisation bias and the comparatively hawkish stance of the Federal Reserve, reinforced by a firming DXY at 99.05. Domestically, wage data from the spring Shunto consolidated the case for another BoJ rate hike this year, but the market clearly believes this is insufficient to counteract the powerful pull of US yields, as the US-JP 10Y yield spread is a massive +176bp. Governor Ueda speaks today; any hawkish signals on the timing or magnitude of further tightening could provide some support for the Yen, though the bar is extremely high after the last meeting.

    • Ueda recently flagged a willingness to hike further if the outlook tracks projections.
    • The US-JP 10Y yield spread remains extremely wide, reflecting differing monetary policy trajectories.
    • CFTC data shows crowded short JPY positioning, with net non-commercial positions at -93,905 contracts (4th percentile), raising squeeze risk on any positive surprise.

    NY session focus: Keep an eye on US CB Consumer Confidence at 10:00 ET, though the primary focus will be whether USD/JPY breaks convincingly above 159.25, opening the door to further upside towards the prior intervention zone. Any significant dollar pullback could spark a sharp short squeeze in JPY, given the crowded positioning. Traders are watching risk sentiment closely as S&P 500 futures trade slightly lower and European cash markets are mostly in the red. The pain trade here is a hawkish surprise from Ueda combined with a soft US CPI print later in the week, triggering a violent JPY squeeze.

  • Loonie Choppy, Remains Rangebound Amid Mixed Signals – Tuesday, 26 May

    Where we are: USD/CAD is currently trading at 1.3819, up 0.11% on the day, clinging to the upper end of its intraday range of 1.3799-1.3821. The pair remains confined within a relatively tight band, failing to decisively break higher despite broader USD strength. This level is slightly firmer than yesterday’s NY close, but the move lacks conviction.

    What’s driving it: The Bank of Canada’s cautiously dovish stance continues to weigh on the Canadian dollar. While the overnight rate remains at 2.75%, Macklem’s recent comments highlighting tariff uncertainty and a softer growth path keep the easing bias alive. Offsetting this somewhat are firming oil prices, with WTI crude trading at $92.54, up 1.67% on the day, a factor which typically supports the Loonie, though that relationship is clearly diluted at present. Domestic yields are slightly softer, with the CA 10Y down 2bp to 3.462%, reinforcing the view that the market is not pricing in any imminent hawkish pivots from the BoC.

    • BoC Governor Macklem cited tariff uncertainty as a key factor influencing the central bank’s decision to hold rates steady at the last meeting.
    • WTI crude oil is up 1.67% today, but the CAD is failing to fully capitalize.
    • CFTC data shows modestly short CAD positioning, with net non-commercial positions at -31,231 contracts, which is at the 77th percentile, suggesting some squeeze risk.

    NY session focus: The main event for the NY session is the 10:00 ET release of the Conference Board Consumer Confidence Index. A weaker-than-expected print could weigh on the USD and provide some temporary relief for the Canadian dollar, potentially pushing USD/CAD back towards the 1.3800 level. However, a strong print would likely exacerbate USD strength and could trigger a test of the 1.3850 resistance. The trade that’s working right now is fading intraday USDCAD dips, but the risk lies in a potential oil-price correction which could trigger a sharp reversal. The pain trade would be a sustained break above 1.3850, forcing shorts to cover aggressively.

  • Aussie Braces for CPI; Squeeze Risk Intact – Tuesday, 26 May

    Snapshot: AUD/USD trades at 0.7167 (-0.09%) as traders await Australian CPI data due at 11:30 AEST. The RBA remains cautious, reluctant to commit to a cut path, making today’s inflation print a key catalyst. Positioning is crowded long, creating squeeze risk.

    • Aussie bulls will need to see CPI data print at or below expectations to avoid a potential washout of crowded longs.
    • Watch DXY performance; further gains could pressure AUD/USD, negating any positive domestic surprise.

    Bias into NY: Cautiously bearish; a hot CPI print at 11:30 AEST could send AUD/USD towards 0.7130, given the current crowded positioning.

  • Swiss Franc Under Pressure as SNB Easing Bias Persists – Tuesday, 26 May

    Snapshot: USD/CHF is trading at 0.7852, up 0.29% on the day, driven primarily by the SNB’s active easing posture. With headline CPI near zero and persistent CHF strength, the SNB’s readiness to intervene in FX markets remains a key factor. Today’s focus will be on the 10:00 ET US CB Consumer Confidence release.

    • Watch for a break above 0.7855, the day’s high, which could open the door to further gains.
    • A weaker-than-expected US Consumer Confidence print could temper USD strength and provide some support to the Swiss Franc.

    Bias into NY: We see continued USD/CHF upside as the SNB maintains its easing bias and negative rate optionality. Look for a potential test of 0.7900 if risk sentiment deteriorates and the DXY continues to firm.

  • Kiwi Tumbles as RBNZ Easing Cycle Remains in Focus – Tuesday, 26 May

    Snapshot: NZD/USD trades at 0.5841, down 0.52% on the day, weighed down by the prospect of further RBNZ easing. The RBNZ’s last cut was on April 9th, with Orr signaling further easing if disinflation embeds. Today’s catalyst is the RBNZ rate decision and monetary policy statement at 14:00 NZT.

    • Watch for a break below 0.5840 to open up further downside in NZD/USD as the RBNZ’s dovish stance contrasts with the mildly hawkish pricing in the market.
    • The medium-impact US CB Consumer Confidence release at 10:00 ET could offer a brief distraction but the focus remains squarely on the RBNZ.

    Bias into NY: Bearish on NZD/USD as the RBNZ’s easing bias is likely to be reinforced, potentially dragging the Kiwi lower; the slight risk-off tone in futures, with the S&P 500 fut at 7545.50 (-0.24%), reinforces the cautious mood.

  • NY Session Tactical Brief – Monday, 25 May

    Regime: Risk-on, supported by falling VIX (16.76) and slightly rising 10Y breakevens (2.4%) despite higher real yields (2.18%).

    Today’s market themes:

    • Oil supply disruption continues as India seeks alternative sources amidst Hormuz Strait tensions.
    • USD strength muted despite higher US real yields, signaling risk appetite.
    • Crowded positioning presents squeeze potential in GBP, JPY, Copper, and Nasdaq.

    The setup: Oil-sensitive assets are reacting to headlines regarding supply disruptions, while broader market risk sentiment remains positive, weighing on the USD. Crowded shorts in JPY and GBP against a backdrop of muted dollar strength create a setup for potential squeeze. Watch US 10Y yield reaction for risk confirmation.

    Watch list (native time per event):

    • 08:30 ET US Durable Goods Orders (forecast vs prior)
    • 10:00 ET US New Home Sales (forecast vs prior)
    • 11:00 ET US Dallas Fed Manufacturing Index (forecast vs prior)

    Bias by asset:

    • DXY:
      • Direction: Neutral
      • Domestic (US): Fed rhetoric on inflation / US data resilience / rising real yields
      • Cross: Global risk appetite / JPY and GBP strength potential
      • Levels: Support 118.80, Resistance 119.50
    • EUR/USD:
      • Direction: Neutral
      • Domestic (EU): ECB caution / Eurozone inflation watch / German yields
      • Cross: DXY weakness / US-DE 10Y narrowing / risk-on flow
      • Levels: Support 1.1620, Resistance 1.1670
    • GBP/USD (Cable):
      • Direction: Bullish
      • Domestic (UK): BoE on hold / softer inflation / Gilt yield stability
      • Cross: DXY weakness / US-UK 10Y narrowing / risk appetite
      • Levels: Support 1.2680, Resistance 1.2750
    • USD/JPY:
      • Direction: Bearish
      • Domestic (JP): BoJ inaction / wage pressure / intervention threat
      • Cross: US 10Y flattening / DXY weakness / risk-on stability
      • Levels: Support 156.50, Resistance 157.50
    • USD/CAD (Loonie):
      • Direction: Neutral
      • Domestic (CA): BoC on hold / CPI watch / WTI correlation
      • Cross: DXY strength / US-CA 10Y widening
      • Levels: Support 1.3780, Resistance 1.3850
    • AUD/USD (Aussie):
      • Direction: Neutral
      • Domestic (AU): RBA on hold / commodity prices / cautious tone
      • Cross: DXY weakness / US-AU 10Y narrowing / China watch
      • Levels: Support 0.7070, Resistance 0.7130
    • NZD/USD (Kiwi):
      • Direction: Neutral
      • Domestic (NZ): RBNZ easing priced in / Dairy prices / subdued tone
      • Cross: DXY weakness / US-NZ 10Y narrowing / risk appetite
      • Levels: Support 0.6400, Resistance 0.6450
    • USD/CHF (Swissy):
      • Direction: Neutral
      • Domestic (CH): SNB watching / CPI stable / neutral stance
      • Cross: DXY strength / safe-haven flows / risk sentiment
      • Levels: Support 0.7770, Resistance 0.7830
    • EUR/GBP, EUR/JPY, GBP/JPY:
      • Direction (per cross): EUR/GBP: Neutral; EUR/JPY: Bearish; GBP/JPY: Bullish
      • Domestic: Relative ECB-BoE, ECB-BoJ, BoE-BoJ policy and yields drive crosses.
      • Cross: DXY influence / overall risk sentiment / correlation dynamics
      • Levels: Monitor respective supports/resistances closely on cross charts
    • XAU (Gold):
      • Direction: Bullish
      • Domestic (asset-specific): Real yields stabilizing / Breakevens rising / Safe haven demand
      • Cross: DXY weakness / risk appetite
      • Levels: Support $4540, Resistance $4570
    • XAG (Silver):
      • Direction: Neutral
      • Domestic (asset-specific): Industrial demand / Gold-Silver ratio watch
      • Cross: DXY weakness / risk appetite
      • Levels: Support $TBD, Resistance $TBD
    • WTI / Brent:
      • Direction: Bullish
      • Domestic (asset-specific): EIA Inventory impact / OPEC / geopolitical premium
      • Cross: DXY strength / risk aversion from supply shock
      • Levels: Support WTI $110.50, Resistance WTI $113.50
    • Copper:
      • Direction: Neutral
      • Domestic (asset-specific): China stimulus / inventories low / supply concerns
      • Cross: Global growth proxy / DXY strength
      • Levels: Support TBD, Resistance TBD
    • SPX:
      • Direction: Neutral
      • Domestic (US): Earnings season / Fed watching / US yields stable
      • Cross: VIX regime / global backdrop
      • Levels: Futures support 5290, resistance 5320
    • NDX:
      • Direction: Neutral
      • Domestic (US): Mega-cap performance / real yields / AI momentum
      • Cross: Rates sensitivity / VIX stability
      • Levels: Support TBD, Resistance TBD
    • US30 (Dow):
      • Direction: Neutral
      • Domestic (US): Industrial earnings / cyclical sentiment
      • Cross: Bond yield reaction
      • Levels: Support TBD, Resistance TBD
    • UK100 (FTSE):
      • Direction: Neutral
      • Domestic (UK): Sterling influence / Gilt yields / commodity mix
      • Cross: Global risk / US tone
      • Levels: Support TBD, Resistance TBD
    • DAX:
      • Direction: Neutral
      • Domestic (DE): Bund yields / IFO watch / EU sentiment
      • Cross: US tech influence / DXY direction / risk tone
      • Levels: Support TBD, Resistance TBD
    • Nikkei:
      • Direction: Neutral
      • Domestic (JP): JPY level / JGB yields / BoJ anticipation
      • Cross: US tech / risk regime
      • Levels: Support TBD, Resistance TBD
    • BTC:
      • Direction: Neutral
      • Domestic (asset-specific): Funding rate / ETF flow / on-chain signals
      • Cross: DXY / risk regime / Nasdaq correlation
      • Levels: Support TBD, Resistance TBD

    Positioning watch: Crowded shorts exist in JPY (4th percentile) and GBP (15th percentile), while crowded longs are in AUD (98th percentile), Copper (96th percentile), and Bitcoin (90th percentile). A positive surprise in UK or Japanese data could trigger a short squeeze in their respective currencies, while disappointment in China data could hurt AUD and Copper.

    The pain trade: A sustained break above 157.50 in USD/JPY, fueled by hawkish Fed commentary, would squeeze crowded JPY shorts and trigger broader risk-off flows.

  • Dollar Weakens on Middle East Optimism, Rate Hike Bets Fade – Monday, 25 May

    Where we are: The Dollar Index is currently trading around 119.10, slightly below Friday’s close. The Greenback saw an overnight drift lower as risk sentiment improved, driven by perceived progress in Middle East peace talks. Key support lies around the 118.80 level, while resistance is at the recent high of 119.50. The move aligns with a mild risk-on tone across global markets this morning.

    What’s driving it: Dollar weakness is primarily a function of easing inflation concerns tied to a potential US-Iran agreement, as well as the pullback in oil prices. Last week, the Dollar climbed on speculation that the Fed might need to tighten further, with traders pricing in a rate hike by year-end. However, the positive headlines around the Strait of Hormuz have tempered those hawkish expectations, although President Trump said Washington would keep its blockade of the strait in place until a formal agreement is reached. Today’s price action suggests the market is taking a “wait and see” approach to this geopolitical news, while also scaling back some hawkish Fed bets.

    • US 2Y yield at 4.08%, up 4bp on the week, suggesting the curve is pricing a slower pace of easing than earlier in May.
    • Real rates continue to push higher; 10Y TIPS yield at 2.18% as of Friday, up 5bp on the day – a headwind for gold.
    • CFTC data (week of May 19th) shows speculators are modestly short the Dollar, at the 73rd percentile, reducing squeeze risk.

    NY session focus: With US markets closed today for a public holiday, expect liquidity to be thinner and price action potentially exaggerated on any fresh headlines. Watch for further developments regarding the US-Iran situation; any setbacks could quickly reverse the recent Dollar weakness. Key levels to monitor are 118.80 support and 119.50 resistance. The working trade seems to be fading Dollar strength, while the trade at risk is shorting the Dollar aggressively given the Fed’s still-hawkish stance. The pain trade would be a hawkish surprise on PCE inflation data later this week, reigniting rate hike bets and sending the Dollar sharply higher.

  • Euro Bounces on US-Iran Deal Optimism – Monday, 25 May

    Where we are: EUR/USD is currently trading around 1.1640, recovering from a six-week low seen overnight. The pair traded in a narrow 1.1615-1.1645 range in early European hours and is attempting to build on gains from Friday’s close near 1.1620. Resistance looms at last week’s high around 1.1670, while support rests at the 1.1600 level.

    What’s driving it: The Euro is catching a bid this morning, largely on the back of the risk-on mood fueled by optimism surrounding potential US-Iran talks. The ECB’s mild easing bias remains a factor, but is currently overshadowed by external developments. While the latest Eurozone HICP figures showed some softening, coming in at 2% YoY, the core reading remains sticky at 2.3%, potentially giving doves pause for thought at the June 5th meeting. Any re-acceleration in services inflation could halt the ECB’s easing cycle, even if only temporarily. This underpins a floor to the Euro downside for now, and it’s US-Iran headlines driving the short-term narrative.

    • The ECB cut rates by 25bp to 2.50% at its April meeting, but maintained a meeting-by-meeting approach to future policy decisions.
    • Money markets are still pricing in two ECB rate cuts before year-end, indicating a disconnect with the stickiness in core inflation.
    • Speculator positioning in the Euro is modestly long, but not at an extreme, with net non-commercial positions at +33,513 contracts, representing just 4.1% of open interest (12th percentile). Squeeze risk is not a major factor currently.

    NY session focus: Keep an eye on the headlines around potential US-Iran negotiations – any further positive news flow will likely support risk assets and keep the Euro bid. There are no major US data releases scheduled for today, putting the focus squarely on sentiment and geopolitical developments. A break above 1.1670 would open the way to 1.1700, while failure to hold 1.1620 could see a retest of the overnight lows. The trade that’s working is fading dips on Euro strength driven by risk-on sentiment. The trade at risk is chasing the Euro higher without a firm resolution to US-Iran talks. The pain trade for the Euro is a hawkish surprise from the ECB ahead of the June meeting.

  • Cable Rides Gilt Curve Steepening – Monday, 25 May

    Where we are: GBP/USD is trading around 1.2715, testing the upper end of its recent range. Overnight, Cable held a tight 1.2680-1.2720 range, and currently sits about 20 pips above Friday’s New York close. The 1.2750 level remains a key technical hurdle, with strong resistance expected there.

    What’s driving it: Sterling is finding support from a steepening gilt curve as markets continue to digest the latest UK inflation data. While the headline CPI figures showed welcome moderation, the persistence of services inflation and resilient wage growth are keeping the Bank of England in a hawkish holding pattern for now. This is manifesting as increased steepening in the gilt curve. Any further hawkish re-pricing in Gilts would push Cable higher; conversely, a dovish tilt would present downside risk. The rise in US 10Y Real Yields to 2.18% offers limited headwind to the Pound given the relatively higher yields available in the UK and the ongoing hawkish stance of the BOE.

    • BoE vote split 8-1 underscores the MPC’s reluctance to cut rates prematurely, a signal markets may be underpricing
    • The 2s10s gilt spread steepened by 6bp on Friday, reflecting expectations for delayed BoE easing.
    • Crowded GBP shorts (15th %ile) leave Cable vulnerable to a squeeze on any positive surprises.

    NY session focus: There are no major UK data releases scheduled today, so Cable will likely trade with a US-centric bias, particularly around risk sentiment and dollar flows. Watch for movement in US Treasury yields and the DXY for cues. Key levels to watch are 1.2680 as initial support and 1.2750 as resistance. The squeeze on GBP shorts remains a compelling trade, but a break below 1.2650 would invalidate the near term bullish thesis. The pain trade is a decisive break above 1.2750, triggering a wave of short covering.

  • USD/JPY Testing 157.00 as BoJ Walks Intervention Tightrope – Monday, 25 May

    Where we are: USD/JPY is currently trading around 157.00, having drifted lower overnight. The pair remains within a relatively tight range seen since the last bout of intervention, caught between dip-buyers and intervention fears. The intraday high sits near 157.25, while support is eyed around 156.50, near the prior NY session close.

    What’s driving it: The BoJ’s slow normalisation bias continues to weigh on the Yen, despite some hawkish rhetoric. The market is pricing only one further hike this year and remains skeptical of the BoJ’s resolve to tighten policy materially. This is amplified by the fact that the 160 level, where intervention occurred, remains within shouting distance, keeping the market on edge. Although Japanese inflation printed at a four-year low last month, wage data from the spring Shunto supports the case for another BoJ rate hike this year.

    • Ueda flagged a willingness to hike further if the outlook tracks projections, keeping the prospect of tighter policy alive, albeit at a glacial pace.
    • Crowded short JPY positioning (4th percentile) creates a squeeze risk on any hawkish BoJ surprise or intervention.
    • Rising US 10Y real yields, now at 2.18%, are a headwind for Gold and other risk assets that benefit from Yen carry trades.

    NY session focus: Look for volatility to pick up if we break 156.50 support, potentially opening the door to a test of the post-intervention lows. Keep an eye on US data releases. Should the data support a continued rise in US yields, USD/JPY could break higher despite intervention risks. The market will also be sensitive to any further rhetoric from BoJ officials on currency intervention. The trade that’s working is fading rallies toward 157.50. The trade at risk is continued JPY shorts, given positioning and intervention risk. The pain trade for USD/JPY would be a coordinated global move away from dollar strength.

  • Loonie Vulnerable as BoC Hawks Fade, Oil Fails – Monday, 25 May

    Where we are: USD/CAD is currently trading at 1.3815, consolidating recent gains after a choppy overnight session. The pair is holding above Friday’s NY close of 1.3807, but momentum is stalling as WTI struggles to sustain its earlier rally. Initial resistance lies around 1.3830, with support around 1.3780.

    What’s driving it: The Canadian Dollar is facing headwinds as the Bank of Canada’s easing bias, while data-contingent, remains in play. Macklem’s prior comments citing tariff uncertainty and a softer growth path are keeping rate cut expectations alive despite a slightly hotter CPI print of 7.1% YoY. While stronger monthly GDP (2.5%) offers some support, it’s failing to offset concerns about domestic demand softness and persistent inflationary pressures. The rise in US 10Y real yields is contributing to broader USD strength, weighing further on the Loonie.

    • BoC Governor Macklem explicitly cited tariff uncertainty and a softer growth path as reasons to maintain an easing bias.
    • Net non-commercial CAD positioning remains modestly short (-31,231 contracts) suggesting limited room for a squeeze even with a bullish surprise.
    • WTI crude, despite a 3% rally last week, has failed to break convincingly above $115, curbing the usual CAD tailwind.

    NY session focus: Keep an eye on risk sentiment as gauged by the VIX. A further drop below 16 could weigh on the USD and offer CAD some respite, though a broader risk-off move would likely exacerbate Loonie weakness. Look for any further clarification on the BoC’s thinking, even though the next meeting is not until June 4th. Any upside surprise to US data releases would likely pressure CAD further. The pain trade here is a hawkish BoC repricing on stronger-than-expected US data, forcing a short squeeze in CAD.

  • Aussie Strength Tempered by RBA Rate-Hold Reality – Monday, 25 May

    Snapshot: AUD/USD is holding near 0.7100 in early NY trading, underpinned by a mild risk-on sentiment but facing headwinds from the RBA’s reluctance to signal imminent rate cuts. Focus shifts to US data later this morning.

    • Watch 0.7120 resistance; a break could open the door to further gains.
    • A hawkish surprise from the US CPI could rapidly reverse Aussie’s fortunes.

    Bias into NY: Neutral. While improved risk appetite is providing some support, the RBA’s cautious stance and crowded long positioning (98th percentile) leave the Aussie vulnerable to a squeeze on any disappointing data or hawkish signals from the Fed.